How Does Real Estate Commission Work?

How Does Real Estate Commission Work?

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    Published 13/07/2021 15:07 EST

    Thinking of selling your home? It’s important to include real estate commission in your budget because it’s a significant fee in the selling process that will impact your overall profits. Realtors help sellers get the right price for your home in as short of a timeframe as possible, while guiding you through the entire selling process, and are well worth their commissions. But don’t be afraid to negotiate! Here’s how much you can expect to pay in commissions when selling your home. 

    How do real estate agents get paid?

    In most cases, the seller pays both the buyer’s agent and seller’s agent commission. Generally, buyers don’t pay Realtors directly. Instead, their compensation comes in the form of a commission on the property’s final sale price. Commissions for both the buyer’s and seller’s agents are taken off the top of the proceeds of the sale.

    Aside from monetary motivation, however, 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 offer good reviews and be recommended to their clients’ friends and family. After all, most real estate professionals rely on word-of-mouth marketing so their reputation is everything.

    How does real estate commission vary by province?

    Total real estate commissions paid when selling your home typically range between 3%-7% of the final purchase price across the country, depending on the region, market conditions and agent(s) used.

    On higher priced homes where commission is naturally larger, the commission percentage may be lower because agents know they’ll already make a great profit, but this isn’t always the case.  Be sure to discuss commissions with your agent upfront so you know what to expect.

    🤓 Example

    Average commission on a home that sells for $500,000 would total $15,000- $35,000. This amount would be split between the buyer’s and seller’s agents out of the home’s proceeds once sold.

    Who pays the real estate commission?

    In most cases, the seller pays both the buyer’s agent and seller’s agent commission. 

    Three different types of real estate commission include:

    1. Percentage of the sales price – eg, 5%
    2. Fixed or flat fee – eg, $20,000
    3. Combination of a percentage and flat fee – eg, 4.5% + $5,000

    When is real estate commission paid?

    Real estate commission is contingent on a home selling – if a home is listed for sale and doesn’t sell, no commission is paid. 

    All commissions are due on closing day, along with all other closing costs. (See: Closing Costs: What are They and How Much Will You Pay?)

    How can a buyer save on real estate commission?

    There are several ways buyers can save on real estate commission – the most practical being to negotiate with your real estate agent. It’s worthwhile to see if they’ll knock the commission down even half a percentage point. It never hurts to ask!

    You can also examine additional types of real estate models, including online real estate brokerages. Purple Bricks, for instance, launched in four provinces (Alberta, BC, Manitoba and Ontario). Buyers are assigned a Realtor in their neighbourhood and receive $2,000 cash-back on their purchases, while sellers pay a flat fee of about $800 instead of a commission. Similarly, Moncton, New Brunswick-based Property Guys avoids commissions as homes listed on the site are for sale privately with no listing agent for a flat fee. Buyers deal directly with the seller.

    👆 Tip

    Unless you have someone knowledgeable in real estate to advise you, it’s not in your best interest to try and sell a property on your own.

    Finally, you can try selling on your own, but this method isn’t highly recommended as you could open yourself up to lawsuits and other issues if you’re not sure how to carry out a real estate transaction properly.

    It’s important to remember that you get what you pay for when it comes to real estate expertise. The more involved the agents are, the more commission you can expect to pay based on their expertise in marketing your property to find buyers and, ultimately, sell your home as quickly as possible and at the highest possible price. Realtors also understand how to negotiate real estate contracts that protect all parties.

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