Real Estate Fees

Real Estate Fees Explained

Real estate fees and commission rates are the most commonly asked questions by home sellers and buyers. Everyone wants to know what it’s going to cost them to buy or sell, and understandably so. So, it’s probably  a little frustrating that all you can find online are vague references and an invitation to call a salesperson (yay, that’s SO fun) to get a specific answer. There are 2 reasons for vague information about real estate fees and commissions:

  1. What most people don’t know is that the real estate industry is HIGHLY regulated, but not in the way you might think. The priority of the governing body is to ensure that agents don’t collude together or appear to be anti-competitive. How this started, I don’t know, but now that the GTA has over 40,000 agents, it seems like an odd priority. For anyone who knows anything about economics, you might know how impossible it is for 40,000 individual businesses to collude. However, the intention is to protect the public interest, so agents are in NO WAY allowed to speak about real estate fees or commissions as if there is any industry standard or set price. Every agent is allowed to set their own prices, and they certainly do.

 

  1. Agents also don’t want to talk about real estate fees or commissions until they have met you. Think of every sales technique you know, and they are often all at play. If you are serious, you should be willing to meet, and then the agent has a good chance to sign you to a contract while you are a captive audience. What many agents are missing is the fact that public expectations are changing in the face of the Internet and the information age. Most people want the power to gather information in advance, to consider their options before calling or meeting anyone. To deny people this expectation causes nothing but frustration.

So I will do my best to shed as much light on this as I can, showing a wide array of real estate commission options available to you, to be clear that there is no industry standard. Just like any other highly competitive industry, you will see a wide range of choices.

 

1. Flat Fee Services

 

Flat fee services have risen in popularity in the last 10 years, as the Internet and Realtor.ca have become the main vehicles for finding buyers. These services were initially designed to attract FSBO’s – people who were inclined to sell their own home – but wanted to have their house show up on Realtor.ca. If you felt your house looked great, you were confident about the process and just wanted help to market your home and write up the contract, this was the ideal solution. Here’s a good article from the American Powerhouse Zillow, which very well might be breaking into the Canadian market in the near future.

 

Pricing

 

What surprised me, is when I went to some of the well known flat fee sites, they don’t have prices on their website. Even these companies are now requiring you call in to get pricing information. Given that price is their main advantage, I was shocked not to see it on the front page. I have nothing but anecdotal information about Flat Fees, so it may not be current. I didn’t want to pretend to be a home seller to gather information, so feel free to share with me any experience you’ve had with a flat fee company. What I think I can reasonably assume is that they will have tiered fee levels, depending on your market and how much support they provide you.

 

What to Watch Out For:

 

The devil is always in the details – this is true for EVERY realtor and broker, not just flat fee. Make sure you get a detailed, WRITTEN list of services you will receive for the package you are considering, as this is the only way to compare with other options. “Internet Marketing”, “Home Staging”, “Communication”, “Support” are all very general words that can be interpreted 1000 different ways.

 

  1. Ask how you will be represented. Do you get an agent available by phone or in person? How often do they meet with you? If you prefer the agent to be arms-length, this will not be a concern for you

 

  1. How does the agent get paid? An agent can make a lot more money selling real estate on commission, its true, so why are these agents choosing to work for this lower-pay option??? What is their skill level? How do you ensure they will do the best job for you? If you feel there is no high-skill level required from an agent, this will not be a concern for you

 

  1. Do you do the negotiating on your own behalf with support from the agent, or will they do the negotiating for you? How skilled are they to negotiate? How well do they know you to advise you on strategy, or do you set the strategy and they are back-end support? If you feel your negotiating skills are strong, and don’t need much support or guidance, this will not be a concern for you.

 

Flat Fee service can be great for sellers who are confident in their own skills to navigate the process, so this is not to dissuade people from using Flat Fee. The only thing that concerns me on these Flat Fee websites, is when you see that golden, magical phrase:

 

Get the same high quality service for less money!!

 

With any purchase in your life, be it appliances, produce, clothes, cars, et cetera, when is this ever true? A Civic costs much less than a Mercedes, and that’s fine, but don’t try to say they are the same quality. If you want a Civic because it meets your needs, then absolutely get a Civic, but be completely knowledgeable and realistic about what you’re buying. On the flip side, a higher price does not guarantee quality, and some “elite services” can certainly turn out to be total duds…..continue reading on to learn more about that.

 

2. Commission Services

 

I’m going to tell you the same precautionary tale for commission agents as I did for flat fee brokers: be wary of what you get for the price. Another reason I believe that flat fee became so popular – to use our analogy again – is that many commission agents claimed to be selling you the Mercedes. But then the client realizes that they were paying for Mercedes, but only got a Civic. That is frustrating indeed. So the onus is on commission agents to prove that their fees warrant their level of skill and services.

 

The reason you would choose a commission over flat fee is because you are looking for hands-on service & communication, combined with skilled advice, strategy and marketing. You agree with the concept that commission can motivate agents to get you the highest possible sale price, because the more money you make, the more the agent makes too. In this sense, you should be looking for a collaborative relationship, because you know you want more guidance, advice, strategy, and support to get through the sales process. If the up-front fee is your dominant consideration, and you don’t believe that personal & strategic service from an agent can get the best results, then Flat Fee just might make the most sense for you.

 

Pricing

 

Agents offer a wide range of commissions, the majority between 3-6%, based on your situation and what services you want. But some agents may charge even less or more than this, depending on the house, the location, and the needs of the client.

 

Buying

  • If the seller has agreed to pay a commission to the buying agent, and that commission is equal to or greater than your agent’s agreed upon fee (that s/he must disclose to you), then as the buyer, you will pay nothing. The seller will have paid the full cost of the buyer commission.
  • If the seller offers a buyer’s commission that is lower than your agents agreed upon fee (that s/he must disclose to you) then they may ask you to pay the difference if that is the house you end up buying.
  • The buying agent may offer alternate solutions depending on the situation. In most cases, most buyers don’t have to pay anything to the buyer agent for their services.
  • Because a lot of buyers see using a buyer agent as “free”, they often tend to relax their standards quite a bit when choosing a buyer agent, which is not without risk. A buyer agent must have an incredible amount of local knowledge, local experience, be highly analytical, and have good communication and negotiation skills. It’s very easy to overpay for a home or miss buying a great home because the agent wasn’t able to communicate with you or research properly. Never accept a buyer agent who acts as a door opener or a tour guide, because you need much more strategy than this to make a smart buy. Learn the 3 Critical Skills your buyer agent MUST have 

 

Selling

  • To be competitive, many agents break their commission fee up into 2 parts: a seller fee and a buyer fee. So whenever you see 1%*, 1.5%*, 2.0%*, 2.5%* and so on, the * usually means PLUS the buyer commission.
  • You can choose the percentage you pay to the listing agent, and also the percentage you pay to the buyer agent.
  • I can’t think of one scenario where it is in the seller’s interest to pay the listing agent MORE than the buying agent.
    • Equal pay to both agents makes good sense in a balanced market.
    • In a buyers market, paying a higher buying commission can increase the likelihood of attracting more buyers to your home over all of your competition. It’s just human nature to want to be paid more, and your home might be able to attract more showings, more demand, and better offers. You may decide to pay both agents equally because in a buyers market, your listing agent will have to incur extra marketing expenses in order to get your home sold.
    • In a sellers market, buying agents are spending a lot of extra time with each client because houses are selling fast. They need to go to more house showings per client, and are likely researching, writing offers, and losing on several properties before they are able to win in a multiple offer. Hours per client can double or triple, so to see they will be paid less is a very frustrating situation. If they have to tell their clients that the seller is not covering their agreed-upon commission, the buyer may decide to pass on your house and try for another one, which damages the demand for your home.
  • In any market, you can pay any percentage you choose to both agents; the decision is 100% yours to make. But commission can be used as part of your selling strategy, if you want it to.

 

Buying & Selling

  • If you feel you have found an agent who has the skills and knowledge necessary to successfully sell your current home and buy you your next home, you can ask for their best price, since they will be getting a second contract from you that didn’t cost them any additional marketing fees to acquire.
  • BE WARNED: DO NOT DO THIS if you are moving out of area. Saving a little on real estate fees is not worth the mess you might get into by using your listing agent to buy in a city they don’t know enough about. You could end up overpaying for your new home or find out you don’t like the neighbourhood, which completely negates any savings you got off your listing fee. Few agents will refuse your request; because with information sharing across real estate boards, and asking other agents in their offices, they might truly believe they can do the job. The onus is on you to ensure they have the skills to represent you properly.

  

What to Watch Out For:

 

What you’re doing right now is your best first step. Research your marketplace. Every local market is different and just because your friend got 2% in Brampton or paid $4000 Flat Fee in Kitchener, it doesn’t mean anything if you live in Maple. Yes, you want to know real estate fees, but if you’re choosing a commission agent, it must be relative to specific services, or else the real estate fees aren’t comparable.If you can’t find enough information online, you really do need to call and/or meet some agents, as annoying as that is. Click Here to See the Village Guru Service Packages & Rates Online. Once you do enough research and ask the right questions, you will know if an agent’s commission sounds fair, if you’re being overcharged, or if the fee sounds incredibly too good to be true.

 

  1. Research Local Websites. If you spend 5 hours researching a new fridge, and 10 hours researching a new car, wouldn’t it makes sense that you should spend at least twice the time researching a transaction worth 100’s of thousands of dollars? You can’t know what to ask and won’t be able to see the difference between services if you haven’t done your due diligence first, because there are vast differences. Start Learning the How to Protect your Interests as a Seller and what to look out for in your Research

 

  1. Decide in Advance, What Services you Need. Giving out a quote for service always feels like a game of chicken; who’s going to crack first. But most agents are happy to customize your quote specifically to what you want. Things like “staging” and “marketing” have a lot of different costs, and can represent very different services. One agent might say they include staging for free, while another says it’s an extra 0.5%. Why? What does it include? Is it a consult or installation of art and accessories? What service level do you want and need? See Our FAQ section for sellers to learn all the things you need to know to differentiate between agents and service levels. 

 

  1. Ask About Contract Length. Typical contracts are for 3-6 months, depending on the market. Rarely is a 9-12 month contract necessary. If you are getting an incredibly low commission but for a 1 year contract, you will likely be stuck using that agent to buy or sell, no matter how good or bad their services are. Always ask about the fine print, it is a legal document. Any agent should be able to give you the contract in plain English for you to review in advance.

 

  1. Put it In Writing. Even a 3-6 month contract can feel like a nightmarish eternity if your agent’s performance doesn’t match your expectations. Eliminate assumptions & surprises by having the agent provide you a written service agreement BEFORE you sign a listing contract. You wouldn’t believe how rare service agreements are; most people still accept a sales pitch and a handshake. Listing contracts do not outline any detail about the marketing services your agent will provide. See the Village Guru Step-by-Step List of Services we offer, which you can customize any way you need. 

 

  1. Ask if they have Another Job. This may sound silly to ask, but could be critical to your success. I am constantly running into people with full time jobs who “dabble” in real estate on the side. Having a license to sell one’s own house is fine, if that’s what they want to do. But once an agent is legally representing another person’s sale, it’s time to level up the playing field. You’ll likely want to make sure your agent has extensive experience and knowledge that will help you avoid potential pitfalls or legal disasters. This only comes with years of regular experience in the trenches. Do you want a doctor who dabbles in coronary bypass surgery? If something goes wrong, you do want an expert working for you. Never trade knowledge and experience for the lowest commission, it may cost you much more money in the long run.

 

  1. Ask if They Offer Cash Rebates. There’s no other way I can say this – a successful, skilled, competent Realtor® will not kick back cash to you. If they can afford to hand back half of their commission, you need to ask what type of business they are running and how they are covering the necessary costs of a typical full-time Realtor®. Insurance fees, Broker fees, Office Fees, Board Fees, License Fees, Advertising Costs, Listing Costs, Admin Fees –it costs money to run a legitimate business. On top of this, a successful realtor ($150,000/yr +) in Ontario has to pay a marginal tax rate of over 46% because they are not legally permitted to incorporate. So cash back is a sure sign the agent is not doing enough deals and/or is skirting expenses that would make them a better realtor, or that would sell your home more successfully. If you really want a lower rate, Flat Fee is a better choice over a cash kick-back.

 

Real Estate Fees & Commissions Summary

 

So although I cannot tell you exactly what you can expect to pay in real estate fees, because there is no industry standard, I hope I have shed some light on why you would choose different fee structures and how to ensure you are getting what you want and need.

 

Everyone wants the best possible price, and there are quality agents out there who will work with you to get you the service you need with real estate fees that are fair to all. In this highly competitive market, I don’t think any agent is capable of overcharging real estate fees, but they can certainly short you on service if you don’t have a formal agreement, which is pretty much the same thing. And then there are many, many, many agents who will provide rock bottom real estate fees to try to get your business, but you have to logically question how it’s possible. What gets cut out and will it affect your sale price?

 

Your task is to do a considerable amount of research to know exactly what level and type of services you want before you speak to anyone about real estate fees or commissions. This way, you will be able to get several specific and accurate quotes that are much easier to compare. You can then decide which agent you think will get you the best possible results, with the services you need and for the fair price you want.

 

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