What is the Average Commission for a Real Estate Agent in Ontario?

| Selling

When we hear sellers fretting about “average commission” we get a little nervous. And it’s not because we’re worried about our livelihood! Instead, it’s because when sellers try listing on their own, or opt for discount brokers, they’re putting their own sale at risk.

To help you understand how real estate commission works, here we look at not only the average commission, but what you get for it and why it is so important.

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Why Do Real Estate Agents Get Commission?

Real estate agents in Ontario are paid commission as opposed to an hourly wage or salary. This is the only compensation we receive for all the work we do during a real estate transaction. The commission includes all the time invested, all the money we’re out of pocket for things like ads, and all the other costs associated with the work we complete.

Who Determines the Average Commission?

There isn’t an average commission in Ontario. Instead, commission is set by agents and their brokers.

How Much is Average Commission Typically?

A full-service brokerage is likely to charge 5% commission for their services. Many people are unaware that that commission is split between the seller’s and buyer’s agents. Typically, 2.5% goes to the seller’s agent and 2.5% goes to the buyer’s agent.

Can I Negotiate Commission with my Real Estate Agent?

Yes, you have the right to negotiate commission with your real estate agent but always be very wary of an agent offering discounts. This is often out of desperation to get more clients, which means they either lack experience or integrity!

Also, some agents do offer reduced commission packages in various scenarios such as to reward repeat business, or for referrals.

Did you know that buyers generally don’t have to pay the commission? That makes working with an expert well worth it. In the meantime, you can become a savvy buyer by reading the posts below:

How Does Real Estate Commission Work?

Commission is paid as a percentage of the home’s sale price, with the amount paid by the seller. That amount is due on the date of closing. The commission is split between the seller’s agent and buyer’s agent as payment for their services. Typically, the buyer is not involved in the process.

So how much does an agent get? Let’s say we sell a home for $1 million. In that case, at a rate of 5%, the seller pays out $50,000. That amount is then split 50/50 between us and the buyer’s agent for a total of $25,000 from which we have to deduct CPP, taxes and all the money we spent on things such as advertising.

What Determines the Average Commission?

This is an important question, especially since the arrival of the “discount brokerage.” Because we provide a service, we consider the work, effort, and investment involved in each transaction to set our commission.

A typical full-service brokerage like ours includes the following services in their commission:

  • Professional cleaning
  • Staging and neutralizing the space to improve appeal
  • Market assessments to ensure appropriate pricing
  • Professional photography and targeted ads
  • Expert negotiation based on your best interests
  • Potential to see higher offers due to increased demand

What is a Discount Brokerage Commission?

Discount brokerages offer limited services, which means you’re on your own when it comes to figuring out and paying for any of the above essential services. That’s why their commission is lower.

A typical discount commission is about 1%. However, the seller still has to pay the full buyer’s commission of 2.5%

Even though the home seller pays the commission, working with an experienced real estate agent generally results in a more profitable sale. Speaking of results, here are some resources to make your home sale successful in any market:

What are the Risks of Commission Discounts?

Less effort on the part of a discount brokerage increases the risk for the following scenarios:

  • A reduction in the perceived value of your home
  • Less exposure due to a lack of advertising so less people see your home
  • More days on the market due to poor exposure and reduced perceived value
  • Poor pricing strategy that eats into profits, or leads to more days on market when the home is overpriced
  • An agent not working in your best interest accepting lowball offers
  • Increased risk for undesirable terms such as delayed closing dates
  • Increased risk of buyer financing falling through
  • Increased risk of unreasonable requests such as repairs

So, although you end up paying less commission, what you save is basically lost. In the best-case scenario, you break even. However, it’s more likely you will lose money due to a poor pricing strategy and lack of negotiating skills.

The Bottom Line

Before considering going the “for sale by owner” route or choosing a discount brokerage, it helps to consider what you’re sacrificing to avoid paying that commission! As with any service, you get what you pay for. Do you really want to take risks when it comes to this major transaction? Probably not!

Are you looking for expert guidance to help buy or sell a home in Toronto? Get in touch with The Christine Cowern Team by filling out the form on this page, calling 416.291.7372, or emailing hello@christinecowern.com today!