What you should know
There is no such thing as a standard or fixed commission in real estate.
This is a federal law, under the Competition Act. The only time you may have a standard commission is if a single office demands it, or it is that brokerages business model. However, in every marketplace, there is a commission that is considered a typical or common full commission.
What do the numbers mean?
I’ve been in the real estate industry for 30+ years, and my entire time in the industry in the Calgary residential marketplace, full commission has always been considered to be 7% on the first $100,000 and 3% on the balance of everything over $100,000. The listing Agent gets half and the Agent that brings the buyer or the buyers Agent gets half. The 7% & 3% is split 50/50 between the 2 agents. In this example the commission is split like this, 3.5% for the first $100,000 and 1.5% for the balance that is over $100,000 goes to both the listing Realtor and the buyer's Realtor.
Who pays the commission?
Normally, the seller's pay the commission; traditionally speaking the buyer pays no commission.
How is the commission split? (who gets what)
The seller will want to negotiate a commission with the listing agent or whoever it is that they’re interviewing. However, it’s important for the seller of the property to understand that the commission should be reduced on the listing Realtor's side, and he or she would not want to reduce it on the buying Realtors's side. The reason is that within the MLS System®, the buyers Realtor can see how much commission is offered on the transaction, and unless there will be what they consider to be a full commission, the buying Realtor may think, Well, I’m not getting my just due over there. I think I just won’t show that property. This flies in the face of the Laws of Agency because the buyers Realtor is supposed to act in the best interest of their client. But as the old saying goes, “money talks,” and with a lower commission offered, the buyers Realtor may naturally be less motivated to show the property. Even though this isn't right, what goes on inside the buyers Realtor's mind can’t be proven, and therefore a lower commission offered may result in less exposure for a home, and therefore fewer potential buyers seeing the home.
Can I save money?
In addition, the Realtor working with the buyer will in most cases have a Buyer Representation Agreement with the client stating he or she will be paid 3.5% on the first $100,000 & 1.5% of the balance from the seller. If a seller is offering less then the buyer will have to make up the difference or whatever complies with the Buyer Representation Agreement. As is true with all things, when dealing with commissions, you get what you pay for, and saving a couple thousand dollars on a reduced commission could ultimately cost you thousands of dollars when it comes to advising and the negotiations skills when dealing with the other Realtor's when an offer comes in. If a real estate professional is quick to discount everything when you first meet, ask yourself how hard are they going to fight for the best price for your home when an offer is written? There are companies out there who refer to themselves as offering full service with discounted real estate commissions. But I wonder what exactly they are discounting since there are no set fees for commissions. This is a great question for you to ask.
Who should you choose?
In order for the sale of your home to go as smoothly as possible, it’s most important to hire a REALTOR® with a lot of experience, market knowledge, a great reputation and track record within the real estate industry, who will give you full exposure and has a marketing strategy for the sale of your home. And while commissions are always negotiable, it’s best for sellers to pay what is considered to be a full commission to the buyer’s agent so that their home receives as much exposure as possible. This is, in my opinion, the number one strategy for selling your home. Find a Realtor who has experienced the trends within your Marketplace, that can give you knowledgeable advice and is an expert negotiator! If you would like to know more about our services check out our HOME SELLER page for more information, and of course we would love to hear from you if you have any comments or questions.
For More Information
Contact Tom Waller at 403-803-5151 to find out more about Buyer or Seller representation.
We want to say Thanks to everyone that has taken the time to leave a comment. Clearly, there are many questions about a commission and how it works. Due to the large volume of responses to this post we have closed the comments section as most of the questions have already been asked or are answered in the blog post. We are happy to discuss any questions you have by telephone or to meet with you in person for a coffee to demonstrate our business model.
We cannot comment on other Realtors business models or other Brokerage business models or their commission agreements with their clients. These agreements are between the Client and the Agent/Brokerage. All of the files or contracts are held in a secure location at the specific brokerage. If you have questions about a commission you paid or have been quoted you would need to speak with the Agent or their Broker you dealt with for that transaction.