For those of us who work in the real estate industry, we often forget that many members of the general public aren’t always familiar with many of the processes that we may consider second nature when it comes to Realtors, fees, and real estate transactions in general. One of the most common conversations I find myself having with people is explaining the misconception that as a Buyer, you will be paying Realtor fees if you hire an agent to represent you in a transaction.
I’m always surprised how often this issue comes up… but really, I shouldn’t be, considering “First Time Home Buying” is not part he high-school curriculum. With how all consuming our real estate market is here in Vancouver, perhaps it should be.
So let’s set the record straight: when you are the Buyer in a real estate transaction, hiring a Realtor to represent you costs you absolutely nothing. That’s zero dollars in fees, zero dollars in GST. Nothing.
So why would an agent spend hours sitting down with you to explain the buying process, assisting you in obtaining financing, figuring out which neighborhoods may suit you best, finding appropriate properties, checking on their availability, booking showing tours, driving you around to show you said properties, reading through countless pages of strata minutes to make sure there isn’t anything you’ve missed prior to making the biggest financial investment of your life? The fact is, agents do get paid for representing a Buyer in a transaction, but their fee is paid by the seller. Here’s how it works…
When an individual puts their property up for sale, they enter into a Multiple Listing Contract between themselves and a real estate brokerage that will represent them in the transaction. That brokerage is usually represented by a “Designated Agent” that the client will deal with throughout the sales process. One of the things outlined in this contract between the Seller and their brokerage/agent is the total sales commission should the Seller enter into a biding contract for the sale of the property with a Buyer. Furthermore, the contract also outlines how the total commission will be split between the Seller’s brokerage and the Buyer’s brokerage.
Although both the total commission as well as the split are completely negotiable between the Seller and their agent, the split typically ends up being about 54% to 46% in favor of the listing agent’s brokerage. The rational behind this is that the listing agent has to bare the marketing costs of selling the property (photography, advertising, etc.). If a Buyer purchases the property and does not have a Realtor representing them, that 46% of the commission is not retained by the Buyer or go back into the Seller’s pocket… the entire commission is then paid out to the Seller’s agent.
So let’s think about this… if you are a Buyer and you enter into a transaction without having your own Realtor represent you and your interests, the Listing agent stands to earn nearly double of what their share of the commission should be. This is a pretty enticing proposition to someone who earns their living selling real estate and one that clearly presents the optics and motivation for a possible conflict of interest in the transaction.
Now, I’m sure I will receive much grief from my fellow real estate professionals even hinting at the possibility of unprofessional conduct in order to double their pay cheques. How dare I suggest such a thing, right? And then there are many of you in the general public that will ask the question, “how is it objectively possible for someone to represent both the Seller and the Buyer in such a high stakes transaction? Isn’t that like one lawyer representing both the plaintiff and the defendant in a court case?” …my friends, that is a discussion for another blog post entirely, and one that I promise you is coming soon!
In the meantime, if you are thinking about purchasing real estate, do yourself a favor: Contact a real estate professional that you know, know of, or even better yet, has been recommended to you. Sit down with them for a consultation. Discuss the things that are important to you in the buying process. These could be things such as their knowledge of the market, their experience, and their approach to their clients: are they pushy, do they have the time to fairly represent you, do you gel with them on both a professional as well as a casual level? If you feel comfortable, work with him or her to represent you and look after you throughout what can often be a stressful process if you attempt to tackle it on your own. It won’t cost you a penny, and you will only gain piece of mind.