Why is the commission so much? I need to know who is getting paid for what work? It is my Money!

This is the one question that has crossed every home owner's mind at one time or another. Why though? Is it too expensive? The fees are too high? I need every penny of my equity? It's not Rocket science?

These are all very real and important questions. So it is important to know the answer's to these questions before making a informed and responsible decision. I would touch upon these question's and share my take on it. You might call it biased and that it might be, however, I encourage you to take away what makes sense to you. 

First and foremost, are commissions too high or are they? 

Average commission for hiring a realtor to complete the whole transaction from start to finish is about 5%. When I say 5% please note I am talking about Realtors® who are professionals and are recognized for their work in the field. Just like a lawyer or a doctor or an engineer or any other professional who is governed by a licensing body. In case of Realtors® the governing body is RECO (Real Estate Council of Ontario) and the code to adhere is outlined in the act known as REBBA 2002. Why is it 5% and how is it determined is a million dollar question to which I would say, it is an industry standard to receive top class services. If you are quoted more or less, please advise due diligence and ask for what would be included in the services and in writing before hand to avoid and hassles and tedious complaints route to address the issue. 

Let me break down the commission structure in a graphical manner 

Further breaking down, who is working for what and who is getting paid for what out my pocket?

Let's take this example,

The listing brokerage charges it's fees that have been pre-arranged in a contract signed by the Realtor® when they join the brokerage. The split varies from company to company depending on what services the Brokerage gives to it's Realtors®. Some of the services are desk or office space, administrative services, training, record management, Meeting room or client presentation room, Coffee, tea, and water, Printing services, Mailbox services, paging services, so on and so forth. All these cost money and the depending on the quality and level of professionalism the costs are set. Yes, professionalism comes at a cost. Let us say in this case the split between a brokerage is 85/15. That means that the Realtor® will be paid after deduction on 15% that the brokerage is owed on a transaction. That leaves the Realtor® with $8,500 to take home for his family and cover the expense of the trade. Hmmm ... expense of the trade? take home? Let us dissect this further.

Like any business a Realtor® is also in a business. He is a independent contractor working under the umbrella of a Real Estate Brokerage such a Century21, Re/Max, HomeLife, Sutton, Keller Williams, Sutton Group, Coldwell banker and so on .. Now to run any business you need to have capital for fixed and running costs associated with running a successful business enterprise. The purpose of the business is to give services to clients. The level of service that you will receive is directly related to the level of understanding the Realtor® has about this business and what is involved and needed to sustain and constantly improve the level of service required. This is what I call the WOW effect. 

You must be wondering if this is a business post or a post for a seller to understand the commission they have to pay, I apologize, well sometimes I tend to get swayed in the rhythm of pouring out the knowledge that resided in the brain and being spontaneous I let it flow. I prefer to not can the presentation so why can a blog. Okay so anyways, getting back to our equation. 

When it comes the the Co-Operating brokerage, the same fundamentals apply. Most questions that arise are what does the co-operating Realtor® really do except from booking an appointment and showing the house? The answer is a whole lot more than you would know. Again, I would like to remind you, I am talking about professional and skilled Realtor® kind. And I would leave that for the next blog post. 

Coming back to you the Seller, let us take the example above of 400,000 K home sold price tag. You end up with 380,000 in your pocket after the deal is closed. This could vary after considering the lawyer cost, hst for services, staging cost, repair or upgrades, and so on.. It is important to budget for this so i encourage my clients to give a serious thought and go over the Net sheet I present for each of them. If based on that or if they need to move, we go ahead with the process.. 

The Realtor® has job to do and to do that there is a need for the skill to understand the market and the home that needs to be sold. To sell anything you need to know the trends, the buyers and the competition along with other things. After, the home sale analysis report is scrutinized and explained to the Home Seller. The next step is to get the home in showcase condition. Preparing all the marketing material and placing the order with respective trade service providers. As everything is time sensitive it is important to work with pre-qualified service providers to avoid and issues during the process. The home is now ready to be shown to buyers, the most important tool in the trade is the MLS® software used by the Toronto Real Estate Board® to keep track of thousands and thousands of properties available, sold, expired, terminated and so on on in the GTA. It is a huge amount of data. Think of a warehouse with servers all over the place.(imagination of the server's and not the real picture)

 

Once the home hits the Mls® all home finding sites and about 39,000(not exact) Realtors® get access to the property details. And begins the showings, follow up, open houses, appointments and so on finally leading to offers for the property. Depending on the strategy used to price the house, the negotiations take place with the co-operating Realtor® or the buyer themselves. The skill of a negotiator here is demonstrated and how much commission you pay directly reflects how much your Realtor® will be able to negotiate in your favor with terms and conditions working for you. 
After the agreement is reached the signatures are placed and the offer goes in firm or conditional based on the outcome. Usually, the conditional clauses are Financing and Home Inspection based, 5 days is the standard time and again the deal is not closed until you get your check. Again the due diligence, experience, and professionalism of your Realtor® comes to play to ensure nothing goes off track. 

Finally, the sale closes and the check is delivered. The Realtor® who appreciates the business will not stop here but be in touch ensuring your transition to the new home is complete and will always stay in touch to ensure, that you know your business is valued, and that they are just a phone call away. 

The result and the prediction of how the process goes is again directly related to the commission being asked by a Realtor® for their services. Few things to keep in mind, interview more than 2 agents(go with your gut feeling), let them give you a presentation showcasing the work they will undertake to get your home sold and what they have been able to achieve in the past for their previous clients. Ask for their track record i.e List to Sale Ratio and Days on the Market statistics, they will usually give you the substance for the talk. 

Hope you found some questions answered after reading and I thank you for your time. You can follow me on twitter, face-book, and linked In, where I try to keep you current. You can access the social networks via the buttons on the page to your left and top. Chat with me using the chat feature or ask questions via email. Anytime, any question, anywhere, I am connected.