The Brokerage Fee

How It Works

You know your property has a certain value, and you want as much of it as possible in your pocket when you sell it. The real estate brokerage fee may be a relatively small portion, but it is a significant amount of money that affects your bottom line. Many real estate companies assume you know what this fee is all about and don't bother to explain it to you in detail, but many sellers don't really understand how the brokerage fee works. If you're one of those, read on for an explanation.

Unless you have a buyer you trust with exactly the right amount of cash knocking on your door, you need the help and advice of experts to expose your property to as many qualified potential buyers as possible. Real estate companies, and their representatives, are in the business of providing that service for people who want it.

A brokerage fee based on the selling price of the property is the method of payment for almost every residential sale done through organized real estate in North America. Banks and mortgage companies recognize this fee as a cost of doing business and include it when calculating mortgage value. The rate is negotiable, the federal competition act forbids companies to set rates among themselves. In this area the most common rate is six percent or sometimes five, depending on potential price, market conditions and the commitment level of the Realtor. In the end, getting that maximum market value requires time, effort, expertise and money. That's what the brokerage fee covers.

The agreement to pay the fee is made between you (the seller) and the listing Broker (the company), through the Sales Representative (usually refered to as the agent). The fee is paid only on successful completion of a sale. If we don't get the job done, you don't pay.

In order to give your property maximum market exposure, we want all the other real estate companies in town to show it to their purchasers too. So the listing information is shared on the MLS® System and the listing Broker offers to pay a portion of the fee, usually half, to any other Broker who brings a purchaser, submits an offer, and completes a sale.

Each Broker will then split their half of the fee between the office and the Sales Representative who handled the sale. The split can vary, but one way or another the office usually keeps about 35% and the Sales Rep gets the rest. Sometimes there is a referral fee, typically 25-30%, paid to a relocation company, an out-of-town Realtor who has referred the client to that office, or another Realtor in the office who has helped in the transaction.

Out of their respective portions, the Broker pays for office expenses, secretarial and administrative staff, signs, rent, insurance, etc. The Sales Representatives also pay their own expenses, which include advertising the property, auto expenses, phones, computer, continuing education, Real Estate Board dues and a "desk fee" to the office or franchise company. Whatever is left over is their pay. A Sales Representative receives no other compensation or "base salary" from the company. In fact, they usually pay the company for the privilege of working there.

This does not mean that the Sales Representative or Broker cannot make a good living, we can. But if we don't sell enough properties, or charge enough of a fee, the on-going expenses will put us out of business. Our livelihood depends of doing the job effectively. Our continuing success depends on exceeding your expectations so you will tell your friends and send more business our way.