Let’s face it, the big C, “commission” is always on your mind when you’re about to sell your property. Even buyer brokerage commission.
And why shouldn’t it be? You’re selling the biggest asset you own. So why should 5% get paid as commission? Is it fair? And what does it get you?
Today I’m not going to talk about the whole “5%” part of the total commission you *might* pay when you’re selling your property. I’ll save that for another article. For now I want to discuss the buyer’s brokerage commission, better known on agreements and other documents as the “co-operating brokerage commission.”
Is 2.5% a “standard” buyer brokerage commission?
Before I get in trouble with the competition tribunal for talking about commission, I want to make it clear that there is no such thing as a “standard” commission, hence my use of quotation marks around the word. Contrary to what you might believe, or what you may have heard, real estate salespeople, brokers and brokerages (offices) do not adhere to a standard commission schedule or price for their services.
The 2.5% co-operating brokerage commission has become commonplace but there are some agents offering less than that, and others are actually offering more. I’ve seen commission offered to buyer’s brokerages as high as 3% and even 4%. And some sellers even offer bonuses to buyer’s brokerages.
Why should I pay the buyer’s brokerage 2.5%? Can’t I offer less?
Of course you can offer less, but let’s look at how this will affect the marketing and eventual sale of your property. When a real estate agent signs a buyer under contract, they negotiate a “fee” for the services rendered by the buyer’s agent. The services of buyer’s agents range but typically involve anything that will help the buyer in the eventual purchase of property. For these services, the buyer’s agent does not get paid until the buyer actually buys something, so their compensation is based on contingency. Buyer’s agents typically ask for 2.5% of the selling price of a property as fair compensation for their services.
2.5% seems like a lot of buyer brokerage commission….
It may seem like that, but the actual buyer’s salesperson or broker does not keep the entire 2.5% buyer brokerage commission. The salesperson or broker gives a percentage and/or a fee from their commission to the brokerage office they belong with. This pays for the marketing services, infrastructure, guidance and systems used by the salesperson or broker. The buyer’s salesperson or broker has to cover their own marketing and personal expenses such as vehicle milage, gas and insurance. But the biggest expense of all is… time. The buyer’s agent has to earn enough to compensate them for the time spent with clients. Some buyers make an offer after seeing one house. Other buyers look at 100+ homes before making a decision. All of the risk belongs to the buyer’s salesperson or broker. And in some cases, they may not even make a sale.
Why do I have to pay the buyer brokerage commission? Can’t the buyer pay their agent themselves?
A new trend seems to be having some traction where buyers are offering to pay their agents instead of having the seller pay the 2.5%. This is happening in Toronto and in surrounding areas due to the intense competition and lack of availability of property on the market. One way buyers are getting the homes they want while avoiding bidding wars is by offering to pay their agents directly. If this is the case, and you as a seller happen to transact with an agent being compensated by the buyer, you don’t end up paying the 2.5%.
So how do I know if the commission I pay is worth it?
Simple. Since real estate transactions are based on contingency, you only pay the commission when you get the price and terms you want. If you don’t sell your property at a price that makes sense to you, no commission is paid. What you need to do is calculate how much you will net after selling your property at a certain price. If it works for you, and you feel it’s worth it, then the commission makes sense. If it doesn’t, and if comparable properties that have sold still show a potential for you to get a higher price, speak with your broker or salesperson about it and negotiate so you can get what you want.
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I’m happy to answer any questions you might have about selling your home. Even commission questions. Let’s talk about it and see what makes sense. Or read my home seller’s guide to find out more.