Real Estate Commission Calgary

I met with a seller last night, and they had all sorts of questions about the commission in Calgary. How does it work? When does it pay out? How does it all break down? I find a lot of people have questions about the commission, so I thought I would make this short video/blog explaining how it all works.

So you're thinking of selling your property, and you're at the stage now where you're starting to interview realtors for the job, and you've got some questions about the commission. I'm going to use the example of selling a $400,000 property, simply because there are lots of condos, houses, and some entry-level single-family homes that are in this price range. So it's a good example to use.

And first things first, by law in Alberta, commission is negotiable, but you will find some common practices or traditions that you might say are normal, and that is the commission structure of 7% of the first $100,000 and 3% of the balance as the total commission.

So to keep things simple, let's use the example of 7% of the first 100,000 and 3% of the balance on a $400,000 property. So from $0 to $100,000 at 7%, that's $7,000, and then from $100,000 all the way to $300,000 at 3%, that's $9,000. So the total is $16,000, and there's also GST on the commission amount. So that also works out to another $800 on top of the commission that the realtors take and give to the government.

Now, this $16,000 doesn't go directly to me. I wish it did, but there's usually two brokerages that are involved in this transaction. So there's the listing brokerage. This is the brokerage that represents the seller. So the agent met with the seller, they signed the contract, they marketed the property, they're acting on the seller's behalf. And there's also the buyer's brokerage, the agent that brought the buyer to the seller. Occasionally, the listing brokerage may handle both sides of the transaction. We call this double-ending the deal, where the listing agent represents both the buyer and the seller at the same time. It doesn't happen all that often, maybe say 10% of the time. Every year, I do it. It does happen, but not all that often. But for this example, let's just say there is a listing brokerage and a buyer brokerage. The total commission is $16,000, $8,000 to the listing brokerage, and $8,000 to the buyer brokerage.

Now, the public might look at this and say, "Wow, that's a huge commission, $8,000." And it is, but they're not seeing all the hidden costs and fees and splits that happen in the real estate industry. So let's talk about the office split first. The commission gets paid out to either the listing brokerage or the buyer's brokerage. That company will take their cut and then pay the agent the difference. So there are lots of variations of this; every company is different and they have their own policies. So I'll give you two examples here.

So I was with Royal LePage for about 10 years, and the office split was 70% to me, and 30% would go to Royal LePage. And I'm now with a new company called Real Broker, and the split is 85/15. So I'll use the 70/30 example because it is quite common. If you had an $8,000 commission check, minus 30%, that takes it down to $5,600. Still a pretty good commission check, but we're also not talking about taxes yet. So if you combine the Alberta tax rate with the federal tax rate, I believe the lowest is like 25%, and the highest is up to around 50%. So you could lose half of your commission check to taxes as well. $8,000 down to $5,600, now take away half of that to taxes.

I'm bringing this up because I will meet some sellers, and they want a massive discount. It’s tough because if you pay the office their cut, then you pay taxes, then you give the seller a massive discount, there's nothing left.

There are many expenses in the industry on top of the office splits. There are monthly expenses to hold your license, annual expenses to hold your license. It costs money just to list a property; the Calgary Real Estate Board charges you for every listing that you take. So there are fees for professional photos; it is really expensive these days. Professional measurements, the iGuide, you might run ads on Facebook, Instagram, and Google Ads, which is a huge money pit. Signage can be expensive, lockboxes, virtual staging could also be an option. There's all sorts of add-ons that are in the industry, and if you're giving away half the commission and you're paying everybody else, you'll be out of business real quick.

When do you pay the real estate commissions? I bring this up because I met this owner a few months back. She wanted to sell the property, but she didn't realize that the commissions were paid out when everything is said and done. She thought that she had to pay the $16,000 upfront to sell the property, which is not the case. The realtors get paid when everything is said and done. We list the property, we market it, we take on all those expenses because we're assuming that it sells. And then once it sells, the seller gets their money, the buyer moves in, and then the real estate agents get paid from their brokerage. Again, the money flows to the listing brokerage who pays their listing agent, and the listing brokerage also sends the money to the buyer's brokerage who then pays the buyer's agent. There isn’t an upfront cost in most circumstances. It's a cost that's paid out from the sale proceeds at the end of the transaction.

Just because someone is offering less commission, it doesn't mean necessarily mean that's the best route to go down. Now the way that I look at it is if they can't negotiate their own commission to earn a living, how well do you think they're going to do negotiating on your behalf for one of your most prized assets? That's kind of how I look at it. And a good question to ask a realtor is, "What are you going to do to sell my property?" Because I'd say there's a lot of agents out there who will list your home and then vanish. That's one of the biggest complaints against realtors out there.