Today’s Real Estate Education topic is a big one – commission.
When a house is sold, the seller is the one who pays the commission for both their agent and the buyer’s agent. That’s right, the buyer doesn’t have to pay any commission.
What is a common or average commission that is paid? In Ontario, the seller usually pays 5% commission of the final sale price of the property. In this standard, the 5% commission is split evenly so that 2.5% goes to the listing agent and 2.5% goes to the buyer’s agent. In addition, HST is added to the commission.
You might still see a range of commissions floating around because just like purchasing any type of service, sellers can choose the service they’d like to receive.
There is a lot of marketing out there that says “sell your home for 1%” or, “don’t fall victim to commissionary”. What are these ads actually saying?
There are independent or discount brokerages that might charge below the listing commission standard in exchange for minimal services, and in this situation, it is usually the selling agent that would reduce their rate. This is when you see you things like 1%: the 1% refers to the selling agent’s commission, not the total.
Some discounted realtors would suggest lowering the buyer agent’s commission below the standard to “save” the seller some money. I would suggest not doing this, as you may deter some realtors from showing your home.
Then there are the brokerages that claim that you will not pay commissions. Again, what they are referring to is the listing agents’ commission. The fine print says you will still pay the buyer’s agent the standard commission, otherwise, why would buying agents show your home?
Also, you may save on commission, but that does not mean they will list your home for free. Instead, they offer you a rate, and an a la carte system that you pick and choose what services you wish to have. Please note, that these fees are paid upfront, which the seller is taking on the risk. In a traditional setting based on commission, the realtor is the one who typically takes on this risk. Realtors only get paid when the house is sold and the seller receives the proceeds from the sale.
Then there are others that provide ad-hoc services to clients who offer above-average commissions, and those who receive standard commissions that still charge an additional fee for ad-hoc services.
For example, some realtors offer full-service selling, but at 6-7% commissions. Whereas others charge standard commissions, but charge an additional fee for ad-hoc services.