Real estate as a business and professional practice
This domain tests how a brokerage is structured, how a registrant is paid and regulated, and what back-office discipline keeps a practice compliant. Expect questions on registration categories, commission math, trust money, insurance, records and the practical economics of running a desk.
Registration and business structure
RECO registers individuals as broker, salesperson or broker of record, and registers brokerages as corporations. Practising alone still requires a brokerage: every salesperson and broker trades on behalf of a registered brokerage and cannot trade independently. A personal real estate corporation (PREC) lets a registrant incorporate to receive commission, but the registration is held by the individual, who remains personally accountable to RECO. Most salespeople work as independent contractors, funding their own marketing, board dues, insurance and continuing education.
Money and records
Deposits and other trust money go into the brokerage's trust account, never the general or operating account, and the account is reconciled monthly. Trade records, correspondence and financial records must be kept for six years and produced on a RECO request. Errors and omissions insurance is mandatory; practising without coverage exposes both the claim and the registration.
The economics of a deal
Commission is negotiated, never fixed or standardized. A common structure is a total percentage split between the listing and cooperating brokerage, less desk fees and HST on commission.
Worked example
A home sells for $800,000 at 4% total, split equally. Gross commission is $32,000; each side earns $16,000. With 13% HST the listing side collects $18,080. A 10% desk fee plus HST is $1,808, leaving $16,272 before other expenses and income tax. On a $600,000 sale at the same rate the same desk nets $12,204 - which is why average price, volume and cost per lead matter more than any single transaction.
Traps
- Assuming commission rates are standardized; discussing rates with competitors can breach the Competition Act.
- Letting a deposit sit in operating funds, even briefly.
- Believing a PREC shields the individual from discipline or from personal liability for misconduct.
- Forgetting that HST applies to commission, referral fees and many service charges.