How Do Realtor Fees Work?

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Whether buying or selling, you want to know how Realtor fees work. One of the most common questions for homebuyers in Canada is whether they are responsible for paying Realtor fees. If so, when do you have to pay, and are Realtor fees higher for buying or selling?

These are essential questions to ask early in the buying process before you select your agent.

Who Pays Realtor Fees?

Real estate agents play a valuable role in guiding you through buying or selling a home. Like any service, there is a cost to gaining access to the expertise they provide. Unlike other services, the buyer never pays directly for these service.

Typically, the property seller pays the real estate commission. This commission comes from the sale price and is usually divided between the agents representing the seller and the buyer.

The actual commission amount can differ based on the sale price of the property and the agreement between the seller, the real estate brokerage, the agent and the region – so, lots of variables. But generally speaking, it is typically calculated as a percent of the property’s final sale price.

Here’s an example of how Realtor fees could work for a home that sold at $500,000 with a commission of 5%.

The total commission on the sale would be $25,000 (5% of $500,000). This commission is usually split evenly between the buyer’s and seller’s agents, so each agent would receive $12,500.

It’s important to note that the seller, not the buyer, typically pays the commission. So, in this scenario, the seller would pay the $25,000 commission from the sale proceeds. The buyer would not be responsible for paying any Realtor fees.

How Do Realtor Fees Work?

Realtor fees work as follows: a brokerage charges a fee for facilitating a real estate transaction. These fees are generally calculated as a percentage of the final sale price and are negotiated by the agent on behalf of their brokerage with the seller. Once the transaction is completed, the brokerage pays out all fees associated with the transaction.

In Canada, real estate agents don’t have a fixed commission rate, so it’s a good idea to inquire about this before hiring one. Additionally, it’s critical to ask about the specific services included in their fee.

While choosing an agent with a lower commission rate may be tempting, it’s important to remember that cheaper doesn’t always equate to better. A real estate agent or brokerage who offers a cut-rate commission may not provide the same level of services and expertise as a more experienced and qualified agent.

It’s important to note that these fees are negotiable, and buyers and sellers can negotiate the percentage rate with their real estate agent or brokerage. It’s also crucial to carefully review and understand the contract terms with the real estate agent or brokerage, including the commission rate, before signing.

Risks of Not Hiring a Real Estate Agent

Although the seller typically pays the real estate commission, it’s important to note that the buyer indirectly bears the cost since it’s built into the property’s final sale price.

While it may seem tempting to purchase a property without the assistance of a real estate agent to save money, it’s essential to consider the potential risks involved.

Here are some of the key risks to remember:

Limited access to crucial data: Real estate agents have access to a wide range of information and resources to help make informed decisions about purchasing a property. Without an agent, you may have limited access to vital information, like market trends, comparable sales data, and property history.

RE/MAX sales associates benefit from a wide range of resources and support systems, including comprehensive education and advanced technology, that are available whenever needed. With an impressive number of professional designations, RE/MAX agents are among the most highly skilled and educated professionals in the real estate industry.

Losing money: With years of experience in your local market, your real estate agent provides valuable insights into the fair market value of a property, ensuring that you pay the appropriate amount for the property. With an agent, you may avoid paying too much for your house-negating all that money by representing yourself.

According to a 2020 report by the National Association of REALTORS, For Sale By Owner (FSBO), transactions typically sell for less than agent-assisted transactions. FSBO homes sold at a median price of $217,900, significantly lower than the median agent-assisted sale price of $242,300.

Legal issues: Real estate transactions involve many legal aspects, including contracts and negotiations. If you are not familiar with the legal requirements and processes involved, you could end up with legal issues or even financial losses in the future.

Real estate transactions can be complex and involve numerous variables, so having the guidance of an experienced agent can help reduce stress and provide valuable advice throughout the sale process.

For these reasons, working with a licensed and experienced real estate agent who can provide guidance and representation throughout the home-buying process is recommended.

Finding the Ideal Realtor

At RE/MAX, we strive to make buying a home as hassle-free as possible. Our agents are committed to ongoing education and have the most up-to-date technology to help you find your dream home quickly and comfortably.

When you choose a RE/MAX agent, you’ll receive comprehensive support throughout your buying journey. Our agents are skilled negotiators, making even the most challenging transactions go smoothly. We always aim to secure the best possible price for you when buying a home.

Here are some helpful tips for finding the ideal agent to work with:

  • Look for an agent knowledgeable about the real estate market conditions and with enough time to dedicate to your needs.
  • Ask the agent about their experience and past results to better understand their expertise and capabilities.
  • Choose someone with a good reputation. At RE/MAX, client and agent referrals account for 70% of business.
  • Seek recommendations from family, friends, and colleagues who have gone through the home-buying process.
  • Consider working with an agent who holds an ABR® designation, as they have specialized skills in responding to buyers’ needs.
  • Prioritize being served over being sold by selecting an agent who understands and responds to your specific needs.

Working with an experienced real estate agent is the best bet for a smooth home-buying journey. Understanding their fees and who is expected to pay is a vital part of that process. Ask your agent about their commission rate before you start working with them. Happy home buying!

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