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Why do real estate agents get paid in commission?

Writer's picture: Nikki McCallNikki McCall

I have heard many times that real estate agents are paid too much. While I understand that paying a realtor seems like we are taking money out of your pocket, we are providing a service just like any other industry. Of course everyone has the option of selling (or buying) their house without a real estate agent. This also means that you reduce your marketing exposure possibly having your house up for sale longer than expected and unless you are providing a commission to a buying agent you are omitting your chance of selling to anyone using an agent. You’ll also have to schedule and manage all viewings, offers and negotiations on your own. As an example I know that if my plumbing breaks, I’m not going to attempt to fix it myself. I’m going to call a professional who works in the field and can fix it as quickly and painless as possible.


This is exactly what real estate agents provide! They assist their clients with a wide range of services, including helping you price your home, market it (on the multiple listing service, social media, and other venues), negotiating with home buyers/sellers, filling out all of the paperwork and ushering the home sale through to closing.


As trained experts, real estate agents can help you achieve market value for your house and put out fires—while also alleviating some of the stress that comes with selling/buying a home. (It’s no picnic!)


Now to the commissions! Commission standards can vary from province to province and among brokerages. There are no federal or provincial laws that set commission rates—meaning commission is negotiable.


In the 1990s, houses were a lot cheaper and therefore the standard commission was 7%.


Take this house for example, built in 1978, a 866 sq ft bungalow in northwest Regina.

In 1993, this house sold for $67,000 with a commission rate of 7% total which is approximately $4,690 paid to both realtors (buying and selling) or $2,345 each. If we adjust this amount with an inflation calculator the amount is approximately $8,854 total or $4,427 each.


Fast forward to 2016 (23 years later) after a major real estate bubble this exact same house sold for $295,000. The commission rate was reduced to 3.5% total , approximately $10,500 to both realtors or $5,250 each.


You could argue that real estate agents have to provide more of a service now than they did in the 1990s for approximately the same amount of money. In this digital age realtors are expected to be reached 24/7. As an example, in my short two years as a realtor I have written multiple offers at 10:00 pm.


Moral of the story is: you do not need to utilize a realtor when selling or buying a house but having that service provided for you sure helps!


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