Real estate commission structure in Canada
September 28, 2022
With homes selling in Canada in large volumes at higher prices, most homeowners are thinking of buying or selling. However, they are curious to learn about fees associated with the housing transaction. When it comes to home sales, the most considerable fee is probably the real estate commission. Generally, a Canadian realtor may charge a three- to seven-per-cent commission rate.
What are real estate commissions, and how do they work in Canada?
A real estate commission is the payment someone makes to their real estate agent for their services rendered. The commissions can vary but are often split evenly. Generally, the fee is divided equally between the buyer's agent and the seller's agent. Moreover, real estate commissions can represent a percentage of the housing sale, fees for services, a flat fee, or a combination of fees.
Before placing an offer or listing a property, confirming the commission arrangements with your agents would be best. Commissions go directly to the real estate agents at first, and then a cut will go to the brokerages each real estate agent may work with. If your property does not sell, you won't have to pay any commission fees.
Recently, real estate agents have started offering flat flees or fees for services, reducing homeowners' costs. In Canada, it is common for agents to earn a commission percentage rate of a home's total price. These percentages can vary based on the province or the agents but can typically range between three and seven per cent.
The most common types of commissions and payment structures in Canada
It is in your best interest to know all the fees associated with selling or buying a property. Usually, sellers have fewer fees than buyers, but they still need to be informed. In Canada, the most common commissions structures include:
- A fixed percentage of a property sale: Ranging from three to seven per cent and would stay the same if a home sold for $100,000 or $1 million. This is the most common commission real estate agents and brokerages use.
- A split percentage of home sales: The rate varies on the sale price. Agents can ask for a three-per-cent commission on the first $500,000 and 2.5 per cent on anything more than $500,000. Such a split will result in lower overall fees for the seller.
- A flat fee: The real estate agent offering a flat fee commission works for a fixed price to sell a property, whether it will sell for $250,000 or $2.5 million.
- A fee for service: Real estate agents will be paid for the work they do directly and can include listing, marketing, hosting open houses, or printing and designing brochures.
- A combination of the above: As some fees may be costly, new commission structures are continuously emerging to save sellers and buyers money while real estate agents get paid for their work.
Do homebuyers pay for real estate commissions?
While most buyers may think they have to pay a real estate agent for their services, the seller generally pays the fees. Thus, the buyer will not pay a commission because the seller also pays a cost to the buyer's agent. However, most real estate agents will negotiate with the seller to receive a commission and go to the buyer as the last paying option.
Ontario and British Columbia are the hottest markets in Canadian real estate, meaning that the real estate commissions may be higher in this area. Moreover, in British Columbia, the selling agent usually earns more of the real estate commission than the buying agent.