Pretty much everybody knows the answer to this question.
- Your friend who just sold their house knows.
- Your favourite news site knows.
- Your uncle the contractor knows.
- There are 37,000 agents in Toronto and they know, as do the 58,000 agents in Ontario.
Everybody knows the answer.
The answer is 5%. Wait, no, it’s 4%. Well, around here we pay about 6%. Actually, it’s 3.5%. No, no, for sure it’s just over 4%.
Everybody knows the answer.
Unfortunately, everybody has a different answer.
So what’s the right answer? Who do you trust when you have all these conflicting answers?
Who actually knows the answer?
I am pleased to say that I know the answer.
As of today, February 4, 2014, the average real estate commission in Ontario is…shoot, I knew this. It’s…uh…damn. Time to tell the truth I guess. I don’t actually know.
I can see you shaking your head. Some real estate agent you are Jeff, if you don’t even know the average real estate commission in Ontario. Isn’t that your pay? Wouldn’t that be of interest to you?
I understand the frustration, I really do. If it helps, I can tell you the average real estate commission for my selling clients in 2013. It was 5%. Every single one of them paid a commission of 2.5% to me as the listing agent and 2.5% as commission to the purchasing agent.
That’s not a guess, or an estimate, or somehow based on anecdotal evidence. It’s a fact. I know it for sure.
When it comes to the average for Ontario though, I don’t know for sure. I know you expected an answer so I will give you an answer.
My answer is somewhere between 4% to 5%. Is that a fact? Absolutely not.
I base my answer on my own experiences, my perception of what impact discount listings have had on the market (limited, by the way) and my discussions with hundreds of agents about commission.
My answer is informed by my work as a full time Realtor, but make no mistake, it’s not the answer.
Why don’t I know the answer? Well, I could blame it on government rules, the economy, the great ice storm of 2013, but in truth, I don’t know the answer because nobody does.
In order to give us the answer, we need to know how much the listing agent got paid and how much the buying agent got paid – and we need to know it for every transaction in Ontario.
It’s actually easy enough to see what buying agents get paid. Every listing on MLS has a mandatory field that the listing agent fills in with the commission the seller is willing to pay.
While there are variations depending on what time period you are looking at, what type of home or what area, you can ask for the average buying agent commission and get the answer. Give a good agent a little bit of time to look into it and he or she could absolutely tell you fun facts like:
- There were 191 detached homes sold in Brampton in December of 2013. 172 of these 191 sales offered 2.5% plus HST. So about 90% offered 2.5% plus HST. Nine of the houses offered more than 2.5% and the other nine offered less than 2.5%.
- There were 68 duplexes sold in Toronto in all of 2013. 59 of these 68 sales offered 2.5% plus HST. So about 87% offered 2.5% plus HST. Two of the duplexes offered more than 2.5% and the other seven offered less than 2.5%.
This data for the purchasing agent’s commission is available and a good agent can tell you exactly what is going on here so you can make an informed decision.
It is the other half of the data we need, on the listing side, that poses the problem.
Unlike the commission paid to the buying agent, the commission paid to the listing agent isn’t a field that is required to be filled out on MLS. It doesn’t even exist as a field, actually. This information is known to only three parties.
1. The Seller knows.
They decide how much of a commission they are willing to pay their agent to list their home. Every real estate transaction that uses a real estate agent signs a listing agreement, and this listing agreement says it in black and white.
2. The Listing Agent knows.
He or she is the one who does a listing presentation for the Seller. He or she explains why they should be hired, what they would do for the Seller, and how much of a commission they charge. When the Seller signs that listing agreement, that agent knows exactly how much they will be paid when they sell the house.
3. The Listing Real Estate Brokerage knows.
The first field that is filled in on the listing agreement is the brokerage for which the listing agent works. Brokerages are responsible for ensuring that all transactions, funds and paperwork are handled in accordance with the Real Estate and Business Brokers Act, as well as any other laws, rules and regulations. They receive and then remit funds to the listing agent after any splits on commissions are applied.
These three parties (the Seller, the Listing Agent and the Listing Brokerage) are the only ones who know how much the listing agent is paid in commission.
Individual sellers are obviously not getting together to share that data anytime soon and neither are individual agents. Listing brokerages could in theory ask all their franchises to provide that data in order to aggregate it and find the average, but to my knowledge, none of them do.
Even if they did, it would only show what sellers pay who hire Keller Williams Realty agents, or Re/Max or Royal LePage, etc. I happen to think Keller Williams’ agents are the best agents in business, so I wouldn’t be surprised if sellers paid more for that expertise and skill.
This leaves us pretty close to where we started. Namely, that there is no definitive answer to the question of what the average real estate commission is in Ontario.
This is a real shame, as it’s an important question. If you are planning on selling your home, interviewing agents and trying to make a choice between them, you need to know what’s normal to pay for their help. No one likes the thought of being taken advantage of and we all want to compare our cost against others to make sure that isn’t happening.
Given the difficulty in comparing realtor fees, I suggest you keep two things in mind that will make the decision process easier.
Firstly, when you hire a realtor to sell your home, remember you aren’t buying a product. You’re hiring a service.
We all know that products can reasonably be expected to be similar. Not identical, but pretty damn close. If you buy a pair of scissors, you know it will cut paper.
Services, on the other hand, can vary wildly. If you need your house painted and you hire a professional painter, the service they provide is hopefully tidy, thorough and high quality. If you hire your friends with the promise of pizza and beer afterwards, your house will still be painted, but probably more of it than you wanted.
Compare the service each realtor is offering against what commission they are charging and you will find it far easier to make your decision. A good agent does so much more than fill out a form on MLS and tell you where to sign an offer. Ask a good agent what they do for you and then sit back and get comfy, because they will be talking for a while.
After you interview agents, make your decision based on what is most important to you, not simply on the commission rate they charge.
Secondly, you now know that there is no such thing as the average real estate commission in Ontario, and this is powerful information.
No one can second guess your choice of a realtor and the commission charged with comments about how the average is “actually much lower than what you paid.” They don’t know that. They can’t. They are misquoting, mistaken or flat out making it up.
Knowing this makes it easier to focus less on what other people are paying or have paid and instead on finding the realtor that is the right fit for you and your needs.
If you are considering selling your home, I hope this helped shed some light onto the murky world of real estate commissions. If you know someone who is considering selling their home, please pass on this article to them.
As always, if you or anyone you know are considering buying, selling or investing in real estate, please get in touch so we can discuss how I can help. I would love to be responsible for what comes next.