How Does Real Estate Commission Work? 5 Commission Facts and Tips
The real estate industry has one of the most beneficial payment options for clients of any other industry. Basically, they do all of the work they have to do, but if the sale is unsuccessful, the client doesn’t pay.
Working 100 per cent on contingency can create insecurity in cash flow, but with the contingency percentages sitting fairly high, it tends to work out.
The industry is unique in the way it manages its commission payments for real estate agents, and there are some important details to be learned in order to truly understand it.
1. It’s usually split
The money paid in the transaction for the piece of real estate sold is the money that pays the fees for both the buyer and the seller’s real estate agents. The average percentage paid to real estate agents in Canada is three to seven per cent, split between the two realtors. Sellers generally try to factor this in when setting the price for their house so they can get as much money as possible out of the sale.
The split is based off of an agreement on behalf of the listing broker that states that they will split the commission they receive with the co-operating broker. This means that if there is no co-operating broker, the entire commission goes to the listing broker unless otherwise stated in their agreement.
2. Commission pays for a service
There are quite a few tasks that a real estate agent must do when selling a home. They are in charge of listing and promoting the home. Nowadays that means on their website, on real estate listing sites, as well as on social media and any other form of advertising they may have. It also means negotiating when an offer comes through. This is a big one for a lot of people.
Although a realtor’s knowledge about how to advertise a property is definitely helpful in making the sale, it is the realtor’s negotiation skills that many people seek. Negotiations can be difficult, and when it comes to selling or buying a home, it is crucial to have their expertise.
3. Price matches service
Just like with pretty much everything, the commission percentage the realtor charges is directly related to the amount of work the real estate agent does. For a certain level of marketing and for certain added services like professional photography or home staging, a real estate agent can charge more.
However, it is important to note that this is only reflected in the commission percentage. If the home never sells, the realtor will not be paid, regardless of how elite the services they provided were.
4. Hiring a realtor pays the commission
Sellers often believe that selling their houses without a realtor will allow them to pocket more money, however this is generally not true. Homes being sold by the homeowner rather than by a professional often sell for much less. This means the homeowner ultimately puts significant time and effort into selling their own home, to make equal or even less than what they could have made with the help of a professional. This professional could also have relieved a lot of the stress that comes with selling a home.
5. Commission is variable
There is no list that says exactly what a certain commission percentage is worth. It is up to the seller to decide if the commission their realtor is asking for is worth the services they are offering. Sellers should ask and understand what they are getting for the commission percentage presented, and should feel confident that the agreement is fair.