How real estate agents get paid
Real estate remuneration explained
Real estate agents in Ontario typically get paid upon the successful completion of a real estate sale. Services, commission rates and other fees vary from brokerage to brokerage. Brokerage commissions can be an agreed-on fixed amount; a percentage of the sale price; or a combination of the two to establish a brokerage fee structure for a property sale.
Code of ethics: Obligation to inform the buyer of properties
Real estate representatives have an obligation to inform buyers of properties that meet the buyers’ criteria, regardless of the remuneration offered. This is a legal requirement that all real estate professionals must follow. To do otherwise is known as “steering,” which is illegal.
If a brokerage enters into a representation agreement with a buyer, the agent must inform the buyer of properties that meet the buyer’s criteria without regard for the amount of remuneration, if any, the brokerage might be entitled to, that is to say, the amount the seller is offering to pay the buyer’s brokerage.
Types of payment structures
The brokerage fee structure is agreed on by the brokerage and the seller or buyer when entering a listing or buyer representation agreement. Usually, real estate commissions are paid by the seller, with an amount paid to each of the buyer and seller brokerages.
In Ontario, there are three types of real estate commission:
- A fixed amount
- A percentage of the sale price
- A combination of 1 and 2 (fixed and percentage)
In Ontario, brokerages set their commission rates and fees. These are rules set in the Real Estate and Business Brokers Act, 2002, and address the various fee structures that are permitted. Below are some examples of what is allowed and what is not:
- Permitted: Commission rates that decrease as the sale price increases. For example, a brokerage could set a commission rate of 3 per cent for a sale price between $500,000 and $650,000, and 2.5 per cent for the amount received over $650,000. However, the commission rate cannot increase as the price increases – it can only decrease.
- Permitted: A 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 can not list a house for $550,000 and then when the property sells for $650,000, charge a higher commission on the $100,000 difference.
