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How do real estate commission rates work for selling and buying a property?


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#1 MarkoJ

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Posted 02 January 2012 - 03:30 PM

In Victoria we have a variety of business models. A common commission; however, not standard, for selling a home is 6% 100k + 3.0% balance. This commission is typically split between the listing agent and the buyer's agent (3.0% 100k+1.5% balance each). For example, on a $600,000 home sale the commission would be $21,000 + HST in total with $10,500 + HST going to each REALTOR®.

In helping you buying a property your REALTOR® may expect a pre-determined commission, for example 3.0% 100k + 1.5% balance. In the situation where the commission being offered is less the REALTOR® may expect the buyer to pay the difference. Such details would be found in the "Exclusive Buyer's Agency Contract."

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#2 concorde

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Posted 02 January 2012 - 08:09 PM

so why would I hire you for 21k when OnePercentRealty will sell my 600k home for $6900?

http://www.onepercentrealty.com/

#3 North Shore

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Posted 02 January 2012 - 10:43 PM

Or for free: http://www.forsalebyowner.ca/
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#4 Bob Fugger

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Posted 03 January 2012 - 08:41 AM

so why would I hire you for 21k when OnePercentRealty will sell my 600k home for $6900?

http://www.onepercentrealty.com/


I have heard that many of the 6+3% realtors blacklist 1% listings in their list of potentials in a home search. Can't speak to the vercity of that, though.

I'm not sure what happens if/when clients show up with them - I doubt that they would flat out not show them (especially now, when a sale is a sale is a sale, no matter how much commission); maybe they just poo-pooh them during the vieiwing?

#5 MarkoJ

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Posted 03 January 2012 - 10:08 AM

Just to clarify - I am not a "6%+3%" REALTOR®. The purpose of this thread is to answer questions people may have about commission structures.

The first question I will tackle is Private Sale vs. MLS®, as brought up by North Shore.

Today there are lots of avenues for marketing your home privately - craigslist.org, usedvictoria.com, kijiji.ca, forsalebyowner.ca, comfree.com, and the list goes on.

The big difference between the noted websites above and MLS® is exposure. With MLS® you truly get the best exposure. MLS® is a system REALTORS® share, for example if a new listings comes to market notifications are sent to other REALTORS'® buyers if the criteria is met. You can use tools such as "Google Trends" to graph activity between different private sale website vs. REALTOR.ca.

If you have time and patience, try selling your home privately before going with MLS®. There are challenges with selling your home privately; however, there can also be potential savings.

If you decide to go on MLS® then you must make another decision - do you go just on MLS® (flat fee listing) or do you hire the services of a REALTOR® in addition to the MLS® exposure?

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#6 Bob Fugger

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Posted 03 January 2012 - 02:53 PM

Apologies if I clouded the issue, but I am curious as to concorde's original question: why would someone hire a traditional 6/3 realtor when they can hire 1%? Where is the $14k+ in added value lie?

so why would I hire you for 21k when OnePercentRealty will sell my 600k home for $6900?

http://www.onepercentrealty.com/



#7 MarkoJ

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Posted 03 January 2012 - 04:46 PM

Apologies if I clouded the issue, but I am curious as to concorde's original question: why would someone hire a traditional 6/3 realtor when they can hire 1%? Where is the $14k+ in added value lie?


Excellent question that everyone should ask themselves before listing a property. I am not going to answer the "why" component; however, over the next few weeks I will try to explain how it all works and then you can decide for yourself what the best business model is. All questions are encouraged.

So let's start.

How does a potential buyer find your home?

Source: VREB 2011 Member Buyer Survery 01-09/2011

"...REALTOR®'s automated listing search service." This is a system through which the buyer receives automated emails from his or hers buyer's REALTOR® when a listing matches his or her criteria. The buyer can see additional information not available on REALTOR.ca such as room measurements, assessment, etc; however, the buyer cannot see the name of the listing REALTOR® or the offered cooperating brokerage commission.

"A REALTOR® (you or another) located the property and informed the buyer." In the system REALTORS® use they can see both the listing REALTOR®/Brokerage and the offered cooperating brokerage commission. (i.e. 3.0%100k + 1.5% balance or $10,000, etc.).

The rest are self explanatory.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#8 rjag

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Posted 03 January 2012 - 05:00 PM

My Mother-in-law retired from real estate 10 years ago. Quite interesting to see that the 6 & 3 hasnt changed over the last 20 years yet the price of houses have tripled and quadrupled. One would think that the 6% would be good and the 3% would be on a sliding scale to offset the huge commissions a current realtor would make on a $750k sale that 10 years ago was $350k and 20 years ago was $175k....yet the realtor from 20 years ago did alright and yet made significantly less on the same property.

Even when you factor in CPI todays realtor probably doesnt pocket much more, so is the difference in the fees they pay today as the cost of advertising 20 years ago has translated in to the cost of internet marketing today.

#9 Bob Fugger

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Posted 03 January 2012 - 11:14 PM

Excellent question that everyone should ask themselves before listing a property. I am not going to answer the "why" component; however, over the next few weeks I will try to explain how it all works and then you can decide for yourself what the best business model is. All questions are encouraged.


Sooooo, if it's such an "excellent question that everyone should ask themselves before listing a property," is there a reason you cannot answer the question or offer an opinion? Without the "why" portion of my question, there really is no question.

#10 G-Man

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Posted 04 January 2012 - 06:56 AM

^ Be reasonable.

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#11 Bob Fugger

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Posted 04 January 2012 - 09:45 AM

^ Be reasonable.


Eh? Sorry, my sarcast-o-meter is a bit off today...

#12 spanky123

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Posted 04 January 2012 - 10:58 AM

I don't doubt the accuracy of the survey itself but I wonder what percentage of people these days don't use a realtor at all when making a purchase and if that numebr has changed in recent years with the explosion of online services and tools. My reading of the survuey is that it only questions people who worked with a realtor.

The last 3 purchases I have done did not include a realtor as I found the properties myself online and had done enough transactions in the past to know the steps. Having said that I still use a realtor for selling property as I have found that they can usually generate enough of a premium to cover the added costs.

#13 G-Man

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Posted 04 January 2012 - 11:35 AM

Eh? Sorry, my sarcast-o-meter is a bit off today...


I was not being sarcastic. The idea behind this sub-forum is for to seek advice from a realtor not challenge the premise of whether or not people should use them. MarkoJ gave a reasonable answer based on his position.

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#14 MarkoJ

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Posted 04 January 2012 - 11:42 AM

I was not being sarcastic. The idea behind this sub-forum is for to seek advice from a realtor not challenge the premise of whether or not people should use them. MarkoJ gave a reasonable answer based on his position.


I have several parts to my answer - I am just drafting some diagrams to help everyone understand. Part II comes this afternoon. Now off to show some homes...

And yes the survey is not perfect but it the best data I have.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#15 Bob Fugger

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Posted 04 January 2012 - 12:33 PM

I was not being sarcastic. The idea behind this sub-forum is for to seek advice from a realtor not challenge the premise of whether or not people should use them. MarkoJ gave a reasonable answer based on his position.


Hmmm, there must have been some technical issue, as my response has mysteriously disappeared. Either that or asking what additional value a 6/3 realtor brings to the table over a 1% (or other business model, in that case) is an unreasonable question.

That said, I am looking forward to Marko's answers - thanks for taking the time to provide some insight into the real estate world from a realtor's perspective.

#16 MarkoJ

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Posted 04 January 2012 - 05:27 PM

Okay, before this gets too confusing. In this particular thread we will discuss differing commission rates for MLS® listings where a REALTOR® has been employed for other services (appointment scheduling, open houses, negotiations, etc.) - also known as the traditional listing.

I will open another thread called "How do Flat Fee MLS® listings work?"

And if someone wants to open a thread on the topic of selling privately versus MLS®/REALTOR® I will gladly participate with my thoughts.

Part II - What is being discounted?






Given that in the majority of situations the buyer is represented by a REALTOR® (approximately 90% of the time) discount company "CBA" is essentially asking the same compensation for their listing services as discount company "ABC;" however, as you can note above the gross commissions vary significantly. What gives? Company "CBA" is offering $10,500 to the buyer's REALTOR® and "ABC" is offering $3,000.

Are we comparing apples to apples here in terms of $6,900 vs. $14,400? You have to ask the question: the amount the buyer's REALTOR® earns (aka cooperating brokerage commission) - is it important?

$14,400 vs. $21,000 - here we have an even playing ground in terms of cooperating brokerage commission; therefore, the question is rather simple. What do I get for any extra $6,600?

Part III to follow....feel free to ask questions in the meantime.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

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#17 MarkoJ

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Posted 06 January 2012 - 11:34 AM

Part III: the amount the buyer's REALTOR® is offered (aka cooperating brokerage commission) - is it important?

My belief is that it is important. The offered cooperating brokerage commission is the incentive for all REALTORS® to bring their buyers to your home. You will note in Part I, that about 38% of buyers are introduced to a property via their REALTOR®.

Right now there is also a large push for REALTORS® representing buyers to obtain "Buyers Agency Agreements," which specify compensation (for example, 3.0%100k + 1.5%balance). If the cooperating brokerage commission being offered is less than what the REALTOR® and the buyer have agreed upon it is up to the buyer to make up the difference.

Example

The buyer is looking at two $600,000 homes: In the first scenario the buyer does not have to pay their REALTOR® (high cooperating brokerage commission offered by seller) and in the second scenario they need to pay their REALTOR® $7,500 (cooperating brokerage commission does not meet amount set out in "Buyers Agency Agreement") - the second scenario may be less desirable to the buyer especially if they have limited funds available for a down payment.

A low cooperating brokerage commission can at times have unintended consequences.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#18 trex

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Posted 10 January 2012 - 01:56 PM

Hello Marko,

Interesting thread.

I understand how some realtors could now be pushing for a 3%@100k+1.5% on balance contract considering the new competition guidelines that have been put forward.
And the resultant FSOB and discounted MLS listings.

However considering the massive recent increases in property values what would happen if a purchaser insisted on a 3%@ 100k and .5% on balance contract.
The purchaser makes up the difference on anything less than the .5% on balance and the buying agent kicks back to the purchaser anything over the .5% (usually 1% over the 100k mark).

#19 MarkoJ

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Posted 10 January 2012 - 05:03 PM

Interesting question. I have examined the Exclusive Buyer's Agency Contract and there does not appear to be a clause that would indicate that the buyer would receive the excess commission. The contract primarily discusses shortfalls (i.e. "Monies, if any, under Clause 4A shall be deducted from the amount due payable to the Buyer under Clause 4B and the Buyer shall pay any shortfall owing to the Buyer's Brokerage.")

Before signing ANY contract you should read it carefully and perhaps have your lawyer review it.

Now, the "kick back," to the purchaser/buyer is referred to commonly as "cash back." There are REALTORS® in Victoria who offer this business model and typically their offer/arrangement with their buyer would be specified in the Schedule "A," of the contract.

For example, some REALTORS® may choose to only offer a kick back to pre-approved buyers; therefore, in the Schedule "A," it might note "Prior to viewing the first home, in order to qualify for "cash back program," buyer most provide pre-approval letter," etc.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


#20 MarkoJ

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Posted 10 January 2012 - 05:10 PM

Trex,

You also bring up a very going example in regards to selling a home and offering various cooperating brokerage commission amounts.

If a buyer has an arrangement with his or her REALTOR® as you described which home will they be more interested in?

A $600,000 home where the offered cooperating brokerage commission is $3,000 meaning the buyer has to pay her REALTOR® the shortfall of .5% over 100k ($2,500)

Or

A $600,000 home where the offered cooperating brokerage commission is 3.0%+1.5% and the buyer receives from her REALTOR® the excess 1% over 100k ($5,000).

The second home might be more appealing to the buyer.

Once again, there are unintended consequences of offering a very low cooperating commission.

Marko Juras, REALTOR® & Associate Broker | Gold MLS® 2011-2017 | Fair Realty

www.MarkoJuras.com - MLS® from $899 and $1,000 cash back for buyers | www.834sales.com & www.promontoryforsale.com - Building(s) specialist 

Looking at Condo Pre-Sales in Victoria? Save Thousands!

 

 


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