How Does Real Estate Commission Work in Canada?

Real estate transactions are significant financial endeavors, often involving substantial sums of money. In Canada, the real estate industry operates on a commission-based model, where real estate agents are compensated for their services based on a percentage of the property’s sale price. 

In this comprehensive exploration by the experts at Modern Solution Realty, we will delve into the intricate workings of real estate commissions in Canada, covering topics such as the mechanics of commission, the amount agents receive, who bears the cost, alternative commission structures, the scope of commission coverage, and regional variations in commission rates.

What is Real Estate Commission?

A real estate commission is financial compensation paid to real estate agents for their professional services in facilitating the buying, selling, or renting of properties. This commission is typically calculated as a percentage of the property’s sale or rental price and serves as the primary source of income for real estate professionals. The agreed-upon percentage is negotiated between the agent and their client and is commonly shared between the buyer’s agent and the seller’s agent. The commission is designed to incentivize agents to maximize the value of property transactions for their clients, as their compensation is directly tied to the successful completion of real estate deals. 

How Real Estate Commission Works

The real estate commission in Canada is typically calculated as a percentage of the property’s sale price. This percentage can vary but is commonly around 5% of the sale price, with this amount split between the buyer’s agent and the seller’s agent. For example, in a 5% commission scenario, the buyer’s agent may receive 2.5%, and the seller’s agent may receive 2.5%. However, it’s crucial to note that these percentages are not fixed, and negotiations between the parties involved can lead to adjustments.

How Much Commission Do Real Estate Agents Get Paid?

The standard commission percentage for real estate agents in Canada hovers around 5%, but this can vary. Factors influencing the commission rate include the local market conditions, property type, and the level of service provided by the agent. Some agents may charge higher or lower commissions based on their experience, reputation, and track record. At Modern Solution Realty, for example, we charge a total of 2% Commission – with the Buyers Agent and Sellers Agent getting 1% each. 

Some brokerage firms divide commissions with their agents 50/50. Some agents are paid 60%, while their brokers are paid 40%. The share between the agent and the company might be as high as 70%/30%, 80%/20% or even $399 per transaction.

Average Realtor Commission by Province

ProvinceCommission
Ontario4% – 5%
BC3% – 4%
Quebec5%
Alberta7% for the first $100,000 and 3% for the remainder
Saskatchewan6% for the first $100,000 and 2% for the remainder
Nova Scotia4% – 6%
New Brunswick5%
P.E.I5%
Manitoba4% – 5%

Who Pays the Agent’s Commissions?

Traditionally, the seller bears the cost of the real estate agent’s commission. When a property is sold, the agreed-upon percentage is deducted from the sale proceeds before the seller receives their net amount. This arrangement incentivizes agents to secure the best possible sale price for their clients.

Alternative Real Estate Commission Structures

While the percentage-of-sale model is the most common, alternative commission structures exist. Some agents may offer a flat fee for their services, which can be advantageous for clients selling lower-value properties. Others may employ a tiered commission system, where the rate decreases as the sale price increases. These alternative structures aim to provide flexibility and cater to a diverse range of clients and property types.

Exploring Flat Fee Real Estate Services

Flat fee real estate, also known as flat fee MLS (Multiple Listing Service), is a way of selling a property in which the seller pays a specified flat charge to a real estate agent or firm instead of a standard commission based on the property’s sale price.

The process typically involves the following steps:

1. Listing Agreement: The seller and the flat-fee real estate agent or brokerage sign a listing agreement outlining the services to be delivered as well as the agreed-upon flat charge.

2. MLS Listing: The agent will place the home on the local MLS, which is a database that real estate agents and potential purchasers can access. This broadens the exposure of the property to a larger audience.

3. Marketing: The seller may be responsible for marketing their property, such as creating listings, taking photos, and conducting open houses. Some flat-fee real estate services may offer additional marketing assistance for an additional fee.

4. Handling Inquiries: Inquiries concerning the property may be directed to the seller or the flat fee agent by potential buyers or their real estate agencies. These questions are typically handled by the seller.

5. Negotiation and Offer Review: When an interested buyer makes an offer, the seller can negotiate directly with the buyer or have the flat fee agent assist in negotiations. The agent can provide guidance and support during the process.

6. Closing: If an agreement is reached, the seller may hire an attorney or title company to handle the closing process, including paperwork, inspections, and any necessary legal or financial requirements.

It’s worth noting that in a flat-fee real estate transaction, the seller is normally responsible for paying the buyer’s agent’s commission, which is usually a percentage of the sale price. This compensation is separate from the listing agent’s or brokerage’s flat charge.

Overall, the flat-fee real estate model is a more cost-effective alternative to typical commission-based arrangements, allowing sellers to save money while still having their property listed on the MLS and accessing a larger pool of possible purchasers. However, sellers should conduct thorough research and evaluation of various flat-fee real estate providers to ensure they are receiving the services they require at a reasonable price.

The Modern Solution Commission Structure

Navigating the complexities of selling a house without a realtor can be challenging, but Modern Solution Realty, a trusted real estate brokerage in Ontario, Canada, is here to simplify the selling process. We bring an in-depth understanding of the local market, offering a remarkable 2% total commission rate that ensures you receive the maximum value from your sale. With Modern Solution Realty, you benefit from a low 2% total commission, with 1% allocated to the buyer’s agent and 1% to the seller’s agent, resulting in substantial savings compared to traditional real estate fees. Our team of experienced professionals provides expert guidance throughout the selling journey, ensuring a smooth and hassle-free experience.

Real estate commissions have grown a whopping 440% in the last 33 years. While other professions (nurse, teachers, etc) have had their salaries only increase by 15%, This is why Modern Solution believes in a Fair total commission of 2% (1% to the buying side, 1% to the listing side)

Real estate commission example

If a real estate salesperson sells a $1,000,000 home, they may make a commission of $40,000 to $50,000. This is simply an example, and the actual amount earned by a real estate agent will vary depending on a variety of circumstances.

What Do Real Estate Commissions Cover?

Real estate commissions cover a spectrum of services provided by agents throughout the selling or buying process. These services include property valuation, marketing and advertising, negotiation, paperwork and legalities, and facilitating the transaction from start to finish. The commission compensates the agent for their time, expertise, and resources dedicated to ensuring a smooth real estate transaction.

How Much Do Real Estate Agents Make?

Real estate agents’ earnings are directly tied to the commissions they receive. On average, a real estate agent in Canada can earn $134,783 in 2023. However, it’s crucial to recognize that real estate income can be highly variable. Experienced agents with a robust client base and successful track record may earn significantly more than those who are newer to the industry.

Talking About Commission with Your Real Estate Agent 

When engaging with a real estate agent, open communication about commissions is essential. Clients should feel comfortable discussing this aspect of the transaction, seeking clarity on the commission rate, and understanding how the agent justifies their fees. Modern Solution Realty recognizes the importance of transparent communication and strives to provide clients with a clear understanding of the value they bring to the real estate process.

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