Real Estate Commissions in Canada

Posted on July 15, 2021

There are many reasons why an individual or family needs to move. Some of those reasons are happy new beginnings, while others are less happy. Whatever the reason is, moving is a big event.

Selling your home can be a stressful ordeal in every aspect. You are looking at different issues, such as the market, your work situation, and let's not forget the pandemic!

To add to your stress, the real estate commissions in Canada are pretty steep. It is essential that you choose the right agent for a reasonable fee.

We can guide you through the crucial steps of reducing this fee and why it is so high in the first place.

How Are Real Estate Commissions in Canada Calculated?

There are several ways commissions can be calculated. The most common a realtor will take their fee is through a percentage of the sale price. In this scenario, the commission is split between the agent of the buyer and the seller. 

Sample Commission Case:

If the commission rate is 5%, 2.5% of the commission goes to the buyer's agent, and 2.5% goes to the seller's agent.

This is calculated by the expenses the agent will have to put into selling the house. Some of these expenses include marketing, brokerage fee, insurance, and office supplies. 

Let's take a step back and look at the following example. 

2.5% of an $800,000 sale might seem like a lot for someone to show your house a few times. In fact, it is $20,000 for a single transaction; however, the net income after taxes, broker fees, and miscellaneous expenses reduces the real estate agent's salary to only 37% or $7,400.

If you, as the seller, wish to reduce the price of the commission, you may suggest reducing some services. Typical services include:

  • Staging
  • Professional photography
  • Moving costs
  • Professional cleaner
  • Other marketing fees

You may not have the time or the patience to deal with these items yourself; however, they can greatly increase the chances of negotiating a lower commission. 

Are Real Estate Commissions Negotiable in Canada?

Real estate commissions in Canada are indeed negotiable. Some agents may wish to negotiate; others do not.

It is important to note not to get hung up on the commission fee, especially as a first-time seller. The value that an experienced agent can bring can pay off in the end.

You will never know until you ask. If the agent does want to negotiate, keep reading! Below are some tips on how to negotiate with your agent.

How to Negotiate A Lower Real Estate Commission

When you approach your potential agent for negotiation, ask first what their services are, how long they have been working, and their success rate. You do not want to offend an agent by undershooting, but at the same time, you want the best bang for your buck. 

It is, therefore, essential that you understand what the agent offers before you begin to barter. 

Evaluating Your Negotiating Leverage

The first thing you can do is evaluate your negotiation leverage. You can work together with the agent to make the sale smoother and effortless for all parties included. 

This can include providing any information and paperwork you have on your property, emptying your house of clutter, or being available for last-minute showings. 

Find Your Area's Average Commission Rate

You can check online or speak with several Real estate agents and brokers for their commission fees. Make sure to ask what services include; this affects the cost considerably.

In both Ottawa and Toronto, the average commission rate is 5%. 

Make Your House Easier to Sell

The are a few tips on how to make your house an easy seller. These include the following:

  • Hiring a professional cleaner
  • Giving a fresh coat of paint
  • Completing your to-do list of small items to fix
  • Staging your home yourself
  • Sprucing up the outside for optimal curb appeal 

A house that is already vacant usually sells much faster than one that is still lived in. Offering the agent to sell an empty house will make their job much more manageable.

Shop Around for the Best Value

Shopping around for your agent is the biggest favour you can do for yourself.

There are a few things to keep in mind when shopping for an agent.

  • Make sure the agent understands and listens to what you are asking
  • The agent should be approachable
  • First impressions can go a long way
  • An agent that is overbooked can lead to problems in the future
  • The reputation and reviews from previous clients and online reviews
  • Ask them how you can improve your home

Create Value for the Agent

Being an educated and well-researched client can add loads of value to the agent. Agents are there to guide you through the process of selling and buying your home, but showing that you understand the work they do and the benefit they bring to the table can make or break your relationship with your potential agent.

With the research you have done, you can start prepping your house before you even talk to a real estate agent, which certainly adds value to your home if done correctly.

Offer a Full Buyers Agent Fee

Another way you can negotiate with your agent is to offer to pay for the buyer's fee yourself. You can provide a flat fee to the buyer, which will significantly lower the percentage contributed to your agent.

Offering a larger fee to the Buyer's agent can bring more viewings to your home. If a buyer's agent is not paid enough, there is little incentive for an agent to show your home to their client.

Work With an Up-and-Comer

New agents are often willing to lower their commission and are eager to go above and beyond to build their reputation.

Sell and Buy with the Same Agent

Using the same agent for both selling and buying can benefit you and the agent greatly. The agent will receive a commission twice. Once for selling your home, and the second commission for buying your new home, all while working with only one client. 

You will benefit from the mutual trust you build with the first transaction, allowing for a smoother second sale. It also gives the agent a more significant incentive to sell your house faster, knowing that another payment is promised.

Once you have sold your house, you can start looking into buying your new home. Make sure you are ready and prepped for this as well.

What Is the Usual Commission Rate?

Real estate commissions in Ontario can vary depending on your area.

In Ontario, the average commission rate is 5%; however, it can range between 3% and 7%. Depending on the price of the house, the area, and the amount of marketing is required for your home to sell.

Do Realtors Get Paid for Showing Houses?

A real estate agent's salary is usually based on the sale of the house. If you have negotiated with your agent to work on an hourly basis, your agent will be paid per showing. 

However, this is rarely the case. Typically, an agent only gets paid if the house sells. If the house does not sell within a specific time, or you decide to take it off the market, the agent will not receive payment.

Which Real Estate Company has the Lowest Commission?

Remember that commissions are not the only cost to selling and buying a house in Canada. This is why it is essential to understand when and where you can lower your expenses and fees. 

Make sure you research your area thoroughly and talk to several companies in your area. 

Some companies offer a 1% commission fee; these companies do not offer the typical services such as staging, photography, or other marketing but provide the basic requirements for your listing. These companies usually hire young and inexperienced agents.

On that topic, many folks are inquiring with a company called Purple Bricks, which maintain fixed commission rates, regardless of the sale price. We've published a very popular review on the company; definitely worth a read as it directly relates to this subject. Check it out here!

Getting the Right Real Estate Agent for the Right Price

It will take some shopping around to find the right fit for you. Each situation is unique, but with this guide, you can vet your potential agents and start a trusting relationship that can be beneficial for both, perhaps even all three parties.

A low commission might be the right fit for you; however, the value of a more expensive agent can add many thousands of dollars to your asking price. It is a tough market, do not underestimate the expertise of vetted agents. There is a reason why real estate commissions in Canada are high. 

At Insurdinary, we understand the stress of going through the process of buying and selling houses. That is why we are ready with tips and guides to find a new home.

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