July 21st 2022
A breakdown of Toronto real estate fees
Are you looking to buy a new home in Toronto but need to sell your old place first? If so, you probably have a lot of questions around what fees to expect when taking these two exhilarating steps.
And that’s good! Knowing the associated fees ahead of time will keep the excitement up, and the stress down, as you go forward with your next move.
One of the fees you’ll be expected to pay? Your real estate agent’s commission—plus the commission for the buyer’s agent. These commissions are calculated as a percentage of your home’s final sale price, which can have a significant impact on how much you actually earn from the transaction.
And that’s just one piece! Below we're breaking down how REALTOR® fees work in Toronto, and what buyers and sellers like you need to know to get the most value for dollars, and have the smoothest experience possible. We’ll answer questions like:
- What’s a real estate agent’s commission?
- Who pays for the agent's commission?
- Why do Toronto real estate rates matter? and
- How do you negotiate real estate fees in Toronto?
Now, let’s get started.
First: What’s a REALTOR® 's commission in Ontario?
REALTORS® are service providers! Whether you’re a buyer or seller, they’re there to assist you with every aspect of the real estate process, from navigating legal paperwork, to handling negotiations (and more).
In Toronto and other cities in Ontario, the standard real estate commission is 5%, which is usually split equally between the buyer’s agent and the seller’s agent. For example, if a home in Toronto sold for $1,000,000, the total real estate commission paid would be $50,000—or $25,000 to each agent.
However, the commission split can vary depending on the terms arranged by the seller. For example, the seller may want to give the buyer’s agent 3%, and their own agent will keep 2% to encourage more showings of the home. This split is entirely negotiable and is often used as a strategic tool to help sell homes faster.
Who pays for the REALTOR® commission?
The seller typically pays commissions for the buyer’s agent and seller’s agent, meaning the fees are deducted from the profits the seller receives for their home. In practice, the seller’s lawyers are responsible for actually paying out these fees once a home is sold.
The good news for home sellers? You only pay commissions if and when your home sells. These fees are paid at the time of closing, once the transaction is completed. So, if your home doesn’t sell (or if a transaction falls through), you’re not obligated to pay either agent.
Like most things in the home buying process, commissions are open for negotiation. Tip: make sure to check your agent’s contract before signing them on to sell your home.
Why do Toronto real estate agent rates matter?
As a seller, knowing how much you’ll have to pay when you sell your home can make a huge difference when it comes to choosing a listing price and accepting an offer.
On top of that, not all real estate agent services are created equal, regardless of price. Agents should be able to justify their fees and what’s included, along with how they’ll achieve the best results for you.
Seller’s agent commission
Since you’re paying as much as 5% of your home’s selling price to REALTORS®, you deserve to know exactly what you’re paying for. Again, this should all be listed out in your agent’s contract, but you can always ask what is included in your agent’s fees if it isn’t clear: Will they take professional photos or offer video tours? Do they help with home staging? Will they be readily available for showings and proactively market your home?
Sometimes, it’s worth it to pay a little more if it means getting more value from the service.
Buyer’s agent commission
While it’s typical for the seller to pay commissions for both agents, there are no laws stating how much of the sale the buyer’s agent is entitled to.
If a seller is offering the buyer’s agent less than half of the commission split, then the buyer’s agent may be less inclined to show the home to their clients. Conversely, as a buyer, this could lead to missing homes that fit your criteria. Speak with your agent upfront about how to navigate this situation.
How to negotiate on real estate fees in Toronto
If you’re not eager to pay 5% in real estate commission fees, you may be able to negotiate a lower rate with your agent and/or the buyer’s agent.
Many agents will accept lower fees to secure the listing. Some agents will even accept a flat fee for their services. However, keep in mind that agents who accept lower fees may be unwilling to offer more than the bare minimum services. Depending on your needs, it may be worthwhile to work with a full-service agent at a higher cost.
Understanding real estate broker fees
One important thing to consider when looking at real estate commissions is the presence of a broker. A broker may not be obvious, as the commission schedule you see likely doesn’t mention a fee for a broker. However, brokers do receive fees in real estate transactions—they are just included in the agent commission the seller pays.
Brokers and agents are actually separate entities. Brokers may have additional qualifications on top of the real estate license required for an agent. This allows them to start their own firms, or work independently. If an agent is not also a broker, then an agent must be sponsored by a broker in order to advise clients.
What are typically real estate brokerage fees?
Since all agents must be sponsored by a broker, the fee an agent receives will actually be divided further behind the scenes.
In our average real estate commission example, with a total sale price of $1,000,000, each agent receives $25,000 with a 5% commission. Once that is paid out, both agents will then pay a portion of their fee to their broker. How this split works depends on the broker, but agents can pay up to 30% of their fee to their broker.
Some agents work for discount brokerages, who will accept lower fees in exchange for a higher volume of clients. These brokerages charge less than the standard 5% commission, and some will charge a flat fee. However, since they need more clients to make the same fees, they offer less services.
Now, let's talk about real estate lawyer fees
Agent commissions are paid out by a real estate lawyer at the time of closing. As you may have guessed, lawyers don’t offer that service for free. Both the buyer and seller in the transaction need to have their own attorney—it’s actually the law in Canada.
A real estate lawyer’s job is to make sure the sale is legal, binding, and in your best interest. They’ll prepare all the documentation you need to sign when closing on a sale or purchase of a home. They will also handle the important job of transferring funds for the purchase.
Fees for a real estate lawyer can vary depending on the complexity of the purchase or sale. However, many lawyers charge a flat fee for straightforward transactions. Expect to spend a total of $500 to $1,500 on legal fees if you’re buying or selling a house.