The good news for buyers is that normally, there are no realtor fees since it's usually the sellers who pay the commission in the sale of real property. The listing (seller) brokerage collects all the commission (plus applicable taxes) paid to them by the seller's lawyer or closing service on completion of the sale. In turn, they 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 an agent essentially ...
In Ontario and probably much of Canada, many sellers offer a locally competitive percentage through their listing brokerage to the cooperating brokerage. (Though unpopular to many buyer agents, some brokerages deduct a 'marketing fee' from this percentage.) Listing agents typically advise their sellers to offer such a percentage realtor fee to be ...
... with other comparable listings. To attract buyers, not only must your list price be reasonable, 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 may meet 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 the buyer's wants and needs, 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 for the difference, unless of course, the buyer's 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 generate less revenue per listing sold, but do this in the hope of increasing the volume of listings for their brokerage.
Also, specialty brokerages have sprung up who advertise their willingness 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 industry.
personally believe that unless a traditional 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 rising costs, how can they
survive without large volume? Further, with a huge volume, how can a
discount brokerage offer a full high-quality service to every one of their seller
clients? Nevertheless, such companies are more likely to succeed during a strong seller's market when it's somewhat easier to sell a property.
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 agent sufficient incentive to invest a reasonable amount of time and effort into marketing your property. In other words, if you demand a discounted fee, you should expect discounted 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 interests of 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 buyer agent commission might attract the right buyer who might pay you a great price, possibly making up for the slightly larger commission.
I suggest, however, that you avoid getting 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 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, they should be entitled to a non-discounted Realtor fee. Plus the added incentive for buyer agents may attract a sale that might not have happened otherwise.
It's only fair since an agent works completely on spec. There's a lot of risk involved, thus should be appropriately compensated. 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.
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 agent wisely, you'll get what you pay for and pay reasonable and justifiable REALTOR® fees.
One last comment: If you're contemplating making an attempt to sell privately, that is without the services and protection of a professional real estate brokerage (for which the only incentive is to save a commission), to learn more about the process, I invite you to further explore this site. Or to significantly improve the odds of a successful sale, check out The Happy Agent.
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.
Whether buying or selling - with or without professional help - check out my book The Happy Agent. It contains the sum total of the real estate knowledge, philosophies and techniques that I've accumulated, practiced and polished during a highly successful 40-year realty career.
Learn how to effectively
evaluate a home before offering, or how to evaluate your own place and prepare it for market to maximize the ultimate
sale price. There are also lots of ideas on how to
market and advertise effectively, how to handle showings and open houses
like a pro, how to
successfully negotiate an offer, whether buyer or seller, and more. You'll also learn how to recognize the signs of when it's
time to throw in the
towel and hire a professional, regardless of the realtor fees involved, and what to expect from them.
When you consider that you're dealing with arguably your largest financial asset, and if selling, the huge
possible savings in
real estate commission with a private sale attempt, a small
investment of your time and a pittance of your
money could save you thousands of dollars and a ton of heartache. At the very least, you'll be
encouraged to try it alone, at least for awhile. Remember - knowledge is power.
Available virtually everywhere print and e-books are sold.
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.
A must-read for anyone contemplating a realty career and the perfect antidote for agents seeking a more productive, less stressful direction for their own realty business.
It’s also designed as an insightful resource for home buyers and sellers curious about the ins and outs of buying and selling real estate.
"An inspiring and candid tale of one man's journey to success as a real estate agent and achieving inner freedom. This book is sure to ignite the passion and holds the key to unlocking the power that lies within us all." Gina Ceci, Real Estate Lawyer