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HOW DOES REAL ESTATE COMMISSION ACTUALLY WORK?

If you’re new to the real estate business, and just getting your bearings, you might be wondering how exactly the process of commissions works. From the outside, it seems like a pretty simple affair, but there’s more to it than you might think.

Real estate agents have to tick a few boxes before they are able to collect their commissions, and they don’t always end with the sale of a property. Read on to find out exactly how commissions are paid out, so you can get a better understanding of what you as an agent will experience when you close your sales.



THE PROCESS OF GETTING PAID

You probably already understand the basic idea of commissions – you sell something, and you receive a monetary commission for a job well done. In the real estate biz, this is typically a set percentage of the price of a property. When the property is sold, the commission process begins. However, if the agent is working on behalf of a seller, and nobody closes on the deal, the real estate agent forfeits the commission and walks away with nothing.  

This might seem harsh, but it’s actually an incentive structure that separates good real estate agents from bad ones. Performance is the key metric in the real estate industry. The more talented a real estate agent is, and the harder they work, the greater the chance of closing a deal on behalf of their client. There’s no room for the bare minimum here. Since real estate agents don’t receive a salary in the province of Ontario, and effectively work for themselves, there’s extra incentive for them to go out and put forth the best effort to make a successful sale.


THE STRUCTURE OF REAL ESTATE COMMISSIONS

Now, onto the actual numbers, which is where the complexities begin. In Ontario, real estate commissions are typically paid by the property seller, but they are divided in half between the seller’s agent, and the buyer’s agent. There are, however, several different types of real estate commissions that are paid out, as opposed to just one.

For instance, most people are familiar with the concept of a straight percentage of the total sale price, such as 5%. They may be less aware of a fixed one lump sum or flat fee, or a combination of the previous two types. This largely depends on the type of property, and several other ancillary factors, but one thing remains – the need to make a sale, or receive no commission at all.


IS THERE A STANDARD COMMISSION RATE?

While many might think that real estate commissions are fixed, or adhere to an objective standard, the opposite is true, and that’s by design. Ontario law forbids the practice of commission price fixing in an attempt to stave off corruption, which means commissions are left open-ended for negotiation. 


A NOTE ON RESTRICTIONS

Many people might also think that the commission fee rises based on the price of the property in question, but again, this isn’t the case. Ontario law is very specific on this, and it caps the commission scale at 3% of the first $300,000, and 2.5% of the remainder. Similarly, the commission can’t be modified between the listing price, and the sale price. Once it has been finalized, that’s it, regardless of whether the home sells for more.



WHEN IS A REAL ESTATE COMMISSION ACTUALLY PAID OUT?

Upon closing a deal, the commission is ready to be paid out, and that is defined as the new owner taking actual possession of the property in question. However, due to the complexities involved with transferring money through the seller’s lawyer, then to the brokerage, and finally to the agent(s) in question, this could take several weeks. However, the date of commission payment as agreed on by all partners still stands.

CONCLUSION

If you’ve ever dealt with a real estate agent before, chances are you’re knowledgeable enough about the commission process, but if you’ve decided to join the business as a fellow agent, the commission process will be commonplace. Real estate commissions are no big mystery, but they are not often on the minds of most people. To a real estate agent, however, commissions are a true incentive to do the best possible job at all times.

Real estate commissions don’t always come when you want them to, however. Sometimes, the delay between commission payments can prove difficult, especially for beginner agents. If that’s the case, we can help. Rocket Advance has made it our mission to ease the burden on brokers and agents by delivering commission advances when you need them. Contact us today, and receive your commissions in a much faster and more convenient manner. 

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