How does a real estate agent’s commission work? As an agent, I think I sometimes take for granted that most people already know how it works but I get asked a lot so I thought I would clarify it.
When you list your house for sale with a Realtor, you will sign a Listing Agreement and enter into a contract with a real estate brokerage…not with the individual. The real estate agent is merely authorized to represent their brokerage during the process.
As part of this agreement, you must agree to a total commission rate. Let’s use 5% as an example which is fairly typical in Markham although many variations can exists….but let’s keep it simple. From this 5% you must decide how much will be offered to co-operating brokerages (buyer agents) as an incentive for bringing you a buyer for your home. Again, typically in Markham, 2.5% is considered standard although in some pockets you’ll find 2.25% being offered. Either way, it’s typically about half of the total commission.
So what if the listing agent finds the buyer on their own and there is no other agent? In that case, your agent would also represent the buyer and the listing brokerage would also collect the buyer side of the commission. You may, however, negotiate a discounted rate with your agent beforehand, should this scenario occur.
So does my agent get to keep all that money? I wish, but no. Remember, your contract is with the brokerage and the total commission is paid directly to the listing brokerage and then disbursed accordingly. Every agent has an agreed commission split with their brokerage as well as set monthly fees to be a part of their brand. But the fees don’t stop there! That’s right, there’s other various licensing, membership, insurance and advertising fees to name a few, but that’s a whole other post altogether.
So do I have to pay anything to my agent when I buy a home? Most agents will tell you that their services are free when you buy a home through them but that’s not entirely true. When you sign a Buyer Representation Agreement and authorize your agent to represent you, you also authorize the brokerage to collect an agreed commission from the listing brokerage or seller. However, should the seller or listing brokerage not be offering an appropriate amount, you’re on the hook for the difference. The good thing, though, is that this rarely ever happens and an appropriate amount is offered more than 99% of the time….even by many private sellers. On the off chance that you do find yourself in this scenario, the difference can be written into the offer so no amount has to be paid out of pocket.
Please keep in mind that there are many variations on commission structures but everything I’ve just described is what you’ll most likely encounter in the marketplace. If you have any specific questions, please feel free to give me a call or send me an e-mail anytime!
