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In Ontario, there are diverse options for selling your home, with commission models to fit nearly every preference. While there's no universally defined 'standard' real estate commission in Toronto, several common models are frequently encountered.
Today, we delve into the most prevalent service and commission structures in real estate, ranging from the most economical to the most costly.
For Sale By Owner (FSBO)
Certain homeowners opt to sell their property independently without engaging a real estate agent to represent them—these sellers are commonly known as For Sale By Owners (FSBO).
In Ontario, if a homeowner opting for For Sale By Owner (FSBO) wishes to list their property on the MLS, they must engage a brokerage to facilitate this process, typically involving a flat-fee payment. This fee is due regardless of whether the home sells.
When conducting a FSBO, the homeowner takes on various responsibilities including setting the asking price, preparing and staging the home, arranging photography, managing marketing efforts, conducting buyer showings and open houses, negotiating contracts and prices, and handling any closing matters.
Read more about Selling Your Home Without a REALTOR®.
Discount Brokerage Commission Models
Discount real estate commission models are designed to help sellers save money by reducing the usual upfront fees or commissions paid.
Understanding Discount Brokerage Models in Toronto
Discount brokerages and agents aim to reduce costs for sellers by limiting the services provided and passing those savings on. In Durham, common discount commission models often:
- Exclude services like home preparation, cleaning, or staging support.
- Do not include professional photography or floor plans.
- Limit marketing efforts to listing properties on MLS only.
- Focus more on sales volume than on providing a high-touch client experience, offering minimal guarantees.
- Decrease the amount offered to the buyer's agent. As explained in our article "Real Estate Commission Explained," commissions are typically split between the listing agent and the buyer's agent. Some listing agents lower overall commission costs by reducing or eliminating the portion offered to the buyer's agent.
If you're considering hiring a discount agent, it's crucial to understand what services are included and excluded, as this can impact your sale. For instance, when a commission is advertised as "1%," it often does not cover the commission offered to the buyer's agent, which might add an additional 2.5% to 3%, making your total commission around 3.5% to 4%.
The Full-Service Commission Model
The full-service real estate commission model reflects higher costs due to its comprehensive service offerings and client-centric approach.
In Durham today, "full-service real estate" typically encompasses:
- Assistance with home preparation or cleaning
- Professional staging services
- Pre-listing home inspections
- Professional HDR photography and floor plans
- Targeted marketing strategies beyond MLS listings
- Negotiation expertise and representation by experienced agents
Full-service agents often offer various commission options that align with the services provided. For instance, at The Durham Life, we offer commission packages that may or may not include staging services, tailored to meet different client needs.
Related: Read what full-service means at The Durham Life.
The iBuyer Model
iBuyer companies streamline the home selling process by purchasing properties directly from sellers, often without physical viewings and within hours of listing. Their aim is to eliminate the uncertainties and risks associated with traditional sales, offering quick and hassle-free closings without the need for home preparation or showings.
Although the iBuyer model is not yet widespread in Canada, it is gaining traction in the US.
The convenience of a quick and hassle-free iBuyer sale comes at a cost: commissions typically range from 8% to 12% of the purchase price, and offer prices are often discounted compared to market value.
iBuyers are typically large, venture-capital-backed companies that leverage computer algorithms to assess market values. They aim to generate profits by swiftly purchasing and reselling homes. iBuying is particularly popular in cities with sluggish real estate markets, lower property price points, and planned communities where homes are similar and may require updates.
The Full Commission (but Discount Service) Model a.k.a. [Full-service fees but discount services].
Let's address something uncomfortable but necessary: real estate agents who charge the same commission as full-service brokers but offer discounted services or limited inclusions. This could end up being the most expensive commission option.
If you're paying a higher commission rate than discounted services offer, it should be justified by additional services and inclusions that lead to higher sales prices. Be cautious not to pay top commission rates for minimal service and potentially mediocre sales outcomes.
