Hey there Savvy Home Buyers and Sellers this is Jeff O’Leary “The Village Guru” Mississauga Real Estate Broker and in today’s episode we’re going to talk about real estate commissions and more specifically the two main ways that real estate commissions are paid. Now this video is great for home sellers and also for home buyers it’ll give you an idea if what’s out there so without any further ado let’s get right into it! So let’s talk about “flat fee” or a”fee-for-service” model. This simply means that the brokerage is charging you the consumer to perform a certain task.This (fee structure) has been very popular for sale by owner companies and companies offering to list homes on the MLS for a monetary fee and it’s also become a little more popular with the advent of the internet and a lot more access to different business out there. Now let’s talk about the advantages of “fee-for-service” So first of all it’s really good becausethe consumer can pick and choose what services they want as opposed to atraditional real estate brokerage where they’re paying a commission andeverything is rolled up into one. So that’s one advantage. The second advantage is if you’re a home seller and you’re seriously confident about the process you know what you’re doing and you just need maybe you need access to MLS you need a couple of things that the real estate brokerage is able to provide you then fee for service it is a great option for you.So let’s talk about the disadvantages of a fee-for-service model. Well first off is there’s no guarantee of a sale. You’re paying for a specific service which in many cases is listing your home on the MLS but that’s not related to the fact that you sell. See, in a traditional real estate brokerage they only get paid when you get the resultthat you’re looking for which is a sale so that’s one thing to keep in mind.#2 – since the brokerage’s revenue model is not tied to whether you actually sold your house or you’re happy with the outcome you’ve got to be careful that you’re getting exactly what you’re looking for. #3 – consumers might not realize that the duty of care and the customer service that they’re entitled to might be lower than in a traditional real estate model. And finally the biggest disadvantage with fee-for-service is the misconception that you’re getting the exact same thing as you are with atraditional real estate brokerage. Most people, when they sell their home what they really want at the end of the day is a RESULT. They want a good result,they want to sell for the most money, they want to be happy… and if they’re going towards this model it’s obviously they feel they can either do it themselves or they feel it’s not worth it to go the other way… and I get it. Now the problem is that you have to realize that you’re buying an actual service they’re going perform A, B and C and that’s it.I mean if you’re looking actually for theresult then be careful because you can’t compare they’re “apples and oranges” they’re different ways of doing business. So now that I’ve over the pros and cons of “Fee for Service” I’m just gonna give you a couple of tips when dealing with companies and what to watch out for. So first off make sure all the services you signed up for are written down in the contract and is very clear what you should expect. Don’t assume they’re going to do additional things if you’re paying for a service chances are that’s exactly what you should be getting. Next, you need to have clarity on how you’re going to be represented. As I alluded to previously… a lot of fee-for-service models base it off the customer service model.Now there’s two types of representation in real estate that you have to be aware of one is “Client Service” and one is “Customer Service” as a client your Realtor owes you the highest level of care and duty. They owe you fiduciary duty… they have to look out for your interests… they owe you confidentiality… there’s a lot of things at play there in order to protect you as a consumer. Now as a “Customer” while your Realtor owes you to be honest and treat you fairly and be competent in their job they do not owe you that level of care… they do not owe you fiduciary duty… and they don’t owe you to look out in your best interests. So be very careful and make it clear and understand what type of relationship you are in with someone when you sign up for a “fee-for-service” company. Now, let’s talk about Commission Services. This is the traditional way of doing business in real estate it’s where a seller pays a commission to their brokerage and in turn that brokerage will offer a cooperating brokerage Commission to another buyer agent.This is the way the majority of houses are sold today and this is the way that most people think when they look at real estate. So now let’s go through the pros and cons of a commission based service. So advantage #1 of a Commission Service… You don’t have to pay money out of your own pocket to market your home that’s all covered by your listing brokerage . #2 is you don’t pay for the service unless you get the result you want which is a home sale so that’s always a bonus. And #3 keep in mind that the cost of properly marketing a home can be a lot of money! So this is really good because if you don’t do this on a regular basis I mean you could end up wasting a lot of money on things that don’t work in marketing and instead deal with someone who does it over and over again and can get you the results you want.So now let’s talk about the disadvantages of a commission real estate service. In today’s day and age, with the internet out there and access to a lot of information there are a lot of consumers justifiably so… questioning “what is my real estate agent doing tosell my house” So you’ve got to be clear when you’re dealing with your agent that they’re up front and they itemize what exactly they’re going to do and how they’re going to get your home sold. Another disadvantage is that not all real estate agents are the same. They all offer different levels of services different experience… different products… and the challenge is to the consumer sometimes we all look the same. You may be expecting the “Cadillac” of services… but really what you’re getting is the “Civic” of service or vice versa. So that’s a challenge when it comes to Commission Services and I always recommend do yourresearch ahead of time and make sure it’s clear what you’re getting when you sign up for that real estate agent.So now that we’ve gone over the two major ways that commission is paid in real estate now I’m going to go over howcommissions work in practice and I’m going to deal with the traditional real estate model because that is the majority of the way things work in realestate. So here in Ontario, in my city Mississauga the way it works is a home seller normally pays a commission to their listing agent in order to list their house for sale. Now out of that commission that agent will take a portion of that and pay it towards a “cooperating broker agent” who brings a buyer to that sale. So a lot of people say the commission split 50-50 and it goes to the buyer and the seller and while that might be the case a lot of times there’s actually no set commission so the seller can agree to pay whateverthey want however there are customs in every area and you want to be sure that whatever your agent is paying to a cooperating broker that is reasonableand it’s competitive with all the other homes in your area because one thing to keep in mind as a seller is 90% of buyers out there hire their own realestate agent to represent their interest so you’ve got to keep this in mind thatmajority of the time that commission will be going to another real estate agent also.Now in the event that your listing real estate agent brings their own buyer client… then that whole commission is payable to them. So at the end of the day as a seller you are paying one commission and out of that commission that agent will pay other agents if they bring their buyer (and they buy the home). This should all be disclosed in your listing agreement and you should be talking about this ahead of time. If you want to reach some type of agreement such as a “collateral agreement” with your real estate agent make sure to talk about that before signing their listing agreement and make sure that all the details of that agreement are put in writing so it’s clear andeverybody understands how it’s going to work. So there you have it I’m Jeff O’Leary – “The Village Guru” I hope you enjoyed my video on the different ways Commission’s are paid in real estate. If you like this video give it a thumbs up subscribe to my channel and share it with your friends.Thanks for watchingand we’ll see you soon!.
