I read your column last week in which you said it is important to discuss services, commissions and fees with a salesperson before hiring them. What is a reasonable commission rate and what additional fees are acceptable?
There is no set answer to your question. Services, commission rates and additional fees vary brokerage to brokerage, as do additional fees, and add-on services offered. Brokerages can use an agreed fixed amount; a percentage of the sale price, commonly referred to as the commission rate; or a combination of the two to establish a brokerage fee structure for a property sale. The brokerage fee structure is agreed upon by the brokerage and the seller, when entering a listing or buyer representation agreement.
In Ontario, brokerages set their commission rates and fees, however, well established fee structures are in place that support transparency to protect home buyers and sellers. These rules are set out in the Real Estate and Business Brokers Act, 2002, and address the various fee structures that are permitted. Below are some examples of how payment structures may be applied:
- Permitted: Commission rates that decrease as the sale price increases. For example, a brokerage could set a commission rate of 3% for a sale price between $500,000 and $650,000 and 2.5% for the amount received over $650,000. However, the commission rate cannot increase as the price increases – it can only decrease.
- Permitted: Fixed total fee on sale regardless of the final sale price, the fee paid to the brokerage remains the same as agreed to at the time of listing.
- Prohibited: Commission rates that are based on the difference between the listing and sale price. For example, a brokerage could not list a house for $550,000 and then when the property sells for $650,000, charge a 10% commission on the $100,000 difference.
Additional fees vary depending on the services offered from one brokerage to another. I suggest having a conversation with your salesperson about the services that will be included in the listing agreement for your property and if there are any additional fees as part of the marketing plan. Once you and your salesperson have ironed out the details, and you fully understand your obligations regarding what will or will not be included, all the details should be drafted into the listing agreement. You can expect any additional fees will be explained and captured in writing in an agreement. Also, be aware that any fees agreed to for services beyond the sale of the property may be owed by you to the listing brokerage, regardless of whether the property sells. Either way, such agreements and related fees are to be agreed upon in writing. A buyer is also obligated to fee agreements entered into under their buyer representation agreement. Though in many cases the buyer’s brokerage is paid by the seller, buyers are responsible for fees they owe to their brokerage.
As I mentioned earlier, it is important that you fully understand the scope of the marketing plan and what is or is not included in your listing agreement. There is an array of services being offered by brokerages nowadays, so you should have no trouble finding the perfect fit and mix for your real estate needs.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.