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REALTOR Fees

Written by Jeremy Van Caulart

A fundamental question you might have when purchasing or selling a house is, “how much will this cost.”

 

There are a lot of different costs concerning buying or selling real estate, but this blog will talk about the fees associated with engaging a real estate agent.

 

I’ll break down how your REALTOR® is compensated for helping you buy or sell your house. I’ll also explain what that commission pays for behind the scenes.

 

The first thing you should know is that there is no standard commission rate. Real estate agents aren’t allowed to say there is either. There is, however, a few typical rates we see in the industry.

BUYING REAL ESTATE

 

If you’re purchasing a home in Ontario, you will sign an agreement with your agent that outlines a percentage of the purchase price is to be paid to the agent in exchange for their expertise. As a buyer, you agree that the agent is paid x%. The seller pays that percentage through a co-operation agreement when you offer on the property.

 

If there is a discrepancy between the rate you agreed and the co-operating percentage, you may need to make up the difference.

 

Example: You’ve engaged an agent, and you’ve agreed to pay the agent 2.5% of the purchase price of the home. When you find the home you want to purchase, the co-operating amount is only 2%. You’re now on the hook for the 0.5% to your agent.

 

These situations are rare, but it’s something to keep in mind. A good agent will always notify you if a discrepancy exists.

SELLING REAL ESTATE

 

If you’re selling real estate in Ontario, you will sign a listing agreement that details the commission payable. Sellers usually pay the full commission, covering the listing agent’s commission and the co-operating (buyers) agent’s commission.

 

Example: You’ve engaged an agent to list your property. You’ve agreed to pay that agent 5% of the sold price. The agent decides to co-operate at 2.5%. The agent works to prepare the home and collect offers from prospective buyers. You select an offer for $1,000,000. On closing, your agent’s brokerage and your lawyer move 2.5% of the sale price ($25,000) plus HST to the co-operating brokerage to be paid to the co-operating agent. Your agent retains 3% ($25,000 plus HST) through their brokerage. 

 

You have paid $50,000 plus HST to sell your property. 

 

So what in the world does all that money pay for?

 

When you engage an agent to sell a home, they should be paying to market your home correctly. Marketing is the most effective way to drive interest in the house and lead to the highest price in the shortest time. 

 

Marketing a home consists of staging, photography, video, cleaning, minor repairs, digital and physical advertising, and following up on leads. 

 

Marketing a home is effective, and the service comes at a premium. The agent pays for many of these services before the house sells.

 

In addition to marketing your home, you’re paying for a professionally licensed agent to help you navigate a complex undertaking.

 

There are a lot of nuances within negotiations and marketing. Good agents understand them and use them to produce an advantageous outcome for their clients.

 

When you’re purchasing a home, your agent is finding listings, showing you homes, driving for hours, calling prospects, marketing to find potential sellers, negotiating, and ultimately protecting your interests.

 

After the sale, real estate agents still have fixed costs to worry about, like brokerage fees, office rent, insurance (health, business), internet, vehicle fees, and income tax.

 

It might seem like real estate agents are earning a lot of money per transaction, but the margins are slimmer than they appear.

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