What Realtor Fees Should I Expect For Their Services?
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. So, the buyer gets the benefit of the services of a REALTOR® essentially ...
Free of Charge
In Ontario, and probably much of Canada, many sellers, through their listing brokerage, offer 2.5% of the sale price, plus applicable Harmonized Sales Tax (HST), 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 this 2.5% 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 2.5% minimum to the cooperating brokerages.
In doing their best for their client, a buyer agent must show them every possible listing that meets their client's needs (at least until a suitable home is found), regardless of the commission rate offered. However, if there are plenty of homes available that meet these requirements, they 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 buyer agency agreement that guarantees the agent a minimum of 2.5% commission for their services. For example, if a cooperating brokerage commission rate offered on a listing is only 2%, then the buyer may end up owing their agent realtor fees equal to the difference of .5%, 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, home owners should expect less service. The old adage of ...
You Get What You Pay For
... is 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. So, with lower revenue in the form of realtor fees, 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 REALTOR® has the same amount of time to invest on behalf of their clients. So, more clients usually translates into less time for each client. It's the obvious conclusion. 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 as well. So, before listing with a discount brokerage, make sure you thoroughly ...
Understand What You're Signing
So, here's what a seller can expect for typical realtor fees in Ontario and elsewhere. In a seller's market, that is when demand exceeds supply, you can expect a typical commission to be 5% of the sale price plus applicable HST. The rate can be higher for recreational property, depending on the market value. On small cottages, for example, you might have to pay realtor fees as high as 10% of the sale price.
When the market evolves into a more balanced market, that is when supply and demand are more balanced, or into a buyer's market, when supply exceeds demand, a seller might consider offering a ...
Higher Commission Rate
... simply to attract the attention of more buyer agents.
It's important for you to offer your own REALTOR® sufficient incentive so they'll 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. 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 buyer agents, who are representing the interests of the buyers, why would you even consider paying a lower realtor fees to the person representing your interests?
Think About It
Depending upon market conditions, if a seller offers a higher commission rate, such as 6%, when you crunch the numbers using an average sale price, it's not exactly a huge difference. And the 3% commission offered to the buyer agents might just 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 REALTOR®, sometimes, the newer or smaller volume REALTOR® 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, and the agent agrees to reduce the total commission to 4% if the property sells within, say, 2 weeks. If unsold, the commission then rises to 4.5%, and to 5% if unsold after another 2 weeks. And to be fair, if after another 2 weeks, the commission rate should rise to 5.5%, and finally to 6% if unsold after another period of time. The REALTOR® will initially list the property at 6%, but also provides the seller with a signed letter, which the seller acknowledges understanding, stating the terms of the commission agreement. The ...
Seller Saves Money
... 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.
It's only fair since a REALTOR® 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. So, under this concept, the longer the listing remains unsold, the higher the commission rate - and, obviously, to a maximum rate.
Having said all this, REALTOR® fees are negotiable. But I encourage you to consider the consequences of grinding your favourite REALTOR® into submission, especially considering that the vast number of agents earn surprisingly little net income.
So, bottom line - 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.
If you've chosen your REALTOR® wisely, you'll get what you pay for, and pay reasonable REALTOR® fees.
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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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