Decoding Real Estate Commission: Your Questions Answered

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If you’re planning to sell your home in Ontario, understanding how real estate commission works is essential. Commission is the primary way real estate agents get paid for their services, and it’s crucial to comprehend the ins and outs of this payment structure. To shed light on this topic, we’ve compiled answers to some of the most frequently asked questions about real estate commission in Ontario.

How do real estate agents get paid?

Real estate agents in Ontario, like other sales professionals, work on a commission-based model. They receive a percentage of the home’s sale price, paid once the sale is successfully completed. Agents take on the risk, as they only receive compensation if the home sells. If the property doesn’t sell, the agent doesn’t get paid. This commission-based system rewards hard work and effort, incentivizing agents to work diligently.

How does real estate commission work?

  1. Typically, the real estate commission is paid by the Seller and divided between the listing agent and the buyer’s agent. There are three common types of commission structures in Ontario:
  • A percentage of the sales price (e.g., 5%)
  • A fixed or flat fee (e.g., $20,000)
  • A combination of a percentage and a flat fee (e.g., 4.5% + $5,000) The commission is contingent on the home selling – if the property doesn’t sell, no commission is paid.

Are there any restrictions on how real estate commission is structured in Ontario?

The Real Estate Council of Ontario (RECO) prohibits a sliding commission scale where the percentage increases as the price of the home increases. Similarly, commission based on the difference between the listing price and the sale price is not allowed.

Who do I pay commission to?

Real estate commissions are paid directly to the real estate brokerage that listed the home for sale (the ‘listing brokerage’), not to the individual agent you are working with. The seller’s real estate lawyer typically deducts the commission from the money received from the buyer on closing and pays the listing brokerage, who then distributes it to the listing and buyer’s agents.

What is the standard commission in Kitchener-Waterloo?

There is no standard real estate commission, and it’s illegal for realtors or brokerages to collude and fix commissions. Commissions vary depending on the services offered by the agent or team, as well as their experience and expertise.

Who pays a realtor’s commission?

It’s usually the Seller who pays the commission to both the listing agent and the buyer’s agent. In rare cases, the buyer may be required to pay their agent directly.

Is real estate commission negotiable?

Real estate commission is often negotiable since individual agents and brokerages set their own rates. Some agents may offer different commission packages or provide lower commission options for repeat clients or multiple transactions.

Do I have to pay HST on commission in Ontario?

Yes, like other professional services, HST must be paid on real estate commission.

When do I pay a realtor commission?

Real estate commission is paid by the Seller when the property’s sale is finalized, meaning when the new owner takes legal possession. It may take a few weeks for the commission to reach the agents involved in the sale, as the funds transfer from the Seller to the Seller’s lawyer and then to the listing agent’s brokerage.

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

The Seller determines the amount of commission offered to the agent representing the Buyer, known as the ‘cooperating commission.’ This amount is set in advance and is used to incentivize other agents to sell the home.

Do I pay less commission if my home sells quickly?

No, the commission percentage remains the same regardless of how quickly the home sells. Commission is based on the sale price, not the time it takes to sell the property.

How can I save money on real estate commission?

Various commission models in Ontario offer ways to save on real estate commission. However, it’s essential to focus on the overall goal – the final amount you’ll walk away with after the sale. A lower commission may not always lead to the best outcome if other aspects of the transaction are compromised.

Does a Buyer have to pay real estate commission in Ontario?

In Ontario, commissions are typically paid by the Seller, but in some cases, a Buyer may have to pay their agent directly. This is more common in For-Sale-By-Owner (FSBO) listings or certain discount brokerage models.

Understanding how real estate commission works is vital for both Sellers and Buyers in Ontario. Each commission structure has its benefits and drawbacks, and it’s essential to consider the services offered by the agent or team and the overall outcome of the transaction. When navigating the real estate market, working with a professional and experienced real estate agent can help you make informed decisions and achieve your financial goals.

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