How are real estate commissions calculated?

This guide is for real estate commissions charged by Realtors in Ontario

Updated January 21, 2016:
Typically real estate commission payable to your agent is is a percentage of the final sale amount for your home. The figures range from 1% to 5% in the Greater Toronto Area and surrounding market.
The rates charged by each real estate agent varies based on housing market condition, property type, property value and your agent’s business model.

real estate commission break down
How real estate agents calculate commission?

As mentioned above if you see an offer from your agent ranging from as low as 1% commission up to 5% (total commission) it is pretty much within the limits of what your neighbours might have paid when they sold their property.

Let’s look closer at the 1% offer that you might receive from a Realtor.
This One Percent Commission offer, if indeed offered, by your agent covers the fee for the listing agent who will be representing you in the sale of your home.
In addition to this 1% there may be another commission paid to buyer agent or what we call the co-operating agent who brings the buyer. So now we are looking at a 3.5% total. One percent for your agent and two and half percent for buyer agent. This offer qualifies for LOW COMMISSION REAL ESTATE.
So what happens if that buyer is represented by your agent or as we call it the listing agent? This question should be answered in the agreement you sign when listing your property for sale.
Some agent might go as far as offering you an additional discount in the event when he / she brings the buyer. This could be a extra one percent discount or sometime your agent might simply settle for 1% commission in total. And that will be all you will have to pay, a one percent of the total final sale price of your home but don’t bit on it that easily as it is a difficult bargain to get.

Now the 5% commission is a much more simple math. You offer a 5% commission to your agent and if both sides of the deal meaning the buyer and the seller are represented by two different agents then that 5% gets split into two where each agent takes a 2.5% commission.

Keep in mind that the commissions regardless of the amount is payable when the sale is final and when your lawyer receives the fund. In other words the commission is paid after the deal closes.

Lest we forget about the FSBO or For Sale By Owner companies that offer some signage and website listing for a fee. When dealing with DIY companies, you pay them an upfront fee and they put a sign on your lawn and give you access to list your property on their website.
You get to do the rest of the work which includes arranging showings, answering calls, talking to potential buyers, speaking to so many agents who will be calling you to get your home listed and finally negotiating the deal and doing some legal paperwork or drafting agreement of purchase and sale.

If I were you, I would leave the job to a professional and try to negotiate a lower and fair commission rate and get my house sold without ending up in court…

Above guide is a general information and should not be taken as real estate or legal advise.

Fahim Safi
Real Estate Broker at CITYGATE Realty Inc.
Tel. 905-232-8006

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Real Estate Commission

Real Estate Commission paid to listing agent is negotiable. Fees may vary based on:
Area
Type of property
Price
Services Offered by broker/agent and other terms and conditions of real estate services.
Conventional rates are in the 5-6 percent. However, some agents offer lower fees in return for more volume and referrals.

On this site, I’ll try to explain in steps the type of services a real estate agent provides under contract with their clients. RECO real estate council of Ontario sets out rules and regulations when it comes to advertising real estate commissions charged to clients.

In order to explain commission concerns I’ve developed a listing of questions that home sellers may have in mind and provided answers to thos questions.

1. How commissions are calculated and determined? Real Estate commissions are paid as a percentage of the sale price.

2. What other fees do I have to pay to my agent? In most cases, real estate agents charge a commission based on the sale price and no other fees. You may come across some agents who charge marketing fees and ask for a retainer but it’s very rare.

3. How are commissions split between my agent and the agent representing the buyer? In this market the buyer agents are paid a 2.5% of the sale price. This fee is not fixed but widely accepted. So out of the total commission payble to your listing agent, 2.5 percent of that goes to the co-operating agent (the buyer agent who brings an offer on your p roperty). The remaining balance goes to your own agent (the listing agent).

4. Is the real estate commission negotiable? Similar to any other business transaction, real estate fees are negotiable between the seller and their agent. Some agent focus on offering low commission rates in return for more business, repeat clients and referals. Other agents don’t offer any discount on their fees but focus on certain clients. This could be a particular age groupe i.e. retirees, ethnic community, specific farming area, type of homes i.e. homes over a million dollar….etc.

5. What if I decide not to sell? Do I owe a commission to my agent? You will have to refer to the terms of agreement you made with your agent. In a typical case, you don’t pay any commission to your agent in case you decide not to sell or if the listing is expired.

6. Will paying more commission help sell my home? That’s a decision you will have to make. Under normal circumstances it’s the buyer who decides how much to pay for your home. Buyers and their agent come up with offer prices base on many factors and real estate commission payble to your agent is certainly NOT one of them.

In fact paying lower commission enables you to compete with other listings in the area given that you get all the services your agent provides to sell your home. MLS listing is one of the essential services you should ask for when listing your home. Realtors use the MLS system to trade in real estate.

Note: Real estate commission is not set by company. i.e. Remax Commission or Royal Lepage commission or any other realty brokerage commissions are not fixed. All commissions are negotiable.

Agent / Broker Services

real estate commission
What are the basic services typically expected of my real estate agent?

1. Valuation of your home based on comparables.
Comparables:
Current listings in your area
How they compare with your home
Sold listings
Number of days in market
Expired listings
Current market condition
Other factors that might effect the listing price
Final decision is always yours!!!

2. Any preparation you might have to do to make your home ready for showing. You realtor may assist you with a list of things need to be done. (staging)

3. Picturs and other ad material.

4. MLS listing and marketing material.

5. For Sale lawn sign.

6. Answer calls, reply to inquiries and arrange showings.

7. Monitor market activity and make adjustments as needed.

8. Negotiate offers.

9. Arrange for home inspection.

Any related services that can help sell your home….