Let's talk about commissions
by Hugh Hardy
It seems like it's been a while since the commission wars were going on in full force and it looks like things have settled down a bit. But you probably all remember the ads... "1.9% real estate commission", "3.5% real estate commission", "2.9% real estate commission", etc. These are some of the figures that I remember.
Of course there was a big catch with these advertised rates. The catch was that the figures quoted here were, as far as I have been able to ascertain, always either for exclusive listings - ones that did not find their way into the MLS catalogue - or they were for MLS listings provided that the Agent who listed the property also brought the selling offer (most frequently, the offer is brought by a different agent than the listing agent through the MLS network). Both of these situations are not ones that I would want to be involved in if I were selling. Why? Well, most agents only sell their own listings a small percentage of the time, so you can't count on getting the lower commission in the second scenario. As for the "exclusive" listing method, homes are almost never listed exclusively these days simply because the MLS system is so effective. As an added benefit, the MLS should also help you to maximize the sale price that you attain.
A lot of folks don't realize that they will probably end up paying just about the same commission with a competitive internationally prominent firm as with a company with a name like "Commish-Low", or whatever. Why is this? Well, in order to be effective, even a company that advertises a low commission must utilize the MLS. In using the MLS, the commission discounter must still pay an attractive fee to the agents who will try to sell the property. This means that the commission can really only be discounted from the portion that the listing company itself would receive. Now if the commission cutter takes less money for himself, then there is less money available to advertise and promote the listing. This often ultimately ends up working against you, the seller.
I'm all for competitive commission rates. As a matter of fact, it is illegal for real estate companies to get together and fix prices. This violates the "Competition Act". In the past, there have been real estate boards taken to court for trying to set minimum commissions for their member companies. So this means that there is no "standard" real estate fee - and it is illegal for a Realtor to tell you that there is. Individual real estate companies are entitled to set commission policies for their salespeople - I believe Royal LePage used to have a minimum commission of 6% (this has now changed). But the industry in general cannot and does not price-fix when it comes to commissions.
It is a good idea to find out what each prospective Realtor will do for you and what commission they will charge. It's not a bad idea to get it in writing either. At what frequency will ads be run, what is the MLS coverage, etc.? When you buy a product you probably look at value for your money - the same should be true when selecting a Realtor. But also keep in mind that a good Realtor may be able to get you a few thousand dollars more for your home - and that can add up to a lot more than the extra commission that you might pay over and above the absolute lowest commission available.
I'll be back next week to answer some of your questions.
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