You may have heard about the recent lawsuits in the U.S., where real estate brokerages were required to pay millions in damages for inflating commissions paid to buyer’s agents. Now, the Canadian Competition Bureau is looking into the commission policies of the Canadian Real Estate Association.
Let me explain how realtors are paid, the history behind these practices, and how these changes could affect both home sellers and buyers.
How Commissions Used to Work
In the past, all realtors were technically working for the seller, even if they were helping buyers. In Canada, realtors owe their duty to whoever is paying them. So, even when a realtor spent months helping a buyer find a home, they were still looking out for the seller’s best interest, which understandably led to a lot of confusion.
Buyer Representation
Eventually, the concept of Buyer Representation was introduced. With a signed agreement, realtors could now represent the buyer’s best interests, even though they were still being paid from the proceeds of the sale by the seller. As long as this was disclosed to the seller, the realtor could work fully on behalf of the buyer.
Commission Structure
When a realtor signs a listing agreement with a seller, they agree on a commission. Part of that commission is typically offered to a buyer’s agent, who brings in the buyer that ultimately purchases the home. This commission split is displayed on the MLS (Multiple Listing Service) when the property is listed.
The issue being discussed now is whether sellers were pressured into paying too much commission to buyer’s agents just to have their homes listed on the MLS.
Commissions Are Always Negotiable
It’s important to remember that commissions are negotiable. There’s no fixed rate, and realtors can set fees based on what they think is fair for their services. You can always negotiate these fees when selling your home.
For years, I’ve explained to my clients that they are not required to offer a commission to a buyer’s agent, despite what some might believe. The term "cooperating broker" can be a bit misleading, as that agent is actually working for the buyer, not the seller. They aren’t cooperating with the seller but rather representing the buyer’s interests.
Common Misconceptions About Commissions
Many sellers think they need to offer a large commission to buyer’s agents, or their home won’t be shown. This is simply not true. In the past, when only realtors had access to listings, this might have been the case. But now, homes are widely visible on websites, and buyers often find listings on their own and ask their agent to show them.
It’s also against the rules for a realtor to refuse to show a home based on the commission offered. Buyer’s agents should negotiate their fees with their clients (the buyers) rather than relying on the seller to pay them.
What Does This Mean for Sellers?
As a seller, you don’t need to offer a large commission to a buyer’s agent. You can offer as little as $1 and still have your home listed on the MLS. Buyer’s agents should work out their fees with their clients.
This shift in thinking is significant for everyone involved. But ultimately, it means that as a seller, you are not obligated to offer more than $1 to get your home listed. If a realtor tells you otherwise, it’s a sign to look for a different agent.
If you have any questions, feel free to reach out. I’m happy to explain further and provide options that work for you.