Like many other sales professionals in Ontario, real estate agents get paid commission – usually it will be a set percentage of the the final sale price of a home, once it is successfully sold. When a Seller decides to sell and hires a real estate professional, that a real estate agent takes on the risk, since they only get compensated for their time and marketing expenses if the home successfully sells. If it doesn’t, then the real estate agent doesn’t get paid. 

Most workers in Ontario are fortunate in the sense that they get many benefits and perks from their employment. Unfortunately, real estate professionals don’t have a fixed salary or hours. They don’t get compensated if they’re sick or take a vacation, there’s no overtime pay or compensation for working on a statutory holiday, they pay for their own insurance benefits and don’t qualify for CPP or EI.

Traditionally, commissions are paid for by the Seller and are then split between the Seller agent (representing the Seller’) and the Buyer agent (representing the Buyers), the above table displays the fee for listing the home, the selling fee is an additional 2 – 2.5% of the final sale price. 

In Ontario, we normally see three different types of real estate commission:

1. A percentage of the final sales price (eg: 5%)
2. A fixed\flat fee (eg: $17,000)
3. A combination of a percentage and a fixed fee (eg: $4.25% + $7,000)

Keep in mind that real estate commission is 100% contingent on a home selling. 

The Real Estate Council of Ontario (RECO), which is the governing body for real estate in Ontario, does not allow a sliding scale commission.  A sliding scale commission is when the amount paid out increases as the price increases.

Allowed: 4% on the first $600,000 and 2.5% on the remainder.
Not allowed: 2.5% on the first $600,000 and 4% on the remainder

In the spirit of fairness and consumer protection, it’s not permitted to base commission on the difference between; the listing price and the final sale price. For example, a home is listed for $900,000 and sells for $950,000:

Allowed: 2.5% on the sold price of $950,000
Not allowed: 2.5% on the list price of $900,000 and 3% on the additional $50,000

In Ontario, it’s the Seller who pays the commission to both, the listing agent and the buyer’s agent.

Once a sale is finalized, the seller’s real estate lawyer will subtract the commission amount from the funds received from the Buyer on closing, and will pay the listing brokerage directly. 

In Ontario it’s illegal for REALTORS® or brokerages to “fix” commissions or even imply that there is such a thing as a “standard” commission. 

Commissions will vary from one agent to the next and one brokerage to the next and it really depends on the level of services, experience, expertise and inclusions made available by the agent or team.

Unlike many things in the business world, when it comes to real estate EVERYTHING is negotiable.

The amount paid to the Buyer agent/selling side is referred to as the “cooperating commission” and the Seller decides how much commission to offer the agent who represents the buyer. 

The cooperating commission is set out in advance and through the marketing efforts of the listing agent, it is used to encourage other agents to introduce their buyers to your home.   

The percentage of commission does not dependent on how long it takes to sell your home – if the home sells in 7 hours, 7 days, 7 weeks or 7 months you pay the same.

Commission is certainly one of the truest forms of pay for performance.

There is an abundance of real estate commission models offered in Ontario, there are many ways to save on real estate commission. However, a more crucial question to ask is; which marketing package will net you the most money at the end of the sale?.

If a Seller decides to hire a discount agent and ‘saves’ $5,000 on commission, but could have sold their home for $25,000 more if it had only been staged properly, marketed beyond the MLS system and expertly negotiated, did the Seller really ‘save’ $5,000? Or did they lose on $20,000?

Obviously, the easiest way to save on commission is to sell your home yourself – but that comes with real financial and time-related costs, not to mention the unnecessary exposure to liability and the uncertainty that comes with allowing strangers to wander unaccompanied through your home too. 

Sellers typically pay commissions to both parties in Ontario. However, in recent years, Toronto’s Multiple Listing Service (MLS) has been opened up to include discount brokerage commission models and For-Sale-By-Owner (FSBO) listings, occasionally, a Buyer will pay their agent directly. 

For example: An owner selling their own home themselves is offering to pay the agent who brings the Buyer $1 in commission. I don’t know anybody who works for $1! In this scenario, one of three things will happen: 

1 – The Buyer’s agent negotiates for the Seller to pay them (even though it wasn’t initially offered); or

2 – The Buyer pays a real estate commission directly to the agent. The amount of commission owed in this scenario will be outlined in the Buyers Representation Agreement; or

3 – The Buyer’s agent negotiates a sale price that is substantially lower than similar properties in the area. The reduction in price will reflect the amount, that both agents (Listing and Buying) would have received if a commission were paid.

Fortunately, most Sellers aren’t willing to gamble with their homes equity, so the above scenarios don’t happen often.