How does commission work?

I think probably the most “contentious” issue in real estate is commission. And due to RECO (Real Estate council of Ontario) rules, we have to be very careful in actually discussing commission.

But here I am, wanting to discuss commission.

First, let me just say this. Commission is negotiable. We can charge a flat fee, or a %, or both. Commission rates are not set by any regulatory body. Commission is determined by the individual brokerage.

Arrangements can vary, and commission and fee arrangements come in three forms:

  • A fixed amount (Ie $10,000 total)
    • A percentage of the sale price (Ie 5%)
    • A blend of a fixed amount plus a percentage of the sale price (Ie $10,000 plus 1%)

The most common arrangement is a percentage of the sale price.

It gets a little tricky when discussing options where the commission rate changes with sale price: arrangements where the percentage rate decreases as the sale price increases are permitted. For example, a brokerage could set a commission rate of 3% for a sale price up to $250,000 and 2.5% for a sale price over $250,000. However, the percentage rate cannot increase as the price increases – it can only remain fixed or decrease.

You can read more about commission rules here:

For sellers: Commissions and fees charged by the brokerage

If you are a consumer, commission is probably one of your biggest concerns about selling your house with an agent. I DO understand that – commission is expensive!

How Much Money does my realtor actually make?

I’m going to use 5% as the base, because I would say that is the most common percentage charged. Some agents charge more, and some charge less. But for the purpose of this, I am going to say 5%.

Usually, half is given to the buyers brokerage (2.5%) and half remains with the listing brokerage (2.5%). As realtors, we absolutely have to make sure that we are offering to pay the buyers agent (sometimes people ask if this is necessary) – YES, YES we do! Often people have worked with their buyers for months or even YEARS (I had clients for over 2.5 years once), and they deserve to be paid for their work, the way anyone expects to be paid at their own job, whatever that may be.

Of the 2.5% that a listing brokerage is paid, the agent will receive anywhere from 50%-95% of the commission depending on their specific arrangement. 70% is a common figure. SO the listing agent is getting 70% or 2.5%, or 1.75%

Out of the 1.75% the listing agent keeps, they have to pay income taxes real estate board fees, insurance, and of course any marketing money they have spent.

Marketing fees can be very expensive: staging starts at $200, professional photography starts at $250, videography another $250, Facebook ads, newspaper ads, print brochures and feature sheets –  everything ads up.

I would say a REALISTIC number that a listing agent ends up with is about 1% of the sale price of the home, but of course this can vary with each home. So, certainly not the full 5% that everyone tends to assume we are making J

As a consumer, it is very important to get any agreements regarding commission in WRITING – it is not legally enforceable otherwise. Some agents offer discounts if you buy & sell with them, others have friend/family discounts, others will charge the same rate all of the time regardless of the situation. There are also discount brokerages and private sale companies, all with their own commission structure. If you have questions about any of the options available to you as a consumer, I would love to chat!