How Much Does Real Estate Brokerage Cost?
No matter if you are buying or selling your home, you are better off using the services of a real estate brokerage. Not only can they find the best deals, but you can also rest assured that the transaction is above-board and all legal papers are handled. Given these points, the commission paid is worth the price. Precisely how much it is going to cost you? Read on to find out.
Toronto Real Estate Agent vs Broker vs Realtor
If you’re not in the real estate field, you may use the titles, ‘agent,’ ‘broker,’ and ‘realtor,’ interchangeably. There are, however, clear distinctions between the three. It is, therefore, best to clarify the key differences so you can better understand commission rates.
The Real Estate Council of Ontario (RECO) is the organization that oversees real estate. It is also responsible for supervising the education and certification of agents and brokers.
In the past, RECO designated the Ontario Real Estate Association (OREA) to be the education provider until Humber College took over in 2019. Anyone wishing to trade in real estate should complete an education program, pass background checks, and complete other requirements. They can then apply for a license as registrants to become full-fledged real estate professionals.
There are two main types of registrants:
- Real estate agents (salespersons or sales representatives)
- Real estate brokers
1. Real Estate Agents
Anyone aspiring to become a real estate agent needs to complete courses, such as the Real Estate Education Programs offered by Humber College. In Ontario, Real Estate training includes courses that explain the laws surrounding real estate and the practices that are specific to Ontario rules and regulations. Then, these individuals need to pass a written exam before getting a license from RECO.
After obtaining their license, the training does not stop. New real estate agents also need to complete additional courses within two years to keep practicing.
Real estate agents cannot work on their own. They need to work with a real estate brokerage under the supervision of a licensed broker. Compensation generally comes in the form of commissions paid from completed transactions.
2. Real Estate Brokers
After practicing for two years, real estate agents may qualify as a broker by undergoing further training. There are compelling reasons why many agents aspire to be one:
Licensed brokers, like agents, can work for a brokerage company, but they can also work independently if they choose.
While agents can’t handle transaction fees, licensed brokers can sign listing agreements, for example, and pay commission fees.
“Realtor” is another designation you may have heard about as you delve into real estate – as buyer or seller. Not many people realize that it is a term trademarked by the Canadian Real Estate Association (CREA).
Only members of CREA can call themselves realtors, and this includes agents and brokers. They must adhere to the CREA code of ethics. Besides having access to MLS, they can also take advantage of enriching themselves with knowledge. CREA helps in this regard by providing continuing education and training.
Related article: How to Choose the Right Real Estate Agent in Toronto?
Ontario Real Estate Brokerage Cost
In general, agents and brokers can help you sell your home at the best price possible. They can also help you buy a home, and find the most suitable properties within your budget and desired location. Before you work with one, it is best to verify that they are licensed to practice. You can do that by using a tool provided by RECO to look up a real estate professional.
Brokerage Commission Fee
In a nutshell, the cost to sell a property with a brokerage in Canada ranges from 3% to 7%. In Toronto, most brokers charge a 5% commission fee plus HST after a completed transaction. As a buyer, you do not have to pay that because the purchase price of a real estate property already includes the fee.
For sellers, things are vastly different. They have to discuss the commission fee and its inclusions with a broker. One thing to keep in mind is that there is no standard fee if you are selling your property. In other words, the brokerage commission fee is negotiable.
There are various commission structures practiced in Ontario. These include:
Fixed percentage of the final selling price. Nearly every agent or broker you talk to is going to charge a fixed commission fee. Before agreeing, it is best to explore your options as there are other structures as well.
Split percentage of the final selling price. In this scheme, the rate lowers as the selling price of a property increases. Suppose the commission fee of the real estate agent or broker is 2.5% for a property listed at $1 million. It may go down to 2% if the property sells for higher than the original sale price. The rate can only decrease or stay fixed. It is against the regulations to increase.
Flat Commission Fee. Although it is not a popular option, some brokerage firms offer flat rates. In this case, the selling price of a real estate property no longer matters.
Sample Computation of the Cost of Brokerage Commission
In March 2021, the average cost of a home in Toronto was $1,045,519. The calculation would look like this, based on a 5% brokerage fee.
Final sale price: $1,045,519 x 5% = $52,275.95
Note that the seller and buyer agents/brokers split the 5% brokerage fee. That being the case, each would receive $26,137.98. Usually, the buyer agent’s rate of 2.5% does not change. The commission fee of the seller’s agent, on the other hand, could be lower (depending on negotiation). For example, if the negotiated fee is 4%, the buyer’s agent receives 2.5% while the seller’s agent takes 1.5%.
The Ontario government also charges HST on the commission fee.
Commission fee: $52,275.95 x 13% HST = $6,795.88
In this example, the total cost of brokerage commission fee amounts to:
$52,275.95 + $6,795.88 = $59,071.83
Other Brokerage Costs You Need to Discuss
One of the most important questions you need to ask – regardless if you are a buyer or seller – is the service inclusions.
For example, does the seller agent include property staging, or do you have to pay it as an additional expense? How about minor renovations, home inspection, photography, videography, and others? What other services do they offer, and are they included in the commission fee?
The single most considerable cost of selling a property is the brokerage commission fee. As such, it only fits that you consider the rate and scheme carefully. But do not fixate on the cost alone. You should also factor in the service inclusions.
These are all issues which are best discussed with a real estate firm like Justo before you list your home or buy. One thing that sets Justo apart is our ability to SAVE you thousands of dollars in fees, so if you’re feeling overwhelmed, give us a call! We’ll see how our services can help you sell or buy quickly – and save you money in the process.