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Understanding Real Estate Commissions in Canada

Are you planning to buy or sell a house in Canada? You may have already found a potential deal. However, do you know what is one thing that you need to pay the most attention to? Well, it is real estate commissions. Real estate commissions are the fees that you pay to the real estate agent for providing the services or finding you a good deal to buy or sell your house. But do you know how to plan, when to pay for it and how it is calculated? Let’s find out in this article.

Read: Rent vs. Buy a House: What’s the Difference?

Who Pays the Real Estate Commissions? 

This is a common confusion when it comes to buying or selling a house – Who is going to pay for the commissions! Usually, the seller pays but still, it can be decided in advance. For example, you can make a contract that defines that the buyer and seller both have to contribute to the real estate commissions. So it depends on how you negotiate the deal. 

Though if both the parties opt for different agents then it is to be paid independently. This commission can be a fixed amount or a percentage of the house price. One thing that you should need to know is that real estate commission fees can be negotiated. But it depends on the property and the market you are selling or buying a house. 

There are agents that would agree to decrease the price upfront but it depends on the services that they provide. A few of such services include decorating or making the house presentable, clicking attractive pictures, looking after the appointments, etc. and thus based on the services an agent provides, the real estate commission would vary.

Let us talk about different Commission rates in Canada. 

Read: What are (GICs) Guaranteed Investment Certificates?

Also know: First Time Home Buyer Programs in Canada

What are the Commission Charges in Canada? 

In Canada, the real estate commission can range between 3 percent to 7 percent of the house price. Though it is not fixed. It is calculated in different methods listed below.

A Flat Price: In this method, the fee for the commission is set the same for each and every seller whether your house is worth $3,000 or $300,000. 

Hourly Charges or Service Charges: In this method, you pay the agent a flat fee or an hourly fee for taking care of the services for selling a house or buying a house. 

The Fixed Percentage of the House Price: This is quite prevalent and usually the most used method for real estate commissions. Here, a fixed percentage is decided based on the house price and services given.

Spilt Up Price: If your house price is large, you can benefit from this method. For example, as the house price increases, the rate of commission decreases. The reason is – overall the agent is going to earn more if the house price is a large amount. You may be paying the 3 percent fees for a $200 000 house. While the fees can be 2.7 percent for a house that would value $500,000.

Combination of Fees: In this method, the fees can be mixed up and set for a fixed amount plus any additional amount for the services provided.

You should know that this commission is subjected to a GST or HST based on the provinces or the territory you are living in. The reason behind this is that the real estate service is considered as a service and thus it attracts GST or HST.

Read: Tax For Self-Employed In Canada: How Much To Set Aside For CPP & EI?

When Do You Have to Pay the Real Estate Commissions?

The answer is that when you finally sell your house and the house deal is closed, only then you are supposed to pay your agent. You don’t pay a penny before the house is sold. The lawyer of the buyer or a seller settles this payment once the house deal is closed. 

Generally, the seller of the house pays real estate commissions. But as I said earlier based on the contract both buyer and seller can go for it 50: 50. The closing date here means the final date when the possession of the house changes. The closing date of the house is different from the house selling date. 

Also, one of the common confusion is if you have to pay any less or more commission based on how fast a home is getting sold! The answer is no. The services that the real estate agent provides is to sell your house or to help you buy a house. It does not concern the time frame whether it takes 2 days or 2 years. Also based on the province it is not allowed to change the commission based on an increase or decrease in the property rate.

Also read: Pre-Approved vs Pre-Qualified: What Is the Difference?

How to Reduce the Commission? 

Dual Broker

Well as mentioned earlier, it can be split between buyer and seller. If you choose the broker that sells and buys -dual services then the cost of commissions can be reduced. It provides a smooth process as well. Choosing a double-ended brokerage may benefit you. 

The Option of Sale By the Owner

In this method, you sell your house on your own. As a result, it will save you from paying the real estate commissions. In this case, you will have to look after every service like managing and clicking photos, decorating for making your house presentable, and more. You can also get an appraiser that will help you value your house and can list your property on multiple listing services by a broker. This will reduce your overall cost. 

Read: What Is A Subprime Mortgage? Subprime Mortgages Defined

The Bottom Line

The pandemic has impacted many sectors, but the Canadian housing market is an exception. In May, the new house rates increased by 1.4 percent due to the higher cost of construction and lack of construction material.

As per Statistics Canada, there has been an increase in home price in 19 of the 27 metropolitan areas in May. To a surprise, the house rate hike in Winnipeg and Calgary were the highest whereas in the costliest house buying markets like Vancouver, Toronto and Montreal it was the lowest. Thus it is important that you make the house buying decision after thorough knowledge.

Buying a house is a risky business. Thus, it is important that you are well versed with all the nitty-gritty involved. It is better that you do your own research and find a broker or a real estate agent that is renowned and credible and you can trust. I hope this article has helped you to clear your doubts and you can make an informed decision. All the best for your house hunting.

Read: Canada Mortgage And Housing Corporation (CMHC): What is It?


Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She is currently pursuing CFA (Chartered Financial Analyst) and has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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1 Comment
  • Jeffery Dispensary
    3:01 PM, 24 June 2021

    Thanks for the article and I bet it will really help us in making our decision and also ease our search. Hope you keep updating us. I read a post bout this to and can confirm what you just post, its the same
    https://hightimedispensary.com

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