Realtors and real estate agents make their living from the commissions they earn from selling other people’s properties. But who pays these real estate commissions? The obvious answer is that the seller does because it is he who is making money out of the transaction. In most case, this is true. On the completion of the sale, or closing of the deal as it is called, the seller hands over a percentage of the sale price to the broker and that ends the deal.
But the matter is not always as straightforward as that because both parties, the seller and the buyer, have their own real estate agents. The seller hires his agent to find a buyer who is willing to pay the asking price and the buyer hires his agent to find the best home that his money can buy. At the end of every successful deal, the agents of both parties get their commission. Obviously, the seller’s agent gets his commission from the seller, but who pays the buyer’s agent?
Mostly, the seller’s broker splits the commission with the buyer’s broker for bringing the buyer. The brokers then pay their respective real estate agents. So the real estate commissions are usually paid by the seller. But he doesn’t pay the commission out of his pocket before the sale; he pays it out of the sale price after the conclusion of the sale. Aren’t they the same thing as the money is going out of his pocket? Actually, they are not. The commission and GST are already included in the sale price so that he won’t be losing any money.
In Canada the average real estate commission is around 5%. There is also a tax that is payable on all home sales since the realtor is providing a service. If the seller wants a clean $500,000 for his home, then he puts the sales price at a higher price to cover the broker’s commission and taxes. This way he walks away with his $500,000 without feeling that he has been made to pay a heavy price.
This means that even if the seller pays the commission, the money actually comes out of the buyer’s pocket. So, technically speaking, you can say that the buyer pays the commission. But except in special cases, the buyer doesn’t hand over the commission directly to his broker. This gives rise to the question, when does the buyer directly pay commission to his agent?
This happens when the buyer’s broker operates on higher real estate commissions than the seller’s broker is willing to share with him. In such a case, the broker may include a clause in the agreement that requires the buyer to compensate him for the remainder of the fee he is out. This only happens in rare cases.
Once the deal is complete, the agent must wait for the closing date to actually receive their money. This could be in just a few days, or up to a few months. So how do you get paid in the meantime? That’s where real estate commission advance companies come in. Access Easy Funds is here to help real estate agents in Ontario stay on top of their finances by offering commission advances at low discount fees by purchasing agents commission.
