Most Sellers I encounter have no idea how the Selling Commission is structured or how it is allocated. Many consumers believe their agent’s expenses are covered by their Brokerage, but in fact agents are responsible for ALL their expenses.
Here is an excerpt below from my booklet… A Real Estate Guide for Sellers… where I explain to clients how the commission structure works.
Commission – What It Covers
Real Estate professionals are independent business people who must pay fees to their broker, to their boards, and must cover ALL of their business expenses before they acquire net earnings.
Most professionals receive an hourly fee for services as the work is done, but real estate agents are paidONLY when have successfully completed a transaction.
All work leading up to that point, which might include consulting, fee appraisal evaluations, listing, marketing, showing properties, advertising, prospecting, etc. remains unpaid, until two parties are successfully brought together in a real estate transaction.
How Is It Allocated?
The commission paid to the Listing Broker upon completion of the sale is allocated as follows:
- 50% is paid to the selling broker, of which the salesperson gets a portion, dependent on what level of ” split” they are on at a given time. Each agent is under contract and the split, varies with the amount of commission earned.
- 50% is paid to the listing broker, out of which the salesperson who represented the Seller gets a portion. The amount will be dependent on what “split” they are currently on with their respective broker. Again, this amount varies with the amount of commission earned.
What Expenses Your Agent Is Responsible For
- Licence Fees – The Ontario Real Estate Association decrees that a realtor must licenced to sell real estate under their jurisdiction and by-laws.
- Board Fees – Toronto Real Estate Board, and Mississauga Real Estate Board and any other Real Estate Board the agent is a member of.
- Broker Fees – We are under contract to our broker for holding our licence and being the broker under whom I can trade in real estate.
- Advertising – All advertising, which includes newspapers, flyers, newsletters, mail-outs, web sites, feature sheets, personalized booklets, etc. are all expenses the real estate agent is responsible for.
- Office Fees – A fee is paid to the broker to whom we under contract for use of such items as: office space, computer equipment, software, fax machines, photocopiers, phones, pagers, stationery, secretarial services, listing sign, open house signs, business cards, and automobile.
- Courses – Agents are responsible for all educational courses and real estate seminars.
- Insurance – Because we are independent business professionals, we are responsible for our own medical/dental insurance and personal liability insurance.
In addition to the above expenses, my commission earned is my pay cheque and also pays for:
- My monthly mortgage payment
- Groceries for my family
- My Car and House insurance premiums
- My Electric Bill
- My heating bill
- My Car Maintenance
- My cable and phone bill
- Repairs/maintenance to my home
- Clothes and shoes for my children
- My computers, printers and other devices used for my business
- And any an all other sundry items a typical family pays for…
There are many “discount” agents out there who reduce their commission even before they negotiate an offer for you. How do you think this agent is going to negotiate for you at the offer table when he/she crumbles and gives away their hard earned pay cheque at the slightest question?
How hard is this agent going to work for you if he he/she is being paid at a discounted rate? You pay a discounted commission… you typically get discounted service.
There will be minimum effort, and minimum dollars spent if any, to market your property.
Remember, you are hiring a professional…and they should conduct themselves as a professional, as in any other type of business.