There was a time long ago when REALTOR commission rates were determined by the local real estate board or association, at least for listings uploaded to the industry's MLS System® database in Canada and the USA. Exclusive listing commission rates have always been negotiable. However, that broad control by real estate boards changed quite a few years ago after government effectively meddled in the industry.
Nowadays, independent real estate brokerages set their own REALTOR commission rates charged to their seller clients.
Having said this, many brokerages permit their sales people to choose their own real estate agent fees, at least the listing portion. To make their listing inventory attractive to cooperating brokerages representing buyers, however, many companies have a policy requiring their own agents to offer buyer agents a competitive real estate commission. It's sometimes but not always half of the total contractually agreed commission rate on the listing. Nowadays, listing fees are determined during the initial client consultation by agreement between the seller and their agent in compliance with the brokerage's policy.
With respect to Buyer Representation Agreements (BRA), once again, specialized real estate brokerages may have a company policy to deal with realtor commission rates. But typically, so as to be able to provide free service to a buyer clients, the BRA compensation will often reflect the rate anticipated to be offered to cooperating brokerages by most sellers in the target area.
But be forewarned!
It's possible that the commission rate payable to cooperating brokerages for their services on some if not all of the listings to be viewed by a buyer may be less than that agreed in the BRA. In such a case, the buyer client could be liable to pay any deficiency to their buyer brokerage.
When real estate market conditions inevitably begin to morph from a strong seller's market into a more balanced one, maybe eventually switching into a market that favours buyers, we'll begin to see higher REALTOR
commission rates being offered occasionally to buyer agents, just to
attract their attention. At some point, when listing inventory begins to rise and/or buyer demand begins to drop, this will definitely occur. Like all open markets, the real estate market is cyclical and subject to the Universal Law of Supply and Demand.
may have different real estate commission policies. Thus, a discriminating homeowner
certainly has a variety of options from which to choose. But choose wisely after becoming fully informed.
The old adage 'you get what you pay for' often holds true when choosing a brokerage. A full service REALTOR® will usually provide full service in return. And a discount or flat fee brokerage will usually provide minimal service, possibly from a menu of services available with various fees. Sometimes, though, all a homeowner receives with an extremely low fee, be it a percentage or flat amount, is an advertising service.
Of course, there's nothing wrong with such a choice, provided the homeowner understands what they're getting for their money. But be fully aware of the differences between the extensive service advantages offered by full service companies and those advertised by minimal real estate service brokerages and marketing companies.
When deciding about realtor fees, here's something else to think about:
In a hot seller's market, provided a seller offers a competitive commission rate to cooperating brokerages, if the listing agent normally does a reasonable volume of business, they can offer listing incentives and/or a lower 'listing commission rate'. Why? Because the listing will likely sell quite quickly, and without involving a lot of time or marketing expense. Nevertheless, the agent must still be compensated for their time, expertise, effort and risk. In other words, like any business, they must still generate a profit. Otherwise, why be in the business?
We're all human, though. There must be a reasonable incentive to even accept the listing. And the greater the incentive you offer your listing agent, the greater chance your property will sell, not only because of the potential higher financial reward, but because they'll likely invest more of their own resources into the marketing of your property.
Realtor commission may be negotiable
But remember; if the agent feels that the realtor commission compensation you're offering to pay is insufficient relative to the risk involved in accepting the agency, the agent may decline to list your property. (This is probably unlikely; what the agent will do is accept it, but keep their time and expense to a minimum, while hoping another agent will sell it for them, and as soon as possible.) Agents work on spec, that is if (and it's often a big if) the property sells, they'll be rewarded for their efforts - and risk. They're also hoping to be compensated at least for their out of pocket expenses.
In many areas, the vast majority of agents sell fewer than five or six properties annually, hence the industry's extremely high attrition rate. As a matter of fact, according to statistics, 4 out of 5 Realtors fail within their first five years in the business. Another trend these days is that fewer and fewer agents are generating more and more of the real estate sales. In Toronto, recent statistics conclude that about half of all agents do zero or one transaction annually! Therefore, unless your Realtor is a medium to top producer, they may ill afford to discount their Realtor commission. If they agree to do so, I suggest that they'll not be your agent for life.
One final note; if you're contemplating selling privately, the sole motivation of which is to save a realtor commission, considering that commission rates are more and more often negotiable, and considering the many advantages of hiring a professional, you might want to seriously consider hiring a Realtor® to represent you. Nevertheless, if you are adamant at trying privately, at least for awhile, I invite you to further explore this website to learn more about the process. Or check out my book, The Happy Agent.
Click REALTOR commission to learn a little more on the subject of real estate agent fees. Click here to learn about finding a REALTOR®. And visit the Real Estate Council of Ontario (RECO) to learn more about REALTOR fees. There are similar organizations where you live.
If you have questions or wish to arrange a no-obligation consultation, contact me at your leisure.
Whether buying or selling - with or without professional help - check out Ross' book The Happy Agent. It contains the sum total of the real estate knowledge, philosophies and techniques that he accumulated, practiced and polished during a highly successful 40-year realty career.
Learn how to effectively
evaluate your home 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 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, 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 could save you thousands of dollars and a ton of stress. 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, including 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® should always be prepared to explain 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.