How much are real estate commission rates in Canada?

What are real estate commissions and who pays them?

A commission is a fee you typically pay to a real estate agent to list the property as well as to the agent who represents the buyer. That commission may or may not be split evenly between both agents.

But you have some wiggle room over how your commission is calculated. The Real Estate Council of Ontario recommends that buyers confirm the arrangement with their own agent before making an offer.

If the home isn’t sold, neither agent gets paid. The real estate brokerages they work for won’t get a cut either since agents typically share a percentage of the commission with their brokerage.

What are the real estate commission rates in Canada

Real estate commissions vary between 3% and 7% of the sale price, but there’s really no set rate.

According to CREA, members adhere to a code of conduct that states: “Commission rates or fees members charge for services offered to the public, and the division of those fees among cooperating members, are solely the choice of those providing the services.”

There are a variety of ways that commissions are calculated:

• Fixed percentage of the sale price
  This is the most common type of commission you pay.
• Split percentage of the sale price
  This is where the percentage decreases as the sale price rises. For example, the commission for your agent may be 2.5% on the first $500,000 and 2% on anything above that rate. For example, in Ontario, the percentage rate isn’t allowed to increase if the sale price also increases. It’s only allowed to stay fixed or decline.
• Flat fee
  The fee is the same for every seller, even if one home sells for $300,000 while another sells for $3 million.
• Fee for service
  You might agree to pay a flat or hourly fee for listing and marketing the property, holding open houses, and having brochures printed.
• Combination of fees
  You may pay a flat fee plus additional fees for other services.

The commission comes out of the proceeds of the sale and isn’t added to the final sale price. Since the sale of real estate is considered a service, commissions are also subject to GST or HST, depending on your province or territory.

While you typically pay the commission, the buyer is also contributing in a way, because they’re the one purchasing the home.

To calculate a commission, let’s use the GTA as an example. In August, the Toronto Regional Real Estate Board (TRREB) reported that the average sale price of a home in the GTA was $1,074,425.

If the commission is a fixed percentage of the sale price, a 5% commission (2.5% for each agent) on a $1,095,617 home is $53,721.25. Including HST, the total is $60,705.01.

Remember that the commission isn’t the only expense when selling a home. There are also legal fees and possibly a mortgage discharge penalty. However, the buyer typically has a greater variety of hidden costs they have to pay. This provides all the more reason to compare mortgages rates and save on monthly payments.

Can you negotiate your commission fees with your realtor?

What many sellers don’t know is that, just like mortgages, commissions are often up for negotiation.

Many agents will charge a percentage of the sale price as their commission. If you choose an agent from a traditional real estate brokerage, you will usually pay a fixed percentage.

However, a reduction of one percentage point can save you thousands of dollars. Remember that $1,074,425 home? A 4% commission on that would be $42,977 or $48,564 including HST. That represents a savings of more than $12,000 compared to the 5% commission, which totals $60,705 including HST.

You should ask every agent you meet if they’re flexible with their commission. Not all agents will want to negotiate, but you won’t know unless you try — just don’t expect them to work for free since they also have to give a portion to the brokerage.

If they’re not able to wiggle on the percentage rate, you can ask to reduce certain services, such as marketing or home staging, to help lower your overall costs.

Some discount real estate brokerages will charge a flat fee. You can shop around for the best rate that suits your budget.

The “for-sale-by-owner” route sidesteps commission fees

There is a way to avoid commission fees altogether – that is to sell the home on your own. By choosing this option, you can save tens of thousands of dollars by not paying a commission, but you also have to do a lot more work.

If you decide to go this route, you should get an appraiser to help you value your home and pay a flat fee to a broker to get your property listed on the Multiple Listing Service (MLS), a database of properties available for sale. You will also need a lawyer to help you with the paperwork.

Instead of paying a huge commission, you can use the money saved to up your budget on your house hunt, help fund your retirement or renovate your next home to your exact preferences.

Your house, your rules (kind of)

The number one cost of selling your home is the commission. Negotiating with your agent can save you thousands or tens of thousands of dollars.

There’s also the option to find a brokerage that charges a flat fee, or you can sell the home yourself. There are pros and cons to each, but the choice is yours.