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  • Cindy Chen and Helen Zhao

Brokerage and Commission: What happens when you sell a house?

As a salesperson or broker, you are not only helping others sell and buy homes, you are also helping each individual prepare for a huge change in their lives. This can be a lengthy and emotional process so it is very important to respect all the rules of real estate. It is important to know how brokerages and commission fees work in order to properly be of assistance to your clients and customers. As a salesperson or a broker, you will be working for a real estate brokerage who is the agent in transactions. You will be the individual making decisions and signing agreements on behalf of the brokerage.

When trading in real estate, the brokerage is entitled to commission or remuneration only if it is physically documented and signed by all parties involved in the trade. Only then can the brokerage legally have claim to the money. Commission can be a percentage of the sale price, a fixed amount, or a combination of both. Whatever the amount, it must be discussed and agreed upon by all parties before the trade is complete. The commission amount however, cannot be the difference between the listing and the selling price. If parties cannot reach an agreement, then the commission will default to the prevailing rate of where the property is located. For reference, seller or listing agents in the Greater Vancouver Area usually charge 3.9% on the first $100,000 of a transaction's value, while in Ontario, commission can range anywhere from 3.5% to 5%. The seller is usually the one to pay commission to brokerages of both sides of the trade. Once the commission is given to the brokerages, they then split the amount with the representing salesperson. This amount is also agreed upon between the two parties and is documented and signed by both the brokerage and the salesperson.

It is also important to remember that there is a difference between representing a client and a customer. When representing a client, you as a salesperson must act in the client’s best interest. This will include things such as, but not limited to full disclosure and research when needed. Due to such extensive measures being taken for your client, you will be rewarded with commission. However, when representing a customer, the services are much more limited. Besides honesty and competent work, you are not required to act in the customer’s best interest and go beyond basic aiding. Therefore, a customer is not obliged to pay commission. It is important to document important monetary information on paper and have all involved parties sign it. This will also insure you are being compensated properly for your work.

Although it may seem complicated, understanding the basic concepts of commission in real estate will give you a definite advantage. As a salesperson or broker, it is crucial to learn these rules to avoid unwanted legal problems later on in your career. Learning about brokerages and commission fees is only scratching the surface of all the other amazing things you’ll learn about in the world of real estate!


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