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What is Commission?

August 29, 2009 - Updated: December 21, 2009

What is Commission?



Confused about real estate commissions? You're not alone.

There's no question a good real estate agent can be a valuable resource when it comes to buying or selling a home. But how much is that help going to cost?

First of all, if you're the one buying the home in Brampton ( or actually anywhere in the GTA), it is't going to cost you anything. The agent's commission comes out of the selling price. That means it's deducted from the amount the seller receives, not added onto the amount the buyer pays. Of course, it can be argued that as a buyer you are indirectly paying the commission by virtue of the fact that it's included in the price. But following that logic, all homes for sale by owner should cost less than those being sold through an agent, and if you've called on FSBO ads in Brampton you know that certainly isn't always the case.

Second, if you're the seller, you don't have to pay an agent anything up-front to market your home. A real estate agent generally doesn't receive any commission until closing, at which time they will receive the amount stipulated in their contract” commission rates vary from city to city and from agent‚ to agent. But chances are (unless you're in a particularly hot market) your agent is going to have to work hard to earn that commission by investing a lot of time and effort into marketing your home. And they're going to have to give a cut of that commission to both their brokerage and the buyer's agent (unless they represent both the buyer and the seller).

To help take the mystery out of real estate commissions, we provide the following answers to a few of your most common questions.

Q. Who pays the commission?
A. The seller. It is paid out of funds received from the sale of the home.

Q. Does the commission go entirely to the seller's real estate agent?
A. No. The broker whose firm lists the house sets the commission. The listing broker then offers part of the commission ” to the broker whose firm represents the buyer. Both brokers then share their portion of commission with the agents who work with the seller and buyer. The agents's share may be as little as 50 percent or as much as 100 percent, depending on their arrangement with the broker. If either brokerage is part of a franchise, it may also pay part of the commission as a franchise fee. Bigger Franchisees such as Remax and Royallepage may charge monthly Franchise fees but the agents get the benefit of being associated with the top brands in real estate.

Q. Is it possible to negotiate the real estate commission?
A. Yes. An agent may be willing to negotiate his or her commission in order to get your business. This is especially true if the agent is independent and doesn't have large operating costs. In some cases, both agents might agree to cut their commissions in order to bring down the price of the home if the buyer's offer doesn't quite meet the asking price. From my experience in Brampton I've seen and heard everything.

Q. Will I pay less if I buy a house without using a real estate agent?
A. You might be able to negotiate a reduced price. Since the listing broker won't have to share the commission with another agent and broker, he may agree to a reduced commission and pass the savings on to you. This may also be possible if you use the same agent as the seller  for example, if you toured an open house in Brampton and retained the listing agent. This is called dual agency. Yes there is a chance that if you went to the listing agent direct you might save some money because that buyer's agent commission can now be negotiated in the price. But keep in mind that at the end of the day the listing agent is still working for the seller. So be sure to double check everything you sign.

Q. Is a real estate agent likely to push me to buy a more expensive home so he can make a higher commission?
A. There isn't a big incentive for an agent to push you to buy a more expensive home because of the way commissions are divided. For example, your agent may be entitled to 65 percent of his broker's share of the commission  perhaps 2.5 percent of the sale price. Under that scenario, if you were to buy a home for $260,000, rather than $250,000, your agent would earn only an additional $195. That is really not a money, and certainly not enough for the agent to lose your trust over.

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Laddi Dhillon
Sales Representative

RE/MAX Gold Realty Inc.Brokerage
Independently owned and operated

2980 Drew Rd Unit 231
Mississauga, Ontario L4T 0A7

Phone:905-598-0725 905-598-0725


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