Real Estate Commissions: What You Need to Know

When it comes to real estate commissions are often misunderstood and can be a contentious topic. It’s important to know your options, what value each option brings, and determine what works best for you.

Real estate commissions are how agents are compensated for their time and efforts. In Ontario, real estate commissions are not standardized, so there is no one set commission rate (it is also illegal to fix commissions). In addition, it is actually the decision of each brokerage or REALTOR® to set their commissions. It should also be noted that if your house doesn’t sell, or you don’t end up buying, your agent does not receive any compensation for all of their work and time.

Choices

You may not know that there are different commissions available to you when you are looking for a real estate agent. You have more options than just what agent to hire.

Commission Structure

For the most part, sellers in Ontario are covering both the commission of their listing agent as well as the commission of the cooperating buying agent who brings forward the offer (cooperating commission). Real estate commission in Ontario is usually broken down into three categories, managed by the Real Estate Council of Ontario (RECO):

1. Sale percentage (example of 5%+HST*).
2. Flat fee.
3. A combination of 1. and 2. (example 4.5%+HST plus $10,000)

*Ontario does not permit sliding scale percentages ie. 2.5% for $700,000 and 3% for anything above.

For the commission sale percentage example above of 5%+HST, this would mean 2.5%+HST to the listing agent and 2.5%+HST to the buyers’ agent. The commission details will be agreed upon before going to market and detailed in the seller’s listing agreement. The funds are transferred from the sellers to both the listing and buying brokerages after closing. There are some situations where the buyer may be responsible for commission. In the case of homes sold by owners (FSBO), the commission for the buyer agent is often not fully paid. The seller is trying to avoid paying commission by selling on their own. The buyer agent will attempt to negotiate with the homeowner to cover their commission. If they are not able to do so, then the agent’s commission would be the buyer’s responsibility. In this case the buyer may attempt to purchase the property at a proportionally lower price. This scenario is uncommon and many homes that are for sale by owner sit stale on the market before being relisted with an agent.

Discounted Commissions

As with other service industries, the cheapest rarely equals the best. You may be enticed to go with the agent who offers you the lowest commission, but it’s more than likely that they’ll also offer you fewer services and less comprehensive representation. Since trading real estate is also likely one of the biggest financial decisions you’ll ever make, carefully consider the impact. Is it more important to save on commission or net the highest price on your sale? What is the value to a more organized, better supported and less stressful experience?

Thinking about buying or selling? We’re here to help. Let’s chat 🙂 For more information on real estate, investments, and home values, check out this blog.

Photo by Romain Dancre on Unsplash