Do You Have to pay Commission When You Buy a Home

Buying a home can be a fun and exciting time but understanding all the ins and outs can get tricky.  That's why people tend to use a Realtor that knows and understands the complexities of buying or selling real estate.  However, who pays for this realtor? And, should you call the realtor that has listed the property you're interested in or find a realtor of your own?  How does this process work exactly? These are some common questions that we get asked all the time. 

The Seller's Realtor Pays the Commission

The seller's realtor is the realtor that is selling the condo and usually has it listed on the MLS.  They have the seller's needs and interests in mind and are working for the seller to get the best price and terms.  The buyer's realtor owes the buyer fiduciary duties and is responsible for protecting their interests during and after the sale. They are also there to answer any and all questions the buyer may have. The buyer should reach out to the buyer's agent whenever they find a property they are interested in and not call the seller's agent directly.  This is important to protect the buyer's interests and to get the best deal.

Both the listing agent and the buyer's agent are paid by commission. This means that when the house sells, each agent will get a percentage of the sale from the seller's proceeds.  This percentage was decided upfront between the seller and the seller's agent when the property was listed and is also set out in the listing contract. However, since buyers aren’t paying the commission, they typically care less about the experience of an agent and more about friendliness. 

How much is the Real Estate Agent Commission?

In Canada, realtors charge between 3-7% of the final selling price, which is agreed upon by the seller and seller's agent when the home is listed.  This amount will then be split between the buyers and the seller's agents. If there is only one agent, that agent would earn the full listing commission.

All Listing agreements will have a section that will state the exact amount of the Realtor's fee and what the Realtor will be offering the cooperating agent who represents the buyer.  This fee can only be changed if it's agreed upon in writing by all parties involved in the sale.

What other costs should buyers factor into their decision?

There are some other costs that will be required throughout the process. And, these costs should be considered before looking at homes.  The costs typically include an appraisal, property transfer tax, GST on New Homes, pre-paid strata fees, legal fees, as both buyer and seller are required to get a lawyer or notary, a home inspection, moving expenses, mortgage or title insurance and a property survey.  Once you own the home, there are could be small renovations or paint colours to change. You should also consider that there could be maintenance fee’s and utility adjustments as well. Purchasing a home is a big deal and there is a lot to take into consideration when planning to buy a new home. 

What exactly are some of those costs?

What is GST and does the buyer or the seller pay it? The seller will pay the GST on the Realtor's commission, but if the home is a brand new home the GST (which is 5% of the selling price) will usually be paid by the buyer. In BC, there is also a Provincial Land Transfer Tax that is 1% of the purchase price up to $200,000 then 2% on the balance up to 2 million, the portion over 2 million is taxed at 3% up to 3 million and 5% over 3 million   As of February 21, 2018, there is an additional rate of 20% charged to foreign buyers/entities in the Capital Regional District, the Fraser Valley Regional District, Metro Vancouver Regional District, Regional District of Central Okanagan and the Regional District of Nanaimo.

How much should I put down?

How much you put down can vary but a common amount is between 5% and 20%, however, if you only put down 5% you will have to obtain mortgage insurance from CMHC or Genworth.  This insurance is required for anyone that is putting less than 20% down and covers the bank's risk in case you default. It is wise to discuss this with your lender or mortgage broker to decide what is the best option for you and your financial situation.  If you're looking for a home that is a million dollars or above, the minimum downpayment is 20%.  

Is getting Pre-Approved important?

Yes, getting pre-approved is very important.  This way you know what you can actually afford and what you will be approved for.  Then when you find the perfect home, you won't have to worry about what the bank will say, as you know what you’ve been approved for and you know you can afford it.  Knowing the maximum amount the bank will lend you doesn't mean you need to go that high. If you have a lower house payment, there is more money to do other things such as decorate, eat out and entertain... It’s no fun being “house poor”.  And, look around at different neighbourhoods, some will be less than others. Are you more into space or into being close to things? These are questions you should consider.

All sales will go through each person's Lawyer or notary and the buyer's bank will issue a cheque to the buyer's lawyer with instructions for closing.   The buyer's lawyer will then register the mortgage on the title and send the money to the seller's lawyer in trust. The seller's Lawyer is responsible for paying the mortgage balance (if there is one) and all fees and disbursements. The remaining money will be deposited in the seller's account or a cheque will be given.

To learn more about what I can offer you when buying a condo, contact me anytime for a no-obligation consultation.