Most full service real estate teams charge 5% to 6% commission, occasionally with an upfront marketing fee.
If you’re with the Military or covered by Brookfield Relocation you are covered up to 4.1% of that commission.
However real estate commissions are not fixed and vary widely from real estate salesperson to broker and brokerage to brokerage. You can find posting services as low as $199 to put your home on the Multiple Listing Service®, there are discounted service brokers and agents that will charge you 4%, 3.5% and even 3% but understanding the how’s and why’s of commission is just as important as finding the lowest price.
Understanding Real Estate Commissions
When selling your home a percentage of the sales price goes to pay the brokers involved in the transaction. You will select the commission you are willing to pay at the same time as when you choose your listing price as part of the same contract to list your home for sale.
The sales person or brokerage typically covers all the cost of marketing your home for sale, some even pay for the staging consultation and professional photographers. Some higher end home marketing plans are enhanced by seller funded marketing, but the listing agent will be clear about this before you sign the paperwork.
As 5 and 6% commission are common in Ottawa let’s use these in our examples. If you were to offer your home for sale at $350,000 an expected final price might be $340,000.
@ 6% commission on a $340,000 sale you would pay $20,400 +hst ($2652) for a total of $23,053
(but lets say $23K for easy numbers)
-of that $23,000 typically 3% or $11,500 will be offered to the REALTOR® who is representing the buyer.
As the average agent in Ottawa sells less 1 home a month, this represents their monthly paycheck, before taxes, expenses and split with their brokerage.
(@ 5% commission, $17,000 +hst ($2,210) for $19,210 or $9,605 to each REALTOR®)
-The remaining half will go the the selling office. (You might think this is a nice pay day for your REALTOR® until you find out how much they split with their brokerage.)
-From their cut, your selling agent will reimburse their business for the upfront costs in preparing and marketing your home as well as the cost of their staff, who we hope were friendly and helpful when your REALTOR® was otherwise occupied.
The Beauty of the MLS® is it was designed to create this spirit of cooperation between agents. A savy buyer will sign a Buyer Representation Agreement with their REALTOR®, often guaranteeing them a commission of 2.5% (though this does vary). In cases where an MLS® listing is offering less than 2.5% to the Buyer will either make up the deficiency out of their own pocket, or the REALTOR® may forgive the excess with the permission of their broker.
So in the cases of 4%, 3.5% or even 3% commissions either the selling agent or the buying agent is taking a smaller cut, either from their monthly pay check or their operating budget.
Some discount brokerages will change a lower cut on their end while still offering a full cut to the buyers agent so as not to stigmatize the listing. By running a tight ship, bulk marketing or hefting a lot of staff hours themselves they can operate on smaller margins. Some believe the buyers agent will split the reduction and simply offer 2% or 1.5% to them.
(@ 3.5% the Buyers representative may still get paid $9,605 while the selling representative collects $3,843 or they may split the commission at $6,723 each, before taxes or splits.)
With the recent change in MLS® rules and new model has sprung up which will list a home for sale on the MLS® system for a flat fee and then allow the sellers to take full responsibility for the preparation, marketing, showing, negotiation and arrangement of the sale. In this model, if a buyer agent is involved it remains up to them to negotiate and contract their payment from the sellers directly.
Studies have show that real estate agents have 167 tasks involved in selling a home, so any reduction in commission is simply a question of who is better suited to handle these tasks.
Hope this helps you understand real estate a little better.
As always if you have any real estate questions ask them below, or contact us directly at 613-788-2113.