How Does Real Estate Commission Work?

Here’s how real estate commission is paid.

On the surface a commission arrangement on a real estate transaction seems pretty simple. But each transaction is unique, and like many things, the devil is in the details.

For starters there is no set fee. In fact it is illegal to say that there is and this is a breach of the competition act if an agent does so.

This means that fees are negotiable. There are also many different ways that commission can be paid including flat fees and the more common percentage based compensation.

Commission Agreements Between Agents, Sellers And Buyers

When a property sells and closes, the seller pays a commission to the listing agent, who works for the listing brokerage, and to the agent and brokerage that buys the property for their client. This commission is determined prior to listing the property.

Because of this arrangement a home buyer typically pays no out of pocket expense for using an agent to buy properties.

Here in Kitchener-Waterloo a buying agent usually gets paid between 2 and 2 ½ percent of the sale price of the property + HST. The listing agent gets paid anywhere from 1 to 3 percent of the sale price + HST.

An agent working with both a buyer and a seller of the same property is engaging in double ending which is a form of multiple representation. An arrangement is often used to reduce the total commission if this occurs.

It’s hard if not impossible to meet the needs of both clients at the same time. I will not represent both parties in a deal as this doesn’t sit well with me from an ethical standpoint. It’s important that you discuss this issue with your agent.

Some agents and brokerages will list your property for as little as 1% + HST but these offers more often than not include caveats and exceptions that end up costing you more. There are also discount brokerages who charge a flat fee for the listing and buying agents. To each his own, but I’m a firm believer in the saying you get what you pay for.

The total commission that’s ultimately agreed to is paid out to the listing brokerage upon closing by the seller’s lawyer. The listing brokerage then pays out the buying agent’s commission to the buyer brokerage.

If you need a great agent and want to get started buying then see my buyer’s info section.  And if you’re thinking of selling, see my seller’s pages.

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