Many Sellers I encounter are not familiar with Commission structure, how it is allocated and what it covers. Here is an excerpt from my book “A Seller’s Guide to Real Estate” where I cover this topic.
How Commission Is Allocated … and What It Covers
Real Estate professionals are independent business people who must pay fees to their broker, to their boards, and must cover ALL of their business expenses before they acquire net earnings. This means ALL expenses they incur to market your home, whether it be newspaper advertising, preparing and printing of feature sheets, the sign on your front lawn, the cost of the lockbox, time spent hosting an open house, time spend showing your home to perspective buyers, pre-approving perspective buyers, etc. etc. etc.
Most professionals receive an hourly fee for services as the work is done, but real estate agents are paid ONLY when have successfully completed a transaction.
All work leading up to that point, which might include consulting, fee appraisal evaluations, listing, marketing, showing properties, advertising, prospecting, etc. remains unpaid, until two parties are successfully brought together in a real estate transaction.
How Is It Allocated?
The commission paid to the Listing Broker upon completion of the sale is allocated as follows:
•- 50% is paid to the selling broker. The salesperson gets a portion of that dollar amount, dependent on what level of “split” they have negotiated in their contract. Each agent is under contract and the split, varies with the amount of commission earned.
•- 50% is paid to the listing broker, and again, the salesperson who represented the Seller receives his/her portion, depending on the terms of their contract as to whath percentage they receive. The amount will be dependent on what “split” they are currently on with their respective broker. Again, this amount varies with the amount of commission earned.
What Does Commission Pay For?
1. Licence Fees The Ontario Real Estate Association decrees that a realtor must be licenced to sell real estate under their jurisdiction and by-laws.
2. Board Fees Toronto Real Estate Board, and Mississauga Real Estate Board and any other Real Estate Board the agent is a member of.
3. Broker Fees We are under contract to our broker for holding our licence and being the broker under whom I can trade in real estate.
4. Advertising All advertising, which includes newspapers, flyers, newsletters, mail-outs, web sites, feature sheets, personalized booklets, etc. are all expenses the real estate agent is responsible for.
5. Office Fees A fee is paid to the broker to whom we under contract for use of such items as: office space, computer equipment, software, fax machines, photocopiers, phones, pagers, stationery, secretarial services, listing sign, open house signs, business cards, and automobile.
6. Continuing Education Agents are responsible for all educational courses and real estate seminars.
7. Insurance: Because we are independent business professionals, we are responsible for our own medical/dental insurance and personal liability insurance.
In addition to the expenses noted above, you also get the benefit of an experienced realtor.
Just how much is that worth to you when you are negotiating one of the largest financial investments you have?
1. Education and Experience
It is true in these busy times and with our busy lives, we are all looking for more of that precious commodity … which seems to be becoming more and more precious. Hiring the professionals gives us that time. You don’t need to know about buying and selling real estate if you hire a real estate professional who does, and will relieve the stress. Henry Ford once said that when you hire people who are more knowledgeable that you are, it proves you are smarter than they are.
3. Agents act as Buffers
If you are selling your home, a real estate professional can pre-qualify a buyer before showing them your home, so only qualified buyers are viewing your home. If you are buying a home, the real estate professional who is a member of the real estate board, has access to all up to date listings of homes on the MLS service and can quickly narrow down properties to show you that meet your specific requirements.
3. Knowledge of the Neighbourhood
Real Estate agents have access to a diverse data bank of knowledge pertaining to any specific neighbourhood, i.e. schools, shopping, transportation, places of worship, and other demographics. They either possess that knowledge from working in the area, or know where to find it for you.. They can identify comparable sales and provide these facts to you prior to submitting an offer to ensure you are paying fair market value, and not paying more than you should for a home.
4. Guidance with Pricing
Contrary to the beliefs of some, it is not the agent who sets pricing for sellers or buyers, it is the current market conditions that dictates pricing. An agent can, however, provide information to the Seller to use as a benchmark or guideline to assist them in selecting a price range to offer their home for sale, based on similar homes in their neighbourhood that sold recently. In addition to location, the condition of the home plays a major factor in obtaining the highest sale amount. An updated home will naturally sell for more than one that has not been updated.
5. Market Conditions
Real Estate Agents have access to current market conditions and activities which they can share with you, which will govern your selling or buying process, i.e. median or average sales price, how many days on the market; ratio of list to sold price, are just a few. All these things will assist you in moving forward with the information you need to make an informed decision. Market conditions are ever-changing, and most often are determined on the time of year you list your home for Sale. Generally the market is a little quieter than normal around Christmas for example, or during the months of July and August. There are many factors involved to determine how you should proceed and a trained real estate professional can help guide you through this process.
6. Professional Networking
Real Estate Agents network with many other professional who can provide you with services you will need to buy or sell your home, such as a qualified, certified home inspector, a mortgage agent, or a real estate lawyer. Real Estate agents can provide you with a list of these professionals who have a reputation for efficiency, competency and competitive pricing and you can then choose which professional you want to hire.
7. Confidentiality and Negotiating Skills
Real Estate Agents negotiate well because unlike most buyers and sellers, real estate agents can remove themselves from the emotional aspect of the transaction, remain objective and professional, and because they are skilled at what they do. Its part of their job. Real Estate agents are not messengers delivering buyer’s offers to sellers or vice versa, they are professionals who are trained to present their client’s case in the best possible light, while maintaining complete confidentiality from competing interests.
8. Processing Paperwork
A few years ago, real estate transactions required little paperwork, a one page deposit receipt were the norm. In today’s world Agreements of Purchase and Sale Agreements can often run 5, 6 or 7 pages, depending on the number of clauses or conditions contained in the Agreement. In addition to the Agreement itself, there may also be waivers to remove conditions, and sometimes Amendments to the Agreement. In an effort to try to combat money laundering, the Federal Government implemented a mandatory statute in June, 2008 making it mandatory for each agent to see a form of photo identification from each client, and record this information on an Individual Identification form which is retained in the file. Along with the Identification form a Receipt of Fund document is completed to record when the deposit was received and in what form, i.e. bank draft, certified cheque, etc. One of these forms completed incorrectly as one oversight could result in the negation of a transaction or cause legal difficulties, and possible a law suit.
9. Education and Experience
In most scenarios, closings run very smoothly, but for those cases where problems arise, your Real Estate Agent is there to assist you, or point you in the right direction to get matters resolved. Sometimes questions arise after closing, and an honest, Real Estate Agent will be there for you to answer any questions you may have that were overlooked in the excitement of closing, and moving.
10. Develop Relationship for Future Business
Providing a high level of service to clients gives real estate agents incentive to ensure their clients are happy and satisfied. This often leads to referrals, which is the livelihood for many agents, and few would survive if they were solely dependent on merely drumming up new business. It also means that an agent who stays in the business will be there for you when you need to hire an agent in the future to handle your next real estate transaction.
All of these factors add up to good value for service when leaving a major investment like your home, in the hands of a professional..
I live and work in STREETSVILLE and have a vested interest in property values here. Are you considering buying or selling or know anyone who is? Give me a call for a complimentary evaluation of your home in this changing market. (416) 717-6331.
When you choose me to handle your real estate needs, you are choosing a real estate professional who cares about you and your family, and who will listen to your needs, work together with you, and protecting your interests to achieve your objectives.
Your STREETSVILLE Real Estate Agent
Experience, Service and Integrity in Every Real Estate Transaction
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