What are Real Estate Commissions in Ontario?

Real Estate Commissions Explained:

One of the first questions potential clients want to know when they contact our brokerage is, how much commission do you charge to sell a property? Now, there is not a “one-size-fits-all” answer when it comes to real estate commissions. However, we will do our very best to outline our Fox Marin commission structure and the various service packages we offer here! In Toronto, it is commonplace for a seller to pay a 5% commission on their property’s final sale price. Typically, the commission is evenly split between the listing agent and the buyer’s agent – 2.5% to the listing agent and 2.5% to the buyer’s agent. All amounts set out as commission are payable, plus applicable taxes (HST) on said commissions when the transaction closes. Real estate commissions come out of the proceeds of the sale.   Real estate commissions and associated fees vary, depending on the brokerage and the services provided. In other words, commission rates are negotiable, and therefore, there is no standard or fixed fee as many assume. Commission rates or fees that brokerages charge are solely the choices of those providing the services. Keep in mind; commissions are written into the listing agreement, the contract between The Seller and the Listing Brokerage. Meaning, the Seller must agree to the commission before signing the listing agreement.

How Do Real Estate Commissions Work?

There are three ways to structure a commission payment:

1. Percentage of the sale price
2. Fixed dollar amount
3. Combination of the above

Many consumers believe that real estate agents are overpaid. And, in many situations, they indeed are. If your listing agent is only installing a lockbox and printing out some listing sheets at a full-service commission rate, you are likely overpaying for their work. A real estate broker should be earning their commissions with a commitment to sell your home for the highest and best price possible, using all the marketing tools at their disposal. Thus, it is essential to understand what your listing agent is willing to offer you in terms of value, experience and services before formalizing your working relationship and your fee structure.

What Is Included in Real Estate Commissions?

To be fully transparent, at Fox Marin, we offer two different commission packages to our sellers. In most cases, we structure our commission as a percentage of the final sale price. This is how we break down our services as a point of reference:

1/ Fox Marin’s Package A: Full-Service Package | Full Commission

Includes:

• Property staging and styling (indoor/outdoor)
• Professional floor plans
• International and domestic advertising
• Professional photography
• Professional videography
• Staging lighting fixtures
• Property website
• Social syndication and paid sponsored advertising on Facebook & Instagram
• Digital and print marketing

Does Not Include:

• Painting
• Any minor repairs or upgrades
• Storage fees for personal items and furniture
• Cost of movers for removal and return of personal items and furniture
• Pre-list home inspection (if selling a freehold)
• Status certificate (if selling a condo)

2/ Fox Marin’s Package B: A La Carte Services | Reduced Commission

Includes:

• Professional photography
• Property website
• Social syndication and sponsored advertising
• Digital and print marketing

Does Not Include:

• Painting
• Any minor repairs or upgrades
• Storage fees for personal items and furniture
• Cost of movers for removal and return of personal items and furniture
• Pre-list home inspection (if selling a freehold)
• Status certificate (if selling a condo)
• Property staging and styling (indoor/outdoor)
• Professional floor plans
• Professional videography
• Staging lighting fixtures

As with most things, a lower commission rate may mean fewer services that can impact your sales experience and final sale price. Before agreeing to work with a brokerage, ask for a list of their services. We include a complete list of services in both our Business Plan and Listing Agreement. This way, our real estate commissions are very clear from the very start. Remember, ensure you are comfortable with the commission rate/fees and services before signing any listing agreement.

Generally speaking, most clients opt for the full-service plan to take advantage of our staging services, top-notch marketing collateral and the benefits of using an experienced team.

Our a la carte services are usually retained when a property is tenanted, and the residence cannot be marketed to its full potential using staging, styling and “stop-dead-in-your-tracks” photography.

Calculating Commissions: Breaking it Down Using Dollars and Cents

It also may be helpful to you to understand how real estate commissions breakdown using an example:

• Property’s Final Sale Price: $850,000
• Commission Rate: 5.0% + HST = $42,500 + HST > $48,025

Often the assumption is, the listing brokerage that sells your property will pocket the full $48,025. However, this fee (though it may appear lofty) is the listing brokerages gross commission, not their net commission. Remember commission is generally split evenly between the listing agent and the buyer’s agent:

• Listing Agent’s Fee: 2.5% = $21,250 + HST > $24,012
• Buyer Agent’s Fee: 2.5% = $21,250 + HST > $24,012

Once the buyer agent’s fee is covered, the listing agent’s expenses come off the top. In our case, that includes our franchise fee, corporate tax rate, staging and marketing costs and the overhead we pay for full-time administrative support, office space, in-house designers, a warehouse packed full of inventory, top-shelf photography (and the list goes on). Achieving record sale prices and a seamless client experience requires infrastructure and a budget! In the end, our net commission after expenses and taxes is closer to 18% of the total commission’s payable on the selling side of the transaction. In this example, that equates to just over $4,300 net-net.

From our perspective, we are confident that we add enough value to the process that our selling clients end up winning big-time (both financially and experientially). In fact, we know they do! At Fox Marin, we work with all of our clients to customize their sales experience as much as possible. For example, some sellers don’t want to deal with staging, and some don’t want public open houses. Others don’t want to have re-locate their dog for a week while they on the market. In each instance, we try to accommodate our clients’ wants and needs while still offering a full menu of services and commission options to service everyone’s long-term best interests.

Are Real Estate Commissions Negotiable?

Yes, they are! And as mentioned earlier, one size does not fit all. If you are not interested in paying full commission rates, you have every right to seek alternative options. In today’s marketplace, there are many choices to fulfill your needs. No one is forcing you to hire a full-service brokerage. There are companies that offer “mere posting” options, meaning you list your property on your own without agent representation, reducing commission fees for the Seller. There are also many agents that are willing to list your property at a significant discount. Would we personally work with them to sell our home? Probably not. But, the point is, you do have choices out there. Every homeowner should know they have the opportunity to evaluate what meets their needs and wants at the time of sale.

What do Buyers Have to Pay in Commission?

As a buyer working with a realtor, you may be asked to sign a contract called a Buyer’s Representation Agreement (BRA) before you start looking at properties. This document outlines the amount of commission the realtor that represents you is entitled to and how it is payable when you purchase a home. Generally speaking, the buyer agent is compensated through the listing brokerage from the proceeds of the sale. So, the purchaser is not responsible for any commissions or associated fees. However, there are exceptions to this rule! As a buyer, you should review compensation with your realtor in detail before signing a buyer’s representation agreement.

In Summary: Five Quick Facts About Real Estate Commissions:

1. The Seller pays real estate commissions at closing.
2. Real estate commissions are negotiable.
3. Various real estate services will be includes and not included in your commissions – be sure to find out the who, what and why!
4. The commission paid is shared between the agent representing The Seller and the agent representing The Buyer.
5. Be sure to understand the commissions you’ve agreed to pay and what services are included before signing your Listing Agreement.

Questions?

It’s essential to know your options and to work with the brokerage or realtor that best aligns with what you’re willing to pay for services rendered without judgement. Suppose you have additional questions about commission rates, negotiating commissions or the pros and cons of hiring a full-service brokerage versus selling a property on your own? If that is the case, you know where to find us!

If you would looking to understand more about the advantages of working with a team versus an individual agent to sell your home, we invite you to read The Advantages of Working with a Real Estate Team!

Of course, if you have additional questions please reach out. Contact Us (We’re Nice)!

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This article was written by Kori Marin, Managing partner here at Fox Marin Associates. For high-energy real estate aficionado Kori Marin, a well-lived life is achieved by maintaining an “all-in” attitude that realizes every last ounce of one’s full potential. This mindset has driven successful results in every aspect of her life – from her corporate sales and account management experience to her international travels, to her years of fitness training and leadership – and is the hallmark of the exceptional work that she does on behalf of her clients in the residential real estate sector in downtown Toronto.