What Are The Average Commission Rates For Real Estate Agents?

Selling your home involves significant effort, time, and work, much of which involves knowing regulations. Real estate agents facilitate the sales process, ensuring the sale is conducted legally. Choosing the right professional is equal parts measuring commission rates for real estate agents and determining their skill level. 

Seller goals differ, ranging from quick transactions to high profits. Finding an agent whose real estate commission best fits into your financial landscape can help you reach your goals. 

Key Points 

What Are Real Estate Agent Commissions? 

Real estate agents are paid on a commission basis. In other words, agents earn a percentage of the sale price of the home. 

Real estate agents are trained and credentialed to sell your home, handling everything from advertisements to showings to negotiations. In exchange for all this legwork, agents collect real estate commissions. 

Average Real Estate Agent Commission Rates

Generally, commission rates in Canada vary between 3% and 6% of the home sale price. However, rates can fall beyond the range depending on the city and the real estate agent you work with. From that amount, the total commission is split between the buyer and seller agents. 

How To Calculate Your Real Estate Agent Commission

Real estate commission amounts depend greatly on the value of your property since they’re based on a percentage of the sale price. 

For example, a $300,000 sale would result in a real estate commission between $9,000 and $21,000 (3% to 7%), while a $600,000 house would result in $18,000 to $42,000 in real estate commissions. 

House Prices In Canada

Calculate how much commission you’ll pay based on the average house prices in Canada. 

Types Of Real Estate Commission Rates 

Real estate is a competitive arena, so the pricing models of agents may vary in approach and amount. It often depends on whether the real estate agent works with a larger company or is independent. Since the needs of home sellers vary so significantly, it’s important to identify the most compatible pricing model with your requirements. 

Fixed Percentage Real Estate Commission Rates

In most cases, real estate agents use a set percentage as payment for their services. This means the seller pays the agent a set percentage of the home sale value. 

The percentage rate remains the same regardless of the amount for which the home is sold. This incentivizes real estate agents to get the highest sale price, since it would lead to a higher payment. 

Fixed Fee Real Estate Commission Rates

This type of payment is when the real estate agent charges a set price for their services, with no consideration resulting from the sale value. More common on the extreme ends of the pricing spectrum, you can find this type of payment for homes selling at very low prices and those at the top end of the market range. The fixed fee keeps the cost reasonable, relative to the work that needs to go into the project of selling the property. 

Tiered Real Estate Commission Rates

This approach is usually used for the sale of upper-middle-class properties. The tiered calculation is used as a marketing tactic to incentivize sellers – and for good reason. 

With this approach, a higher percentage is paid on the first tier of sale value, and a smaller percentage on the remainder of the sale proceeds. For instance, an agreement may be to pay the agent 3% on proceeds up to $1 million, and 2% on the remainder. 

Percentage Fee And Flat Fee Combo

Depending on the state of the real estate market in your area, agents may choose to charge a blend of a fee for service and a percentage. This may be better suited in a buyer’s market, where it’s harder and takes longer to sell a house. It can account for the listing fees and extra marketing effort.

When negotiating a combination agreement, be sure to read the fine print carefully. Don’t be afraid to ask questions and negotiate whenever possible. Be sure you understand the agreement; what all the terms mean and how they will practically apply to your situation. 

Who Pays The Real Estate Commission In Canada? 

In most cases, sellers pay real estate commissions. This commission is then divided between the buyer and seller agents, as mentioned.

What Happens If The House Doesn’t Sell?

In some unfortunate cases, a house may not sell, despite the efforts of the real estate agent. In this case, no commissions are paid. Sellers are not obligated to pay their agents if the home is not sold. Only when a transaction is complete will the agents involved receive payment.

When agreeing to terms, check the duration of time the property can be listed to see when your contractual obligations as the seller end. 

Do You Have To Pay Taxes On Real Estate Commissions?

Taxes are payable on real estate commissions, though the specifics vary between provinces. 

For instance, in Quebec, the sales tax applying to the real estate commission combines the provincial and federal taxes for a total of 14.975%. In Ontario, the HST cost is applied to the real estate commissions, ringing in at a rate of 13%. Some jurisdictions combine federal and territorial, while others do not.  

What Is Double-Ending?

Double-ending happens when one real estate agent represents the seller and the buyer. Also referred to as dual agency, this situation often occurs when a seller agent is approached by a buyer interested in one of their listings. 

If you’re the seller, your agent will also represent the buyer involved in the transaction. As you might imagine, there are potentially advantageous and risky aspects involved in a double-ending scenario:

Double Ending Pros 

• Lower commission. Since the agent would need to do less legwork to complete the transaction, the agent may agree to charge a lower commission rate. This could save the seller a lot of money. 
• Easier process. When selling a home, the agent will typically liaise with the agent representing the buyer. By nature, this causes delays. Double-ending prevents this backlog since one agent communicates between two parties: buyer and seller. Double-ending is meant to improve efficiency.  
• More information. The buyer may be able to access more details on the property and the seller can get a better picture of how the other party wishes to proceed. However, keep in mind that some of the information that buyers may want may be the same information that the seller wishes to keep private. A listing agent has a fiduciary duty to keep certain information private, such as the seller’s motivation to move or if they’ve already bought another home. 

Double Ending Cons

• Ethical concerns. While there are regulations to ensure that agents maintain high standards of practice, it’s still possible for some to fail at this. For instance, the agent may not inform the client of other options, making it seem like the dual agency is the only option. The agent may also disclose sensitive information among parties, which could interfere with a fair transaction.
• Potential bias. When you consider that an agent is charged with acting in the best interests of a client, it opens the opportunity for interpretation. A conflict of interest, an interpersonal issue, or any other type of bias, can result in unfair treatment of the buyer, the seller, or both. 

How To Negotiate A Lower Real Estate Commission

Selling a home is a major transaction with far-reaching financial implications. To find the most affordable rate (without foregoing the quality of your realtor), research is key. There are three main ways to get a lower real estate commission: 

Work In A Dual Agency Scenario

As mentioned, agents who represent both buyer and seller in the same transaction may be willing to reduce their fees. Consider being open-minded about allowing your listing agent to field interest from prospective buyers, which can be done through effective advertising and holding open houses. Just be wary of the potential risks associated with this arrangement.

Consider Working With A Discount Brokerage

There are many real estate brokerages out there, and many advertise very low real estate commission rates. Some advertise rates as low as 1%. 

However, be wary that these advertisements don’t tell the entire story: more often than not, the 1% is for the listing agent alone. The buyer’s agent will still need to be paid their commission.

Further, it’s important to note that discount brokerages do not provide full services, such as home staging, professional photography, and other marketing strategies. Ensure you find out exactly what services are included and the associated real estate commissions when hiring an agent. 

Sell On Your Own

Another way to avoid paying high real estate commissions is to sell your own home. If you have the time and ability to do all the necessary negotiations, paperwork, and administration, this can save you a great deal. There are boilerplate sale templates available online which you can adjust. 

However, you’ll still need a real estate lawyer to complete the deal. And you may need to get your lawyer to do extra work to ensure everything is covered. Plus, you should understand that the For Sale By Owner (FSBO) route isn’t free and comes with real risks.

Alternatively, there are some brokerages that offer to list your home on MLS for a very small flat fee. You will deal with the offers on your own. But if you’re considering selling on your own, this may be your best bet. 

Additional Reading

What Are Real Estate Investment Trusts (REITs)?

Why You Should Never Skip A Home Inspection In Canada

Home Deposit vs. Down Payment

Final Notes 

Real estate professionals are trained to help home buyers and sellers achieve their goals, and they charge accordingly for these services. Considering the high value of this asset, it’s essential to ensure that you choose the right professional while researching how much you can expect to pay. 

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