Whether you’re looking to buy a new home or invest in other projects, selling your house is always exciting. There’s a myriad of factors you need to think about in order to make the best decisions, including the average real estate commission rates across Canada.
The latest projections suggest that the average selling price of a house in Canada is at an all-time high of $816,720, although this price may vary in British Columbia, Quebec, and other provinces.
By knowing the average commission for realtor services, you’ll understand the value that your agents deliver and potentially save money during the negotiation process.
Below, we’ll share the definition of real estate commissions and explain the most common types. We’ll also go over the average realtor commission rate in Canada, explain the nuances of selling homes without an agent, and answer common questions in our FAQ section.
What Exactly Are Real Estate Commissions?
In the real estate context, a commission is a fee paid to the realtors or agents involved in the sale of a property. This fee doesn’t have to be split evenly between both sales agents.
Real estate commissions, which are also known as real estate agent fees or realtor rates, have to be negotiated before the sale of the house is completed. We’ll share the average commission rates in Canada later in this article, but it’s important to understand that these fees are only paid when a house purchase is completed. If the purchase is not completed for any reason, the realtor or real estate agent doesn’t get paid.
What Are the Different Types of Realtor Commissions?
Now, it’s also crucial to understand the different types of commission structures commonly found in real estate sales.
The exact type of commission will vary depending on the real estate being sold, the final sale price, and other variables. The best agents are very transparent about these fees, so it’s in your best interests to ask questions from the get-go.
The most common types of commission in the real estate market include:
Fixed Percentage Commission
Fixed percentage commission is the most common type of listing agent fee in Canada. In this model, agents receive a fixed percentage of the price of the house. For example, if your fixed percentage commission is 5%, the agents will receive $5,000 for selling a $100,000 home.
Split Percentage Commission
This is a type of commission structure where the commission rate decreases as the price of the property increases. Split percentage commissions usually work on thresholds. So, an agent might receive 5% for selling a house at $500,000 and 4% if the real estate sells for anything higher.
Flat Fee Commission
Fixed or flat fee commission rates stay the same for all property sales, regardless of their price or type. In fixed fee commission structures, the agent doesn’t receive a percentage rate, but a set amount that’s defined before the house is placed on the housing market. As with all others, flat fee commissions don’t include legal fees, so you’ll still need to factor these into your costs.
Service Fee Commission
This model is much more flexible than the previous three because it allows you to choose what services you pay for. In these cases, agents receive a fixed or hourly payment to set up the staging, find photographers, conduct open houses, and take care of all other organizational tasks required for selling a piece of real estate.
Fee Combination Commission
This structure usually involves paying commissions as well as additional fees for other services. Many real estate agents that offer this type of commission specialize in selling unique properties that require services outside of the norm, so it’s not as common as others.
Who Pays the Commission?
Technically, the seller pays for the commission because this transaction takes place after the property has been sold. Therefore, it’s initiated by the seller.
That said, some home sellers do factor in the price of the commission in the sale of the real estate. So, home buyers also cover part of the fees in these cases, at least to some extent.
Real estate agents have to work through a broker. Rather than sending the commission to the seller’s agent, the funds are sent to the broker, who then splits the fee based on the pre-existing agreement.
According to the Canadian Real Estate Association, a shortage of residential real estate has been in effect since the beginning of 2022, which has continued to set record property prices. But, sellers need to familiarize themselves with the average commission rates in order to make the most from their home sales.
Average Real Estate Commission in Canada
The average real estate agent commission ranges between 3% and 7% depending on the type of property. Typically, sellers can expect to pay around 5% fixed percentage commission on the sale of a residential real estate, although this number can vary depending on many factors.
Commission fees don’t have to be split evenly, it’s industry standard to grant 50% to the buyer’s as well as the seller’s real estate agent.
Keep in mind that the real estate percentage commission isn’t added to the final price of the property, but it comes out of this total instead. Additionally, just like buyers have to cover closing costs, remember that sellers also need to pay for legal expenses and other services.
If you’ve already established a commission for the sale of your home, it’ll be difficult to negotiate a lower fee with the same agent unless you’re working with an open listing, which is rare in its own right.
Sellers that want to reduce the amount of commission can opt to work with platforms like Justo from the start. Justo’s innovative system allows sellers to list their homes within minutes and pay commission rates as low as 2.5%.
The “House for Sale by Owner” Route
Now, it’s technically possible to avoid paying a real estate agent commission on your property sale if you don’t use an agent.
This is often referred to as the “house for sale by owner” route and it comes with a unique set of challenges. It’s true that you may save thousands of dollars, but you should also be prepared to do a significant amount of work in order to get your real estate sold.
Sellers who choose to sell without an agent should still hire an appraiser. Plus, reaching out to real estate brokerages in order to get the properties in multiple listing service or MLS platforms is also a great idea.
Conclusion
There are many agents you can work with, but Canada realtor fees are relatively standard across most markets and residential properties. If you’re selling a home, you’ll likely have to pay the 5% commission fee. That said, it’s possible to reduce this commission rate by as much as half if you work with a platform like Justo.
FAQs
As a home seller, can I negotiate the real estate agent fees?
Sellers can negotiate commission rates with their agents before listing their homes, but it’s safe to assume that most real estate professionals will want to adhere to industry standards. That said, having a home that is in great condition, has been recently remodeled, or is otherwise desirable may improve your chances of readjusting the commission rate.
As a buyer, can I negotiate the real estate agent fees?
Buyers don’t technically pay for real estate commission fees. So, it’s not common for the buyer’s agent to reduce his or her commission rates or to even receive this type of request.
Although it’s possible, buyers rarely bring up commissions or attempt to negotiate them because this rarely reduces the overall price, so there’s little to no benefit for them.
Do you have to pay taxes on the real estate agent’s commission?
In most cases, real estate commissions are subject to HST, although this may vary from province to province. Your best bet is to discuss this with your real estate agent to get a better idea of what to expect from your home sale.
What is a 1% agent?
A 1% agent is a real estate professional that can sell your residential real estate for a commission of 1%. These real estate services are usually stripped down to the bare minimum, so they only include basic features like MLS listings, online marketing, and contract reviews. Note that this is just for the seller, so the buyer’s agent may still expect the usual 2.5% commission.
What is the commission on a pre-construction home?
Pre-construction home sales still generate commissions for real estate agents. The difference is that these are often covered by the construction corporation building the home. Moreover, commissions for pre-construction homes tend to be lower because the buildings are new, and therefore, more desirable.
