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 that the sale is conducted in a legal manner while also striving towards the highest selling price. 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 commission best fits into your financial landscape can help you reach your goals. 

What Are Real Estate Agent Commissions? 

Real estate agent commissions are the agents’ percentage-based earnings from the proceeds of a home sale. Real estate agents are trained and credentialed to sell your home, handling everything from advertisements to showings to negotiations. Instead of the seller dealing with prospective buyers, the agent does so on the seller’s behalf, communicating messages back and forth in an efficient manner. 

The practical aspects of conveyancing (the transactional process of changing ownership of real property) are highly nuanced. For the agent, it takes time, energy, and effort, with services reimbursed upon the sale of the house. Taken in the form of a percentage of the sale amount, the commission is only paid when the home sale is complete. 

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Real Estate Agent Commission Rates

Generally, commission rates in Canada vary between 3% and 7% of the home sale price. The commission is typically divided between the buyer and the seller’s agent. However, rates can fall beyond the range depending on the city and the real estate agent you work with. 

House Prices In Canada

The amount you pay depends greatly on the value of your property. For example, a $300,000 would result in a real estate commission between $9,000 – $21,000, while a $600,000 house would result in $18,000 – $42,000. Check out 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 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 is important to identify the most compatible pricing model with your requirements. 

Fixed Percentage Real Estate Commission Rates

In general, real estate agents use a set percentage as payment for their services. This means that the seller pays the agent an established percentage of the home sale value. The percentage rate remains the same regardless of the amount for which the home is sold. Conceptually, this incentivizes the real estate agent to get the highest sale price since it would lead to a higher payment. 

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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. 

Split Percentage Real Estate Commission Rates

A common approach on the sale of upper-middle-class properties, this is used as a marketing tactic to incentivize sellers – and for good reason. It is when the seller receives a higher percentage for the first tier of sale value, and a smaller percentage on the remainder of the sale proceeds. For instance, an agreement can see the agent getting three percent on proceeds up to one million dollars, and two percent on the remainder. Split percentage agreements always favour the seller, with regulations in place to ensure that the percentage remains fixed or decreases as the home sale value rises. 

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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. Especially if it’s a buyer’s market, where it is harder to sell the house, taking more time on the market, the agent can charge a flat rate in addition to a percentage on the sale. It can account for the listing fees and extra marketing effort.

When negotiating a combination agreement, be sure to read the fine print carefully. Real estate agents are bound by professional ethics regulations, but they also know all the loopholes in those rules as a result. 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. 

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Who Pays The Real Estate Commission In Canada? 

Real estate commission is the portion paid to both the buyer and seller of the property, though not always in equal measure. In most cases, the commission gets paid by the seller of the property, though in some situations the payment is not your onus. Be sure to consult directly with your real estate agent to learn how commission applies, prior to any agreement being signed and before there are any offers on the home. 

The agreement stipulates that if the home remains unsold, there are no payments to either agent. This applies to brokerages and independent parties, meaning you are not obligated if the home is not sold. When agreeing to terms, check the duration of time the property can be listed to see when your contractual obligations as the seller end. 

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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 at a rate of 9.975%, in addition to the 5% GST cost. 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.  

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What Is Double-Ending?

When a real estate agent represents both the seller and the buyer, this is referred to as double-ending. A colloquial term in the industry, it can also be called dual agency transactions. Depending on the situation, choosing a single entity to represent all those involved can save time and potentially avoid miscommunications. This is especially true for simple transactions which may otherwise have been completed at arms-length. Conversely, using it can lead to risks like collusion, or simply the agent going beyond the bounds of their agreement. Choosing how to handle this situation involves weighing the advantages against the  

Pros 

• Lower commission: Since the agent would need to do less legwork in order to complete the transaction, the cost associated with the task is significantly lower. Opting for a dual agreement, when done ethically, can result in noteworthy savings. 
• Easier process: When selling a home, the agent will typically liaise with the agent representing the buyer. By its own nature, this causes delays. Double-ending prevents this sort of backlog since there is one agent liaising between two parties: buyer and seller. Double-ending is meant to improve efficiency.  
• More information: Both parties dealing with the same agent can result in improved transparency. The buyer can access more details on the property and the seller can get a better picture of how the other party wishes to proceed. 

Cons

• Ethical concerns: There are regulations to prevent it, but real estate agents are bound to high standards of practice. One main reason is that the agent may fail to inform the client of other options, making it seem like the dual agency is the only option. It puts the agent in the position to distort information, especially since the system lacks the oversight of two separate agents. 
• 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. If there is a conflict of interest, an interpersonal issue, or any other type of bias, it can result in unfair treatment of the buyer, the seller, or both. 

Additional Reading

What Are Real Estate Investment Trusts (REITs)?

Why You Should Never Skip A Home Inspection In Canada

Home Deposit vs. Down Payment

How To Negotiate A Lower Real Estate Commission

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

Find A Broker

Make a list of the brokerages in the area and look into their time on the market, rating with the Better Business Bureau and Chamber of Commerce. Equipped with an understanding of the brokerage’s reputation, you can choose an agent from there. Look at their commission rates and get an understanding of the industry standard. This option is ideal for those dealing with more complex sales or those of higher value. The oversight and established corporate identity promote safe practice and lend security to the seller. Because the broker is affiliated with an agency, they can often charge lower fees and may be open to negotiation. 

Selling By Owner

Another way that you can sell your home is to complete the transaction itself. If you have the time and ability to do all the necessary negotiations, paperwork, and administration, then this can save you a great deal. There are boiler-plate sale templates available online which you can adjust. As with any agreement, independent legal counsel is advised, but this can be waived on a real estate agreement. However, to ensure that the process is completed correctly, conveyancing lawyers usually handle the actual transmission of the property. Selling by owner isn’t free, and it comes with real risk. 

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Real Estate Commission FAQs

Final Notes 

Real estate professionals are trained to help home buyers and sellers achieve their goals. While it is possible to sell property independently, unless it is a low-value asset, it is best practice to enlist the services of a realtor. Choosing the right professional means doing diligence on the local market and average commission in the area. Use that information to narrow down the different brokers and find one to fit your needs. Real property transactions are major financial maneuvers. Taking the time to research everything from the market to commission rates can help you take prudent steps that foster financial success.