In general, realtors in Canada can earn between 3 % and 7 % in commission upon each sale. The rates are not set as there are many variables and types of ways real estate commission is factored. According to CREA (Canadian Real Estate Commission), the varying methods of determining exact rates is left solely up to the buyers, sellers, and the real estate agent.
In addition, there are different pricing structures which can be applied, and these structures should be discussed prior to listing a home for sale, or when searching for a home. Anyone either buying or selling should choose a realtor based upon the rates of commission as this is one of the major costs of either the buying or selling process in real estate. All commissions are deducted from the final proceeds and not added to the price of a home. That is the only real set standard in most provinces and territories.
A breakdown of the types of commission structures is as follows.
The most common type is called fixed percentage, and it is what it states, “fixed.” When choosing a realtor this fixed rate should be in writing before listing a home for sale or purchasing one. A secondary type of commission is a “split percentage.” This allows a realtor to increase the commission price if a home is sold for more than the listing value.
Split percentage types of commission that increase is not allowed in all provinces or territories, only those that are fixed or if split commission type, will decrease the realtor’s earnings. Flat fee commissions are not dependent on the price of a home. A flat fee is earned no matter the price of a home, whether it is a lucrative sale or not.
Service fees and combinations of fees exist.
Agents can charge a flat fee or hourly fee for listing and other materials that are used. They can also choose a combination of a flat fee but then are able to charge for additional fees for other services. It is important for home buyers especially to carefully consider all fees as although it might seem that a purchaser is not paying for the realtor’s time, they in fact are, as the commission comes out of the sale price.
It also is important for both buyers and sellers to establish how a home will be listed and sold. Some realtors can act as an agent for both buyers and sellers, while some individuals prefer to establish their own realtor. This simply means that a buyer has a different realtor than the seller. Using the same realtor by both the buyer and seller is called transaction brokerage. It saves time but can have downfalls.
One of the main pitfalls of transaction brokerage is conflict of interest.
Who does the real estate agent represent most effectively when conflicts arise between the buyer and seller? Buyers want to pay as little as possible for a property while sellers want to sell for as much as is possible. It can be difficult to legally represent both parties equally when a realtor is faced with this situation.
Negotiations can become heated if both parties to a sale/purchase are not of the same mind. It can be a challenging type of situation for transaction brokering realtors as their commission does come from the price of the sale.
Before any realtor can proceed with a transaction brokerage both parties, the buyer and seller must sign an Agreement to Represent both Buyer and Seller. This is a contract that adds a layer of protection for fair handedness on the part of any realtor that is involved in a transaction brokerage sale.
This type of representation is also called Dual Agency and can be legislated differently in each province and territory within Canada. Privacy laws do prevail in these cases, as well as other ethical obligations and it is a balancing act for realtors.
British Columbia, for example since 2018 has banned Dual Agency or Transactional Agency from the roles of realtors. There are exemptions to this ban, however if no licensees are available, if a property is extremely remote, and if it is not practical for either the buyer or seller to use their own realtor. This ban occurred because of complaints about unfairness and other provinces and territories in Canada are considering following suit.
Inaccuracies in facts complicate the perceived notion of real estate commissions.
Just as in the USA and many other countries, individuals who are not realtors can have misconceptions about realtors and what they earn in commissions. Many are perceived to be very wealthy and earning six figure incomes while this is not the norm. There are also misconceptions that the job of being a realtor is an easy one, which is far from the truth.
Realtors must work whenever needed and wherever needed, which means a lot of nights and weekends. They are practically on call 24-7. The final commission might seem high, but many realtors are with brokerages and may have to split the commission amongst themselves and other realtors involved in any sale. They might also need to rent the office space monthly which a brokerage provides, and of course, pay for their own expenses, like gas, and other amenities while on the job.
Taxes are due on each sale, and even after spending weeks, or even months on working towards a sale, a sale can fall through at any point in the sales process leaving a realtor with nothing, unless an hourly service fee agreement was in place. It is not a job for the faint hearted as it is an individual’s own business filled with the required paperwork, training and licensing that is required.
Being a real estate agent means living off real estate commissions so no matter what the circumstances, a realtor must always sell enough properties to sustain themselves and their families. A love of real estate is needed obviously to pursue this type of career.
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