Understanding how the commission in real estate works is essential whether you are a new realtor just stepping in the industry or a homeowner looking to sell your property through a real estate broker. To help you understand the real estate world, I have made a real estate commission guide based on different scenarios that will help you understand the costs and benefits.
What is the Commission Fee?
A commission is an agreed-upon closing fee charged by a real estate agent from the client. The fees are deducted from the ultimate sale cost of the property. No GST HST tax added on the top of the sale price unless it is a commercial (Vacant commercial lots, Industrial buildings, 5 AND UP dwellings, Office buildings, restaurants, retail spaces, Hotels, motels, commercial Condos or a development property purchased directly from the builder / developer. However, the realtor's commission fee is always subject to taxes. ( GST + QST) . For instance: You sell your residential property for 400K and the agreed commission for the realtor is 4% . In this case the commission you are going to pay to your agent would be 400.000 x 4% = 16.000$ + GST & QST.
What Amount of Commission Does a Realtor Get?
A broker does not have a weekly or monthly fee. His income depends on the successful real estate closings. Average commission rate in Montreal is 4-5% of the sale price. Keep in mind that the commission is not fixed because of fair competition Act and can vary. However it should be reasonable to attract brokers and potential buyers.
Commission rate may sound huge to you, but the agent does not make this money overnight. It takes weeks, months, sometimes a year for the real estate agent to sell your property and a lot of costs are involved when it comes to marketing your property and reaching prospective buyers..
What if a buyer broker is also involved in the sale?
You are a homeowner in the process of making a brokerage contract with a real estate broker but not familiar with commission structures? Usually your broker is supposed to go through each section and explain all the details of the brokerage sale contract but if that's not the case, do not take a chance. Read the whole contract carefully before signing anything. Section 7.1 of the brokerage contract is where you can find the commission rate agreed with your broker ( aka listing agent). If the buyer has an agent (aka seller agent), the commission rate to be split between your broker and seller agent will be given on the section 7.4 of the brokerage sale contract. When you make a brokerage contract with your broker, you can negotiate with him so he can decrease his commission if there is no buyer agent involved in the sale.
Can you represent a buyer and seller at the same time in a real estate transaction in Montreal?
You are a realtor with a valid brokerage contract with the seller and the buyer wants you to represent him during the sale, Can you do that?
According to Article 16 of real estate brokerage act you must inform him that the seller is your client but you will act for him in a fair and equitable manner throughout the transaction.
You must first verify his identity (IV form) and legal capacity since he is not represented
Since you represent the seller you cannot directly advise on price, However, you can provide the buyer with comparables. All confidential & strategic information about the seller must not be disclosed unless you have written consent. You can not make him sign a BCP (brokerage Purchase contract) but you can still provide objective guidance on financing and inspection and all other aspects.
Who Usually Pays the Commission Fee to the Buyer’s Agent?
This varies depending on the scenario
3 Example Scenarios:
You represent the buyer and according to your contract with the buyer you charge 4% but the seller is offering 3.5% , buyer should pay you the difference which is 0.5% in this case, the rest will be paid by the seller.
You represent the buyer and according to your contract with the buyer your commission rate is 4%, the seller is offering 4%, since they both cover each other, the buyer will pay you 0% commission , you get your commission from the seller.
You represent the buyer, your commission rate is 4% but the property is for sale by the owner, the buyer will pay you 4%.
Should the client want to buy a for Sale by the owner property and you don’t have a signed Brokerage contract with the buyer. In this case you may lose your commission. In most cases the commission can be financed through your client’s mortgage if he agrees to that. The notary will always pay the commission to the agencies and the agencies will bill one another. As a broker, you will never receive the money directly unless you are a broker acting on your own account
Are you eligible for a commission when you represent your spouse or a relative?
A broker cannot receive commission when he is acting to purchase or get a mortgage for himself ( direct) , his spouse ( indirect interest) or a legal person for which he has a direct/indirect interest .
Final Note
Whether you are a buyer or seller in search of a real estate agent or are a realtor yourself, you should now have a basic understanding of how the commission works in Montreal,QC real estate industry.
Realtor Alp PEREZ is a Montreal based real estate agent affiliated with Royal LePage Heritage - Mellor Group. Apart from being a real estate agent he is also an avid entrepreneur / search engine marketing expert. He can be contacted at alpperez@royallepage.ca / info@aplusdigital.ca
