The good news for buyers is that normally, there are no realtor fees. It's usually the seller who pays the REALTOR® commission. The listing (seller) brokerage collects all the real estate agent fees (plus applicable taxes) paid to them by the seller's lawyer on completion of the sale. They, in turn, pay the cooperating (buyer) brokerage their share of the realtor fees as advertised on the MLS® system listing. Therefore, the buyer receives the benefit of the services of a REALTOR® essentially ...
In Ontario and probably much of Canada, many sellers offer a locally popular percentage through their listing brokerage to the cooperating brokerage. (Though unpopular to many buyer agents, some brokerages deduct a 'marketing fee' from this percentage.) To be competitive with other listings, they advise their sellers to offer such a percentage realtor fee to be ...
... with other listings. To attract buyers, not only must your list price be reasonable and competitive, but the realtor fees your listing brokerage offers to the buyer agents must also be attractive. For good reason, some brokerages, as a matter of company policy, insist that their sales people offer a standard minimum commission rate to cooperating brokerages.
In doing their best for their client, a buyer agent must show them every possible listing that meets their client's needs until a suitable home is found or the Buyer Representation Agreement (BRA) expires, regardless of the commission rate offered. However, if there are plenty of homes available that meet these requirements, the agent may neglect to include a listing in their show list that offers a lower commission. They may do this, at least in part, because their buyer client signed a BRA that guarantees the agent a certain minimum commission for their services. For example, if a cooperating brokerage commission rate offered on a listing is below the contractually agreed rate, the buyer may end up owing their agent realtor fees the difference unless the agent agrees to the lower percentage.
Traditionally, the realtor fees on a listing are divided equally between the listing and cooperating brokerages. However, some discount brokerages advertise a lower total commission rate. They still offer a competitive rate to the cooperating brokerages representing buyers, but accept a lower rate for themselves. They do this in the hope of increasing the volume of listings for their brokerage.
Also, recently, specialty brokerages have sprung up who agree to list property on the MLS® system for a small flat fee. Or they offer an 'a la carte' menu with various fees for specific services from which a seller may choose. You want advertising - this is what that level of service will cost. You want assistance in negotiating offers - the realtor fees increase. But along with lower realtor fees, homeowners should expect less service. The old adage of ...
... is usually applicable to the real estate industry, just like any other.
I personally believe that unless a discount brokerage is generating a huge volume of listings and sales, it can't be successful long term. Costs to operate a brokerage are rising every year. Thus, with lower revenue in the form of realtor fees combined with and rising costs, how can they survive without large volume? Further, with a huge volume, how can a discount brokerage offer full service to every one of their seller clients?
Every agent has the same amount of time to invest on behalf of their clients. Therefore, more clients usually translates into less time for each client. It's the only logical conclusion one could make. And in many cases, with discount brokerages, the deep discounts often only take effect if the listing (seller's) brokerage also represents the buyer in the transaction. It may be a viable option for you to list with a discount brokerage, but make sure you thoroughly ...
In a seller's market - when demand exceeds supply - a residential seller may expect to find a popular competitive commission rate for their locale. The rate can be a little higher for recreational property, depending on the market value range and anticipated duration of a listing term.
When the market evolves into more balanced conditions - when supply and demand are more in equilibrium - or into a buyer's market - when supply exceeds demand - to attract the attention of more buyer agents, a seller might consider offering a ...
As a homeowner and would-be seller, you have the choice whether to offer your own REALTOR® sufficient incentive to invest a reasonable amount of time and effort into marketing your property. In other words, if you demand a discount from your own REALTOR®, you can expect discount service. You can't realistically ask your agent to work for less and expect them to spend tons of money advertising it and loads of time promoting it. It simply wouldn't be fair, nor would it make good business sense for the agent to even accept the listing under those circumstances.
Also, if you accept the logic of offering a competitive REALTOR® commission to the agents representing the buyers, how could you even consider paying a lower realtor fee to the person representing your interests?
Depending on market conditions, if a seller offers a higher than average commission rate, when you crunch the numbers using an average sale price, it's not exactly a huge difference. And a higher commission rate offered to the buyer agents might attract the right buyer who might pay you a great price, possibly making up for the slightly larger commission. I suggest you not get hung up on commission rates when listing your property. It's quite intangible anyway since it's a percentage of nothing until a firm sale happens.
When a seller lists and buys through the same agent, sometimes, the newer or smaller volume agent may offer an incentive to list with them. A smaller listing commission might be calculated on a sliding scale.
For example, once the seller buys another property, they list their old home with the same agent who agrees to shave a percentage off the total commission if the property sells within, say, 2 weeks. If unsold, the commission then rises by half a point and by a full percentage if unsold after another 2 weeks. And to be fair, if after another 2 weeks, the commission rate should increase by a a half percentage over the original rate and finally by a full point if unsold after another period of time.
The REALTOR® will initially list the property at the highest potential rate (with the normal competitive rate being offered to the buyer agents), but also provides the seller with a signed letter, which the seller acknowledges understanding, stating the terms of the commission agreement. And if the listing commission eventually increases to the highest rate, to improve showing activity, an increase could be offered to the cooperating brokerages. The ...
... if the property sells quickly and is
also motivated to price it correctly from the beginning. But if it takes
awhile to sell, the agent's time and money invested in marketing
increase, hence should be entitled to a non-discounted commission. Plus the added incentive for buyer agents may attract a sale that might not have happened.
It's only fair since an agent works completely on spec. If the property fails to sell, the seller has no REALTOR® commission to pay and the agent is out of pocket for their time and expense. Under this concept, the longer the listing remains unsold, the higher the commission rate, but obviously to a maximum.
Having said all this, REALTOR® fees are negotiable. But I encourage you to consider the consequences of grinding your favourite agent into submission, especially considering that the vast number of agents earn surprisingly little net income.
As a seller, if you want to sell for the highest possible price in the shortest possible time, set a realistic asking price and offer a competitive commission rate to buyer agents.
If you've chosen your REALTOR® wisely, you'll get what you pay for and pay reasonable and justifiable REALTOR® fees.
Visit the Real Estate Council of Ontario (RECO) to learn a little more. To learn more about listing your property for sale and the selling process, click here. To learn more about the home buying process, click here.
The commission and the portion paid to the cooperating brokerage is decided by the seller in consultation with the REALTOR® representing the listing brokerage as part of the listing process. Similarly, the buyer and the REALTOR® representing the buyer brokerage would discuss and set the commission to be paid to that brokerage.
Commission discussions should take place prior to entering into a representation or customer service agreement. A REALTOR® is ready to explain to the consumer their pricing from the perspective of the value of the services to be provided. Commission rates may be set by an individual brokerage or agreed to by the brokerage and salesperson.
There is no standard or set rate of commission charged to sellers or buyers or payable to cooperating brokerages. The amounts and percentages are not fixed and are negotiable. Other arrangements might contravene the Competition Act.
The commission or fees charged by REALTORS® are not set by the Ontario Real Estate Association (OREA) or any real estate board or association or by RECO or any government authority. This is forbidden by competition law. Furthermore, REALTORS® are not permitted to indicate that fees are fixed or approved by any such body.
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written permission from the author. While every attempt has been made to
provide accurate and current information, due to the constantly changing nature
of our industry, I cannot guarantee the accuracy, completeness or timeliness of
any information provided. All information offered is not to be construed as legal or financial advice. Seek skilled guidance from an
appropriate professional since all editorial comments herein are merely my
personal opinion. I mean no offence to any particular person, group or
association and apologize if they happen to find
any of my comments offensive.
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