This is one of the subjects I get asked about most frequently. Probably because there’s lots to know and no one ever talks or writes about it. I rarely talk about commission with my fellow Realtors so almost all the information I have comes from third parties – potential clients who say things like “We’ve interviewed two other Realtors and Realtor A said this about commission and Realtor B said that about commission” or people who already have a Realtor and call me for a second opinion about the commission they’re being charged. (Remember my burgeoning practice as a real estate consultant which I referred to in my last article?) Even though I don’t profess to be an expert on this subject, hopefully my answers to the questions I’m asked most frequently will help you understand how commission works. One more thing: most of my knowledge is specific to residential real estate in central Toronto, although it may apply to other areas as well. Here goes:

Hey Michael, What’s the standard commission?

There’s no such thing as a standard commission in central Toronto. Every Realtor is free to charge whatever they like so commission rates are all over the board. If you had to pin me down, though, I’d say most of the rates mentioned to me are 4.5% and 5%, but I also hear 3.5% and 4% sometimes. Some Realtors may also offer side deals that affect the total commission you’ll pay and I’ll discuss some of those further on in this article.

Hey Michael, If my Realtor charges me 5% to list my home on MLS, do I also have to pay the buyer’s Realtor when it sells?

No. The amount you pay your listing Realtor is shared with the buyer’s Realtor. You only pay one commission. The exact split between Realtors is set out in your listing agreement, but usually the buyer’s Realtor will get 2.5%.

Hey Michael, My Realtor said he’ll charge me 4.5%. Will he be insulted if I ask him to do it for 4%?

He shouldn’t be. He might not lower his commission, but that doesn’t mean you can’t ask.  This might even give you the opportunity to assess your Realtor’s negotiating skills. If he gives in easily when negotiating his own commission, he might give in even more easily when he’s negotiating the price of your home with a buyer’s Realtor.

Hey Michael, My Realtor said she’ll do it for 4.5% and she’s going to keep 2.5% and give 2% to the buyer’s Realtor. Is that alright?

I have to say no to this one. Most listings in central Toronto offer 2.5% to the buyer’s Realtor so you want to give Realtors the same incentive to sell your home.

Hey Michael, My Realtor’s charging me 5%, but said he’ll charge me only 4.5% if he finds the buyer, too. Is that a good deal?

There are two points to be made here: First: A good deal does not depend on the commission you’re charged, but on the amount you end up with in your pocket when all is said and done. Realtor A could charge you 3% and sell your home for $1,000,000 while Realtor B could charge you 5% and sell your home for $1,100,000. You end up with more money if you pay more commission. Second: Listing Realtors in central Toronto don’t find the buyer all that often so it’s unlikely this incentive will come into play. Also, most Realtors will specify that this incentive will not apply in the case of multiple offers because it complicates an already complicated situation (if you’re interested, ask me why this is – the explanation is too long for here). Finally, ask yourself if you really want YOUR listing Realtor to also be working with a buyer in any capacity.

Hey Michael, If the negotiations get close can I ask my Realtor to kick in some commission to get the deal done?

Here’s what I think: Don’t expect your Realtor to kick in some commission, but if you feel like asking, go ahead. Some Realtors might do this and if you don’t ask you don’t get. The worst that can happen is your Realtor says no.

Hey Michael, Should our Realtor be giving us a discount if we buy and sell with her so she gets two commissions?

Some Realtors will do this and some won’t. Again, it’s up to you if you want to ask.

Hey Michael, Our friends’ Realtor paid for part of their staging, but our Realtor doesn’t pay for staging. Is that normal?

Yes. Some Realtors pay for part or all of the staging and some don’t. It’s really a form of offering a lower commission without actually lowering the commission rate. It’s also an incentive to convince people to work with them.

Hey Michael, Our Realtor won’t give us a commission rebate if we buy a home through him. What’s up with that?

Listing Realtors reduce their commissions by lowering the commission on the listing agreement. Buyers’ Realtors reduce their commissions by offering commission rebates. Some buyers’ Realtors will do it and some won’t. From what I hear, most won’t.

Hey Michael, Do we pay a commission when we buy?

Not in the large majority of cases (I’d say 99% or more) because your buyer’s Realtor is paid through the listing brokerage as explained above. But sometimes a buyer pays their Realtor directly as is set out in the Buyer Representation Agreement (the agreement most buyers enter into with their Realtors, just like sellers into a listing agreement). For example, you may buy directly from a seller who has no Realtor (a private sale) and who refuses to pay your Realtor any commission. In that case, you may be obligated to pay your buyer’s Realtor the commission. Realtors don’t work for free, after all.

Hey Michael, Realtor A is going to charge us 5% and Realtor B is going to charge us 4.5%. Which one should we go with?

Don’t base your decision on commission. I’ve dealt with all kinds of Realtors over the past twenty seven years and I can tell you there are primarily two areas in which a Realtor makes the largest difference – negotiating your deal and managing the selling process so it goes as smoothly as possible. Marketing is important, too, but not quite as important in my opinion. A discount in commission pales in comparison to the benefits a good Realtor provides. With a good Realtor, you’ll end up with more money in your pocket and the process will be much less stressful for you. It’s always music to my ears when my clients say “That was so easy, Michael. Thanks very much.” It was easy for them, but they’re often unaware of all the things going on behind the scenes to make sure things are easy for them. So forget about commission and choose the Realtor you think will do the better job for you. If you find that two Realtors are more or less equal, only then should you consider commission as one of the factors in your decision.

Hey Michael, What are your real thoughts about commission?

Thanks. I’ve been waiting patiently for you to ask. Since you asked….

I really wouldn’t pay too much attention to commission when choosing a Realtor. It’s only a small piece of the puzzle. If all Realtors were created equally then comparing commissions would be a way to distinguish one Realtor from another because you’d be comparing apples to apples. But Realtors are so different and the spread between the highest and lowest commissions is relatively so small that commission is not really an important factor when it comes to choosing a Realtor unless two Realtors are more or less equal. (In my opinion, it goes without saying.)

There are so many commission options and variables available that they often confuse the issue. This is why I try to keep things as simple as possible when it comes to commission. I charge every client the exact same commission. There are no side deals, kick ins, discounts or rebates. You could be my best friend from kindergarten or someone I’ve just met. You could have a $400,000 condo or a $6,000,0000 home. It doesn’t matter. The commission is always the same. Why? Because I like to work with people who understand how a good Realtor adds value (negotiating and making the process go smoothly). Hey, I’m like most everyone else – I like to be appreciated. These people also tend to look for a Realtor they can trust and not someone who’s sitting on the other side of the negotiating table right from the get go when they discuss commission. This doesn’t work for all Realtors and it doesn’t work for all potential clients, but it works for me and it works for my clients. Luckily, there are plenty of other options available if it’s not for you.

If you have any comments about commission, I’d be happy to hear them. And if you or someone you know is thinking of buying or selling in the near future and would like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please free to connect with me. I’m always happy to help. Thanks for reading.