What is normal commission?
The accepted norm for real estate commission is 5% of the sale price of a property. Typically, the listing agent and the buyer representatives (and their respective brokerages) split this amount equally with 2.5% going to each. With average prices continuing to climb, this adds up to a fair amount of a seller’s equity to cover the cost, as sellers normally pay both ends of the commission.
Don’t forget the HST! The average residential real estate transaction in Ottawa these days is almost $450,000, so this requires a commission payment of $22,500, using the 5% model…but wait…there’s more! The HST is charged on the real estate services, adding another 13% or $2,925 to bring the total to $25,425. So this is clearly and expense that a prudent seller will want to optimize.
As one can see from the photo enclosed, this seller paid only 3% commission which would be a savings of over $10,000 in commission and hst in the example of the typical $450,000 property above…that’s worth considering, right?
Typical commission splits between the sales person and the brokerage:
Most large brand name brokerage sales agents need to charge the 5% rates to cover their corporate overhead. Though individual Realtors are able to determine their own listing fees as independent contractors, most are constrained via contract, company policy and management practice plus they also need to maximize their earnings, accounting for the split they must pay to the franchise and corporate real estate company. These splits take 10-30% of the commission revenue earned in *most cases. (splits vary greatly across the industry)
Optimizing real estate commission:
There are many different commission approaches out there these days, many of them available from smaller or mid-size brokerages such as ours. (to be fair, some agents with larger brokers also have variable commission fees but they are very hard to find-since they are typically not permitted to advertise their commission rates)
The challenge most sellers face is how to get a lower commission cost without having to sacrifice the level of service received. Even the “for-sale-by-owner” companies (who misleadingly advertise “no commission”, IMHO) do most often require a commission payment to the agent and brokerage representing the buyer on top of the fees charged to “sell it yourself”. Almost all buyer agents expect 2.5% (+HST) when providing a buyer and facilitating the transaction on behalf of both parties. So “ for-sale-by-owner” is not commission free and though it may cut down the total commission being paid, the seller does not have the same level of representation or service they would have had by engaging a listing sales person or Broker.
Mere Posting services:
There are some brokerages who offer very low “ listing end” fees but for limited services and of course, the buyer agent/representative is still looking for their 2.5%, so while this works for some, it may not be ideal in this high paced market. While intuitively, our sellers’ market would suggest it is easier to sell and therefore marketing and service effort should be less (with commensurately lower cost) this is not the case. This market puts a lot of pressure on Realtors to get the price and marketing strategy right and manage a complex set of issues to get the best deal for their client.
The happy medium:
The growth of small and medium sized firms has proliferated in recent years, as many Realtors choose to lower their costs and also become more independent, away from the umbrella of the somewhat restrictive corporate franchise broker.
Firms like ours are able to offer lower commissions and more flexible programs, as we do not bear the overhead of the larger brokerage entities.
Types of commissions that work for sellers:
A seller who also buys with the same agent should expect to get some level of discount on the selling side. We charge only 3% or 3.5% in this situation) A seller whose agent represents both the seller and a buyer of that property should also expect to pay less, since there is no other agent to pay. (we charge 2.5 or 3% only in these circumstances)
Day-in-day-out lower fees:
We offer the government contract rate of only 3.7% (+HST) for residential properties and 3.99% for condos or country residential properties on well and septic systems.
Some firms offer flat fees on the listing end ie $2,995 but typically there will also be a % charge for the buyer representative/brokerage, too.
Volume discount or negotiated discount:
Each property is different and each situation is different, so there may well be some discounts available based on the situation that can be negotiated.
Tips on commission hunting:
Make sure you know what services are being offered. If you expect the typical suite of Realtor services, make sure these are being offered at the reduced price. Ie if no professional photography, online marketing, showing feedback or open houses are included, you may not be getting the same value.
Make sure you know the commission rate being offered to the buyer representative who brings the buyer of your property. Many lower commission plans also drop the % paid and this can have adverse consequences to a seller.
Make sure you know the distinction and are getting a full MLS® listing, as some agents offer a lower commission rate package on what is called an “exclusive listing” but this listing does not get published on MLS and the individual agent is often trying to sell the property themselves (like a pocket listing) and not have to pay another Realtor for the buying end. While this lower commission may be attractive, the power of MLS is that all listings go on realtor.ca and all Realtors and their buyers are exposed and engaged to get the listing sold to the widest possible audience. (2 million+ visitors per month)
Is the firm and individual offering the value priced commission experienced enough to manage your listing and are you comfortable with them?
Get all commission rates and service levels committed in writing and included as an addendum to the listing contract and that way you know what you are paying and what you are getting in return.
There are dozens and dozens of independent firms covering every corner of Ottawa, so don’t be shy about seeking one out and using them for your listing brokerage!
For more information about our boutique brokerage services, feel free to give us a call at 613-435-4692 or email firstname.lastname@example.org (not intended to solicit those working with other Realtors) You can also find more Ottawa real estate information and tips at our social media accounts and blog below:
Gord McCormick, Broker of Record
Dawn Davey, Broker
Oasis Realty Brokerage Ottawa, ON
12th year in business!