One question that REALTORS® get asked frequently is, “How do your real estate commissions work?” It seems to be this mystery out there for buyers and sellers, and sometimes they’re too nervous to ask.
We believe in 100% transparency in how The Kate Broddick Team’s commissions are structured, who pays what, how much, and why.
You should never be wondering where your money is going, and to whom. That’s why we’ve compiled this easy to understand explanation for all our clients.
What does a REALTOR® pay for?
Before we start talking about commissions, it’s important to understand what your real estate agent will be paying for up front, before they’ve received any money for a home sale. Of course, every agent offers different things to their clients, but some things that you see routinely in our industry:
- unlimited marketing photos and video tours of your home’s listing, done by professional photographers & videographers
- 3D virtual tours of the property, creating floorplans sometimes called “Matterport”
- professional home cleaning of the property before it’s listed
- staging, landscape maintenance, minor repairs of the home (*may be reimbursed to the agent after the sale)
- social media ads, newspaper ads, billboards, website creation, and other advertising expenses
- spending hours reverse prospecting, matching buyers up with homes that potentially meet their needs
- research and comparative market analysis of similar properties listed for sale
- hours and hours driving to and from showings for buyers that may be of interest
All of these things are paid without guarantee that a deal will come together – the agent takes on the risk. And if the house doesn’t sell? The REALTOR® doesn’t get paid.
So how does my REALTOR® get paid?
Real estate agents are paid by commission. This is typically a percentage of the sale price of the home, and it isn’t paid until the sale officially closes and money has been transferred from the buyer to the seller of the house.
This is to the benefit of their clients. Agents that work hard for their buyers and sellers make more than those that just put in minimal effort.
More often than not, it’s the Seller that pays the real estate commission, which is split between their own REALTOR®, as well as the Buyer’s REALTOR®.
Again, if the house doesn’t sell, no commission is paid to anyone.
Who do I pay the commission to?
Real estate commissions are NEVER paid directly to the REALTOR®. Be wary of any agent that suggests otherwise.
Instead, commissions are paid to the real estate brokerage that listed the home. The funds are taken out of the proceeds from the sale of the home and your lawyer handles transferring this money on your behalf. Once received, the listing brokerage will pay both real estate agents that worked on the sale (buying and listing sides).
How much is a standard real estate commission?
Unfortunately, there’s no “standard” to this. Each real estate agent can set their own commissions as they see fit. You may be able to negotiate this with them, or search for another agent that is more in line with your budget — but remember, you get what you pay for!
In our province, you may come across three different types of real estate commission:
-
A percentage of the sale price of the home (EG. 4% or 5%)
-
A fixed or flat fee (EG. $20,000)
- A combination of a percentage and a flat fee (EG. 4% plus $5000)
Whatever type of commission you and your REALTOR® agree to, it will need to be outlined clearly in the paperwork you sign when you list your home.
Make sure you understand the structure of your REALTOR’s® commission before signing anything!
Does HST apply to my agent’s commission?
Yes. Just like any other professional services, you must pay HST on your real estate agent’s commission.
If the seller pays the Buying Agent’s commission, how much is it?
We call this the “Cooperating Commission”. This is what is paid out to the buyer’s agent that “cooperated” in getting your home sold! You can decide how much to offer any agent that represents a buyer, but keep this in mind:
You want to entice agents to show your home to their buyers, right? So it makes sense to set the commission you’re offering them in line with what other sellers are offering. Offering less might mean they’re less motivated to show your home to their buyers.
For example, if the total commission is 4% on a house, that means the Listing Agent usually receives 2% of that, and the other 2% is given to the Buyer’s (Cooperating) Agent. Of course, this is just an example and may differ from one listing to another.
What if my agent represents both the seller AND the buyer?
It doesn’t happen often, but on occasion, the listing agent may also be the one to bring the buyer to the transaction. We call this “double-ending” a deal. The agent is representing both “ends” of the sale and all parties involved, and therefore is eligible to receive both halves of the total commission.
How does commission work on a lease?
As many of you know, REALTORS® can also help connect tenants and landlords with lease (rental) properties. In this case, the commission isn’t necessarily percentage based.
With a lease, it is often set up that a landlord agrees to pay out one full month’s worth of rent in commissions: half goes to the landlord’s agent, while the other half goes to the tenant’s agent. Again, this is just a generalization, and every lease can be structured differently.
Is the commission reduced if my home sells quickly?
The amount of commission you pay is not affected by the speed in which your home sells. So if your house takes 5 hours, 5 days or 5 months to sell, the commission remains the same as what you agreed to in your original paperwork.
Think of it this way. If your home sells quickly and you receive an acceptable price for it, it wouldn’t make sense to penalize your agent for doing a great job. Similarly, it wouldn’t make sense for your agent to request more money if your home takes longer to sell. That’s why it’s so important to ensure you understand the amounts involved prior to listing your home.
In conclusion…
While it may seem like an awkward conversation to have with your real estate agent, it’s an important one. You wouldn’t hire a contractor to renovate your home without knowing what their fees will be when the job is complete. Likewise, you should get your agent’s commission fee sorted and in writing before listing your home so that everyone is in agreement with what will be paid upon closing.
Commissions are truly a “pay for results” way of compensating your agent. If your home never sells, you aren’t out any cash. The incentive for your REALTOR® to do an incredible job is a great motivator! As always, we are happy to discuss our commission structure and all that it includes. Don’t be shy! Just ask!
