Real estate commission on your mind?

If you’ve got a house to sell than you’ve probably got real estate commission on your mind. Some of the common things that run through home sellers’ minds are:

  1. Why do they charge so much?
  2. I wonder if I can just post it online and sell it myself
  3. Aren’t all agents the same? I’ll just get the cheapest agent
  4. Why should I pay for the buyer agent’s commission?

Those are all fair concerns. After all, it took years to built up equity in the house and for one reason or other you are selling and in danger of losing a chunk of that equity.

Commission Breakdown

Here’s a quick overview of how real estate commission work.

In order to have your listing posted on the MLS (#1 real estate tool for marketing listings) you need:

  1. To be listed with a real estate Broker.
  2. Agree to offer commission to the Listing Broker and Buyer Broker.

The Listing Broker’s (LB) commission is negotiable and agents charge anywhere from $500 to 2.5% of the sale price of the house.

The Buyer Broker’s (BB) commission is also negotiable but most people seem to be offering 2.5% of the sale price. You can offer less but if there are lots of houses like yours on the market and they are offering 2.5% then the chances are BBs will lean towards those.

Oh, there’s also HST on real estate commission. It’s 13% on the commission. So if the commission works out to $10,000 the HST on top of that will be $1,300.

Commission Loopholes?

According to the Real Estate Board’s rules you have to offer the BB some commission in order to get on the MLS. So what a couple of companies decided to do was offer $1 commission. They would charge the sellers a flat fee upfront (regardless is the house sells or not). This allowed them to post their listings on the MLS.

Problems with this idea?

The company’s “catch” was that the seller had to do all the work. Arrange showings, weed out prospects, deal with BBs direct to negotiate their commission. The BB would show the house and then ask the seller for a fair commission. Chances are it would work out to 2.5% in the end for the BB.

So all that happens is the seller ends up doing all the work and still end up paying 2.5% (and also paying the LB a flat fee even before the house has sold).

Bigger problem with this loophole? Most BBs will check how much commission they are being offered before showing the house. When they see an amount like “$1” they might just skip that listing altogether. Ask yourself, if you had a family to feed and had only that one buyer client which listing you might push him towards? One that offers 2.5% or the other that offers only $1.

Commission summary so far

  • In order to get on the MLS you need to hire a real estate broker.
  • Commission is divided up into 2 parts. Listing Broker portion and Buyer Broker’s.
  • Commission is negotiable on both sides. Buyer Broker’s seem to be at 2.5%.
  • There’s HST on real estate commission.
  • You can offer less to the Buyer Broker but your house might not get shown.
  • Some discount companies will charge a flat fee upfront and post your listing on MLS. You do all the work.

How much should you pay the Listing Broker?

Listing Broker’s commission can be anywhere from $500 to 2.5% of the sale price.

Few things to keep in mind:

  • Just because they work for a big brand doesn’t mean you’ll get full service.
  • Just because they work for a small company doesn’t mean you’ll get bad service.
  • Individual agents sell the house, not the company.
  • If they’re offering you the world, get it in writing.
  • Newspaper ads don’t sell houses anymore. Some agents might use this to justify commission.

The $500 agent

Every agent has the right to decide how much they’d like to charge. You just have to ask yourself how hard this person might work if he’s only making $500. Is he doing this part time? because it’s hard to survive on $500. Will you be able to get a hold of him when you have questions?

The 2.5% agent

These agents say they offer full service. They’re usually with the big brands. However, before signing up ask yourself:

  • What exactly will do in terms of marketing?
  • What’s their justification for asking the 2.5%. Some might just say “it’s the going rate”
  • How much experience do they have?
  • If the house sells in 3 days through the MLS…where did the money go

Bottom Line

Most agents provide exceptional service and are worth every penny. Some agents will negotiate really hard for you and get you extra money from the buyers that’ll cover their commission and then some.

4 ways not to pick an agent

  • Don’t pick someone just based on commission. Commission is one factor, but should be the only thing.
  • Don’t pick an agent because they say they’ll get a really high price for your house. This is called “buying the listing”. The idea is to outbid other agents and knock you down later about pricing.
  • Don’t forget to read the listing agreement. Anything preprinted is for your protection. You need to focus on the “fill in the blanks” portion. There’s 3 main things to look for: Price, length of contract, and total commission.
  • Don’t pick someone just based on their company name. Companies don’t sell houses..agents do. A lazy can be found in a big company or a small company. A great agent can also be working in a small company.

Some questions to ask real estate agents

  • What will they do to sell your house. Try to get it in writing.
  • What’s the commission? Is it different if they sell it themselves?
  • What’s the length of the contract?
  • Can you cancel if you’re not satisfied? Will there be any penalties?
  • How many houses have they sold in that area?
  • Can you see sample Feature Sheets, fliers, etc.
  • Do they do panoramic virtual tours? or just a slideshow? (Big difference).
  • Do they have an online marketing plan?
  • Can you speak to some past clients

I tried to cover as much as I could in just one article. Hopefully this is helpful to you. Good luck with the whole process. You can contact me if you have any further questions.

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