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How do Real Estate Agent Fees Work?

Thursday May 16, 2019

Buying a Home

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Over the years, our team has fielded a lot of questions about real estate commissions. As agents, how big is our cut? What services do our fees pay for? And what’s to stop our clients from getting rid of the middleman and going it alone?

The truth is, some people decide to navigate real estate transactions without professional guidance, and some are successful. But before you decide which approach you want to take, you should understand what a real estate agent can (and can’t) do for you—and how much you can expect to pay if you work with one.

If you’re wondering whether hiring a real estate professional is worth the money, read on to learn how agent fees break down…


The basics

No doubt about it: there are a lot of misconceptions about how we agents earn our fees. Many professional service providers charge by the hour, and some clients assume that we use the same model. In reality, we only get paid if a deal is successful. Put simply, if a home doesn’t sell, the agents involved don’t receive a penny. From a consumer’s perspective, this arrangement removes a lot of the financial risk that would otherwise accompany working with a professional.

The second major misconception has to do with who pays us. There are two agents in a typical real estate transaction—one who works on the seller’s behalf, and one who represents the buyer. You might expect that each side gets paid by the client who hired them. Not so. When a deal is completed and the seller receives their money, they pay a commission that gets split by both agents.

How much do sellers pay?

The commission that comes out of a transaction is typically between 4 and 6 per cent of the sale price. It’s usually divided in half so that each agent gets 50 per cent. Since sellers pay this amount, it might sound like buyers receive professional services for free. That’s not the case. The fees are built into the transaction, so buyers provide compensation when they pay for their homes.

Sellers should know that while 4 to 6 per cent is standard, you may be able to negotiate this amount. Just be aware that it’s not just about getting your own agent onboard. The commission you’re willing to provide to the buyer’s agent will be visible on your MLS listing. Offering a percentage that’s on par with what’s being offered in your neighbourhood may help you attract the attention of buyer’s agents (and, by extension, home hunters).

Which services are included?

Now you have a fair idea of what you can expect to pay in agent fees if you work with a professional. But what exactly will you be paying for? The answer is, it depends.

Pricing, marketing, qualifying buyers, negotiations—it all falls under the umbrella of what a good seller’s agent should provide. That said, the specifics will vary from one professional to the next. For example, some agents include staging and photography as part of their services. The level of home improvement and quality of images you receive may differ significantly depending on which agent you go with.

If you’re a buyer, the right agent can help with everything from finding homes that meets your criteria to putting together compelling offers to guiding you through the closing process. As is the case with sellers, buyers should have an in-depth discussion with any professional they’re considering working with about the services that will be included.

The bottom line

The decision of whether to work with a real estate agent or opt for a FSBO (for sale by owner) transaction is a personal one. But if you decide to hire a professional, one thing is certain. You deserve to know how your money will be spent. Before agreeing to work with an agent, be sure to have a direct conversation about commission, and where (exactly) it’s going to go.

Interested in learning more about real estate agent fees and services? Reach out to start a no-pressure conversation—we’re happy to answer any questions you might have about buying or selling!