Who Pays your Realtors Commission fee? You may be surprised…

Published in

real estate simply

4 min readAug 15, 2018

I often get asked the question, “who is responsible for paying the realtors commission fees?” The answer to this question varies.

To make it simple, I have described 3 different scenarios below.

However, before we start, lets cover some basics.

How are fees calculated?

Commission fees can be calculated as a percentage of sale price or as a flat fee.

This varies depending on if you are using a full service brokerage or limited service brokerage.

Full service: provides all services to the buyer or seller client during the listing and selling process to the point of closing. This is the most common type of brokerage.
Limited Service: typically charges a reduced commission or a flat rate to provide specified services. Limited Service brokerages are slowly becoming more popular. An example is a “For sale by owner” type brokerages.

Are commission fees subject to tax?

Yes, commission fees are subject to HST tax.

How much are commission fees?

There is no set rate, however, market forces will naturally dictate a ‘standard’ market rate, which most agents will aim to stick to.

Are commission fees negotiable?

Yes, fees are negotiable.

Be cautious of low fees. If an agent is willing to largely undercut the industry rate, you can assume they’ll make up for their loss revenue elsewhere.

How are fees negotiated?

Fees are negotiated independently between the buyer and their representative agent, and the seller and their representative agent.

The agreed amount will be documented in the representation agreement.

Okay.. Onto the fun stuff..

Now that we’ve covered the basics, lets work through the most common scenarios you might experience.

Scenario 1: Full Service Brokerages

In this scenario, the buyer and seller have agreed to pay the same rate to their agents. Both agents work with full service brokerages.

Who pays?

The vendor (seller) is responsible for paying the full commission of both buyer and seller agents.

How does it work?

The buyer independently negotiates a rate with their representative agent. Lets use 2.5% as an example. The seller independently negotiates a rate with their representative agent also for 2.5%

The outcome: The seller is responsible for paying 5% . The seller pays 2.5% to each agent. 2.5% + 2.5% = 5%.

Scenario 2: Full Service Brokerage & Commission Rates Vary

In this scenario, the buyer and the seller have negotiated different rates with their respective agents. Both agents work with a full service brokerage.

Who pays?

The vendor pays the commission of both agents at the rate the vendor agreed with their representative agent. If the buyer agrees to pay their representative agent more, the buyer is responsible for paying the difference.

How does it work?

The buyer negotiates to pay their representative agent a commission fee of 5%. The seller negotiates to pay their representative agent a commission fee of 4%.

The seller will pay 4%, to be split between both agents. The proportion each agent receives is decided by the seller. I.e. 4% may not be split 50/50. In the example below, i’ve assumed a 2.5% : 1.5% split .

The buyer is then responsible for paying their agent the remainder amount necessary to meet the promised 5% rate.

Scenario 3: Seller agrees No Commission will be Paid

In this scenario, the seller agrees with their agent that no commission will be paid. This is common with limited service brokerages, where a seller opts to pay a flat fee or where you come across ‘for sale by owner’.

Who pays?

The buyer is responsible for the entire commission if no commission is to be paid by the seller.

How does it work?

The buyer agrees with their agent to pay 2.5% commission fee. The seller agrees to pay no commission. The buyer must then cover the costs of their buyers agent.

Conclusion

While commission fees can be confusing, you can be assured that your agent will walk you through your options. Every agent must present their client with a “Working with a realtor” document, which briefly outlines the above.

That said, be sure to inquire about what is included in your rate and remember that everything is negotiable!