Buying or selling a home is a big step for many people, and naturally, it can take a bit of planning and research. For many people cost is a big part of the bottom line, so it makes sense to ask how much does it really cost to hire the services of a real estate agent.
How much is real estate commission? How much should you pay? And when you do, how do you actually complete the payment?
Let’s take a look at these questions below.
- Commission for Buying a Home
- Commission for Selling a Home
- How Much Commission Should You Pay?
- How Much Should You Pay to the Buyer’s Realtor?
- Should You Go for a Discount Realtor?
- Should You Go for an Expensive Realtor?
- Do You Pay commission if You Don’t End Up Buying/Selling?
- Do You Pay HST on Commission?
- How Do You Pay Your Realtor?
Commission for Buying a Home
In Canada, and by extension in Ontario and in Waterloo Region, commission is paid by the seller of the home.
This is great news for buyers. It means that, as a buyer, you don’t have to pay commission to your realtor, and you get to benefit from their help and services for free.
As a buyer, all you have to do is reach out to an agent and enlist their help to find you a home. They will take you on as a client and you won’t ever see a bill.
Having this available can be a huge advantage, especially in Ontario’s hyper competitive real estate market.
One important thing to mention here, is that we are talking strictly about real estate commission.
The realtor will not charge you anything, however, buyers will still have costs associated with moving, storage, hiring a real estate lawyer, hiring a home inspector if applicable, and so on. Closing costs usually amount to 1% of the value of the property.
Commission for Selling a Home
The seller of the property is typically responsible for paying commission to both the listing agent and the buyer agent. If the same listing agent represents both the seller and the buyer, the seller pays both commissions to just that one agent.
So how does it work? Commission paid is split into two parts:
- Commission paid to the seller’s agent that’s listing the property
- Commission paid to the agent of the buyer that is buying the house
The second commission is also called “cooperating commission”. This is a payment to the buyer’s agent for bringing over someone to buy the house. It’s designed to incentivize agents to bring people to see the seller’s home, and it’s the reason why buyers don’t have to pay commission (it’s already taken care of).
The split is usually 50/50 between the two commissions, though there can be variations. In most cases, half is taken by your agent for selling your home, and the other half is given to the buyer’s agent as cooperating commission.
- Average commissions range 4% – 6% as the total
- Splits are usually 2% to your agent + 2% cooperating commission (you pay 4%)
- Or it can be 2.5% to your agent + 2.5% cooperating commission (you pay 5%)
- Or it can also be 3% to your agent + 3% cooperating commission (you pay 6%)
In some cases, discount brokerages offer commissions that are lower than the market average. You might see 1% or 2% total commission rates, or sometimes even less than 1% for the whole thing.
How Much Commission Should You Pay?
The market average for real estate commission in Kitchener-Waterloo and the surrounding area is 4% to 6%, with 4% being frequently encountered.
How Much Should You Pay to the Buyer’s Realtor?
2% to 3% is paid as cooperating commission to the buyer’s realtor. This is INCLUDED IN the 4-6% total you pay when you sell your home.
138 THICKSON RD N, Whitby, L1N3R2
138 Thickson Road, Whitby, Ontario L1N3R2More
51 OAKDALE Court, Kitchener, N2P2S9
51 OAKDALE Court, Kitchener, Ontario N2P2S9More
580 BEAVER CREEK Road Unit# 266, Waterloo, N2J3Z4
580 BEAVER CREEK Road, Waterloo, Ontario N2J3Z4More
6 KRON DR, Guelph, N1G3E2
6 Kron Drive, Guelph, Ontario N1G3E2More
150 WATER Street N Unit# 1010, Cambridge, N1R0B5
150 WATER Street, Cambridge, Ontario N1R0B5More
125 MILL Street E, Elora, N0B1S0
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10 BIRMINGHAM Drive Unit# 9, Cambridge, N1R8J8
10 BIRMINGHAM Drive, Cambridge, Ontario N1R8J8More
Should You Go for a Discount Realtor?
When considering your options for an agent, you might come across agents and brokerages offering discounted rates. Of course, this mostly applies to the selling side, as buyers can get any realtor they want for free.
Some agents offer discounted rates of 1-2% or even lower. While it seems appealing to get a discount on the commission rate, quality does vary with price and you do get what you pay for.
Agents who focus on providing value through cost savings, might not be able to offer as much value in terms of service for you and marketing for your home.
Selling a home is a large and important transaction, and it’s definitely a scenario where investing in quality matters. Cutting corners could end up costing you tens of thousands of dollars in the end, so do be careful when weighing your options for discount versus regular price.
Should You Go for an Expensive Realtor?
It’s true that you get out what you put in, and real estate is no exception. In many cases, it might be worth the investment to work with a realtor with a higher pricepoint.
Realtors with higher rates tend to offer higher standard of service, market your home better and with more resources, negotiate more aggressively, and spend more time shopping for a home to buy.
The increased cooperating commission also incentivizes buyer agents to bring more buyers around.
In most cases, it’s typically a good idea to stay within the 4-6% market range (assuming you connect well with the realtor and there aren’t any red flags).
Going toward the higher end of 5% or 6% is justified if you like the value proposition of the agent and the marketing plan they lay out makes sense to you.
When selling a home, being able to capture demand and generate offers is critical to your bottom line (ie how much you get for your house).
Investing in your agent and the marketing of your home is a good idea and often more than pays for itself by the time the deal is done.
Do You Pay commission if You Don’t End Up Buying/Selling?
No, for the typical real estate contract, the agent doesn’t get paid unless you buy or sell. As a seller, you don’t end up paying commission if you don’t sell.
Do You Pay HST on Commission?
Yes, HST applies to commission paid out and you will see it on your bill, just like with anything else.
Selling your house is a service you hire like any other, so HST applies in Ontario.
How Do You Pay Your Realtor?
Lastly, once all is said and done, how do you go about making the payment?
Paying the real estate agents is taken care of by the lawyers handling the closing of the transaction and also the brokerages of the agents involved in the transaction.
This means that, conveniently for sellers, there isn’t much that needs to be done and it will be handled for you.
And there you have it! That’s how real estate commission works in Ontario and subsequently in Kitchener-Waterloo, Cambridge, and the surrounding areas.
If you have any questions about commissions, or the real estate process in general, we’re happy to help so feel free to reach out!