Real Estate Commission Agreement Explained

Real Estate Commissions Explained | Durham Region

Tuesday Dec 15th, 2020


Wondering how real estate commission works in the Durham Region? Below, answers to Durham Region's home Sellers most frequently asked questions:

Q: How do real estate agents get paid?

Real Estate agents in Durham Region get paid a commission.  Typically the commission is a set percentage of the sold price.  If the home doesn't sell then it doesn't cost the seller anything.  Agents front the out of pocket marketing risks and only get compensated if the home sells.  If a home doesn’t sell, the REALTOR doesn’t get paid. Unlike most workers in Ontario, real estate agents don’t get paid a salary or for the hours they work. They don’t get paid if they’re sick or take a vacation; they don’t get paid overtime or for working on a statutory holiday; they don’t insurance benefits or qualify for EI.

Q: How much real estate commission do home sellers pay?

The typical real estate commission in Durham Region is 5%.  It is usually divided evenly between the seller's agent and the buyer's agent - typically 2.5% each.  However by law there is no set rate and commissions are fully negotiable.  In Durham Region many sellers in today's market are using  1% Commission Real Estate Agents that offer the exact same services for a fraction of the cost.  

The 1% Commission Real Estate Agent still pays the buyer's agent the 2.5% but reduces their own Listing Commission by 1.5%. For example on a $800,000 home you would save save $12,000 in commission by paying 3.5% total (1%Listing Agent + 2.5% Selling Agent) Vs. the traditional 5% total (2.5%selling agent + 2.5% co-op agent). 

Q: How do you calculate real estate commission and how much do real estate agents get paid? 

To calculate real estate commissions you would take the sale price of the home and multiply it by the commission rate. For example:

$800,000 Sale Price X 5% Commission Rate=$40,000

$40,000 Commission X 1.13 HST= $45,200 Total Commission.

The Real Estate Agents would get paid $40,000 / 2 = $20,000 each in commission.  (Listing with a 1% Commission Real Estate Agent would save the home seller 1.5% total making the total real estate commission $28,000 vs $40,000.  Saving the home selling $12,000 in commissions)

Q: Do I lose services with 1% Commission Real Estate Agents

Absolutely not!  Each Real estate agent is an independent contractor and each offers their own services and sets their own commission rates. Each real estate agent gets paid a different amount depending on what commission percentage is agreed upon in the listing contract.  If you are looking to save money on your typical real estate commissions and fees, it is very important to find a 1% Commission Real Estate Agent that offers full service.  Some 1% Real Estate Agents In Durham Region may actually provide more/supirior services than the average realtor.  

Q: Will anyone know if I listed with a 1% Real Estate Agent?

No.  Regardless of what realtor you decide to list with, the public including other realtors don't have privy to the listing agreement and what the total commission you've agreed upon with your listing agent.  The only amount known is the amount (typically 2.5%) being paid to the selling broker.  The selling agents want to make sure they are getting paid in order to push your home.  The bottom line is, sellers want to make sure their home is marketed properly with the best foot forward in order to maximize your sale price.  A top 1% commission real estate agent is no different than a top full priced commission real estate agent.

Q: Who pays a REALTOR’s commission?

In the Durham Region And GTA, it’s almost always the Seller who pays the commission to both the listing agent and the buyer’s agent.
In rare circumstances, the Buyer is required to pay their agent (though this is usually reflected in a lower sales price offered to the Seller). 

Q: Is real estate commission negotiable?

Yes. The average commission rate in Durham Region is 5% but by law there is no set rate and commissions are fully negotiable.  However many agents with big brand name brokerages are restrained with high overhead costs and expenses, therefore they simply can not afford to discount their real estate commission. Many Sellers look for a low commission real estate agent with brand name backing offering a discounted real estate comission.

Q: Do I have to pay HST on commission in Ontario?

Unfortunately our government has their hand out for real estate commissions, like most other professional services, HST must be paid on real estate commission. 

Q: When do I pay a REALTOR commission?

Real estate commission is paid by the Seller when the property closes, in other words, when the new owner takes legal possession of the property. If a Seller agrees to sell a home on January 15th with a closing date of March 30th, the Seller will pay commission (along with the rest of the purchase, less any deposit) on March 30th. It can take a few weeks for the commission to reach the agents who sold the house, as the money transfers from the Seller to the Seller’s lawyer and then to the listing agent’s brokerage, who then pays out the agents who represented the Seller and Buyer. 

Q: How much is the Buyer’s Agent’s commission?

The Seller decides how much commission to offer the agent who represents the Buyer; this is referred to as the ‘cooperating commission’ or 'co-op fee'. The amount of the cooperating commission is set out in advance and is used to encourage or entice other agents to sell the home. 

Pro Tip: If the goal of offering a cooperating commission is to persuade buyer agents to show and sell your home, it makes sense to set the commission amount in line with what other Sellers are offering. If you really want to encourage other REALTORS, you may want to offer higher than what the other sellers near you are offering. Offering less might mean agents are less motivated to sell your home. If commission is a carrot, do you want to offer the smallest one? 

Q: Do I pay less commission if my home sells quickly?

The percentage of commission you pay is not dependent on how long it takes your home to sell – you pay the same if the home sells in 5 hours, 5 days, 5 weeks or 5 months.

You’re paying your REALTOR to sell your home and if they do a great job and sell it quickly at the price you want, it wouldn’t really make sense to penalize them for doing a great job. That would be like paying your dentist less because your root canal went more smoothly than expected. Likewise, it wouldn’t make sense for your agent to ask you to pay more if it takes them a long time to sell your home. If you’re more inconvenienced by a long sale or they aren’t doing everything they can to sell it, you shouldn’t have to pay more commission. That would be like paying your dentist more if you have complications during surgery, get an infection and it takes you longer to heal. 
Commission is true pay for performance- If you want to pay lower commission when selling find a low commission real estate agent.

Q: How can I save money on real estate commission?

With so many commission models in Ontario, there are many ways to save on real estate commission, but it’s important to keep the bigger goal in mind: how much money will you walk away with after your sale? 

The easiest way to save on commission is to sell your home yourself – but that comes with real financial and time-related costs too. We looked at 3 Ways To Save On Real Estate Commission here.

Q: I want my agent to be motivated to sell my home for as much money as possible. What can I do?

By definition, when commission is set as a percentage of the sales price, an agent is motivated to sell a home for as much money as possible – the higher the price, the more money the agent makes. 
Real estate agents who are serious about their profession know that their reputation – and a long list of happy clients – is crucial to their long term success. They want their Sellers to leave them 5-star reviews online and want to be recommended to their clients’ friends and family. For most top REALTORS, that’s the best kind of motivation of all. 

Q: Does a Buyer have to pay real estate commission in Durham Region? 

In Durham Region, commissions are typically paid by the Seller, but in recent years, as Toronto’s Multiple Listing Service (MLS) has been opened up to include For-Sale-By-Owner (FSBO) listings and other discount brokerage commission models, occasionally, a Buyer has to pay their agent directly. 

For example: An owner selling their own home themselves is offering to pay the agent who brings the Buyer $1 in commission. I don’t know anybody who works for $1! In these situations, one of three things usually happens: 

1 – The Buyer’s agent negotiates for the Seller to pay them (even though it wasn’t initially offered); or

2 – The Buyer pays a commission to the agent directly. The amount of any commission that might be owed in this situation is outlined in the 
Buyer’s Representation Agreement; or

3 – The Buyer’s agent negotiates a sale price that is proportionately lower, when compared to the similar properties where both agents were paid commission, to account for the difference. For example:
– A home is listed on the MLS by the Seller, for $850,000 and they are offering $1 commission to the Buyer’s agent. 
– Nearby, similar properties have sold in the $850K price range and offered 2.5% commission to the Buyer’s agent. It’s important to remember that the sold prices of the comparable properties include the commission paid for the work of both the Buyer’s agent and the Seller’s agent. 
– While a For-Sale-By-Owner may have done the work of the listing agent themselves, they didn’t do the work of the Buyer’s agent. A savvy Buyer’s agent will adjust the prices of the comparable homes (by 2.5% in this example) to reflect that and negotiate a lower price. The Buyer pays a 2.5% lower price for the home to the Seller + 2.5% directly to their agent, thereby paying in total, the same as the comparable homes. 

Still have questions about real estate commission? 

Get in touch with Low Commission Real Estate Agent Matt Phillips Century21!


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