Buyer or Seller: Who Pays the Real Estate Fee?

By: Dana Gain

Buyer or Seller: Who Pays the Real Estate Fee?

Tags: real estate commission, realtor commission, real estate fees, sellers fees

If you’re new to the real estate market or if it’s been some time since you were involved in a purchase, you may be wondering how it all works.
What does it actually cost to use a realtor?
Generally speaking, a real estate transaction incorporates two sides in a transaction. Normally a listing agent represents the home seller, while a cooperating agent supports the home buyer.
Of course, there will also be situations where a single real estate agent, usually the listing agent, represents both a buyer and seller. However, this usually has no bearing on who is ultimately responsible for paying the real estate commission.
To keep things relatively equitable, each party to the transaction has a role to play.

The Seller

When signing a listing agreement, a home seller agrees to allocate a certain percentage or a defined amount, or a combination of both, to the real estate brokerage representing them. This is also known as the real estate commission.

The sum total of this commission is split, often equally, between the listing and the cooperating agent when the home is sold. There may be situations where the spit is not equal; it depends entirely on what a seller agrees to in the listing agreement.
In the province of Ontario, there is no defined or required amount for the real estate commission, either as a percentage or as a defined dollar value.

That said, the commission fee is usually based on the going rate in the market for that specific region. Real estate fees vary by city, by municipality, and by province.

The Buyer
So now that we know that it’s the seller paying the full real estate commission on the sale of a home, does that mean the buyer is off the hook?
Unfortunately, no. To keep things equitable, the home buyer also has a financial responsibility in the transaction.
When a home is sold, land transfer tax is levied by the government based on the sale price of the property. There is a formula defined by the province outlining how this is calculated, but generally speaking the tax rate increases in proportion to the sale price. 
For example, homes that sell for less than $250,000 will pay a lower tax rate than those sold for more than $400,000. Homes selling for between $400,000 and $2,000,000 will pay a higher tax rate than those under $400K, and anything over $2.5M pays the top tax rate of 2.5%.
Since the seller is responsible for paying the real estate commission, the buyer is then responsible for paying the land transfer tax.
It’s important to note that land transfer tax is higher in the city of Toronto than in other regions of the province. Purchasers who live in the City of Toronto will pay both a municipal land transfer tax as well as the provincial one. 

Click here for a land transfer tax calculator.
Since the municipal and provincial calculations are currently based on identical tax rates, buyers in the City of Toronto effectively pay the land transfer tax twice, while those in municipalities outside of Toronto pay only the provincial tax.

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