At first glance, it can seem like Toronto REALTORS get paid a LOT of money to sell a home. But commission isn’t always what it seems, and the agent you’ve hired to sell your home (a.k.a. “the listing agent”) is probably not swimming in as many dollars as you think. Here are four things you need to know about real estate commission:
1. The agent doesn’t get ALL the commission
Only a fraction of the percentage of the commission paid by the Seller actually gets paid to the listing agent. Here’s why:
- In most sales, half (or more) of the commission that a Seller pays to sell their home, gets paid to the Buyer’s agent. In Toronto, a Seller might pay 5% of the sales price in commission, with half of that (or 2.5% of the sale price) paid to the Buyer’s agent.
- From the remaining amount, the listing agent needs to pay their brokerage. In Ontario, a REALTOR has to work for a real estate brokerage in order to sell real estate. The amount that the agent ‘splits’ with the brokerage (or a team, or both) depends on the services offered but can be anywhere from a few hundred dollars to 50% of the commission. Brokerages usually provide office space, administrative and transaction processing services, among many other services.
2. There are a LOT of expenses.
After the buyer’s agent and brokerage have been paid, the listing agent needs to pay expenses. The more services and inclusions an agent or team provides, the greater the expenses. Many agents spend 50% or more of the commission they earn on expenses. Typical REALTOR expenses include:
- Membership dues, insurance, ongoing education
- Systems and tools: document management, electronic signatures, customer database software, marketing tools, etc.
- Technology: laptop, iPad, mobile phone
- Vehicle: car expenses, gas, parking and insurance
- Administrative/operational expenses: phone, internet, couriers, office supplies, accounting, banking and legal assistance
- Promoting listings: Photography, feature sheets, videography, online advertising, email marketing, signage, print marketing, open house costs, floor plan, etc.
- Brand marketing: print marketing, online advertising, signage, website, client programs/entertaining/events
- Staging and home preparation – it can cost upwards of $5,000+++ to stage a home (and much much more for large or vacant homes). Agents who include staging as part of their services take on a huge risk – if the property doesn’t sell or the Seller changes their mind about selling, this is money that doesn’t get recouped. Teams who invest in a staging inventory and full-time staff carry even more risk.
- Taxes – REALTORS in Ontario aren’t often incorporated, so they pay income taxes at the same rate as non-commissioned workers.
3. Risk vs. Reward
Commission remuneration aims to balance risk and reward – the bigger the risk, the higher the reward. While salaried workers don’t personally take on expenses and get paid no matter what, commissioned sales reps only get paid in the event of a successful sale (and still have expenses even when they don’t sell anything). It’s not uncommon for REALTORS to work with Buyers for months and then have them decide not to buy, and almost every agent has spent thousands of dollars preparing, staging and marketing a home, only to have the Seller decide not to sell.
REALTOR incomes fluctuate with the market – when the market is good, REALTORS make more money. When the market is on a decline, they may not get paid for months (cue: memories of 2017).
4. REALTORS get paid for what they know.
Like in many other professions, REALTORS get paid for what they know, and that may or may not be correlated with the number of hours they actually spend selling your home. Top listing agents have spent years developing the systems, marketing and knowledge it takes to sell a home for top dollar. They spend dozens of unpaid hours every month staying current on what’s happening in the real estate market, how prices are changing and why, and learning how to reach Buyers in a rapidly evolving digital world.
Not all REALTORS are created equal. If an agent can’t articulate why they are worth what they are charging, don’t hire them. If they’re doing the bare minimum, their commission should reflect that.