Where does that commission go?

There are a lot of misnomers out there regarding how much we get paid in this industry, so my partner suggested that I blog about it. First of all, there is no ‘standard’ or ‘fixed’ commission amount that we all charge to sell your house. Because of The Competition Act, our commission is individually decided or negotiated. This federal act contains provisions aimed at preventing anti‑competitive practices in the marketplace. This is good news for the public. 

However, there is an amount that seems to be most often charged to sellers in BC, and that is 7% on the first $100,000 and 2.5% on the balance of the sale price ($17k on a $500k sale). Some agents will charge more than this (especially if they include a lot of extra marketing services) and some will charge less (usually if they offer less services). This commission is then split with the buyer’s agent (as the majority of transactions involve two separate agents as there is no more ‘dual-agency’ in BC in most jurisdictions). On average, the commission offered to a buyer’s agent is usually around 3.22% on the first $100k and 1.15% on the balance ($7,820 on a $500k sale). 

So, where does that money go? Let me give you a rough break-down of how $54k a year (the current average income for real estate agents in BC) gets spent:

 Looking at the chart above, the expenses incurred were $22,140. After write-offs, the income tax would be around $5,416, which leaves roughly 49% or $26,460 for your take-home income. This is barely enough to scrape by on (especially in the lower mainland) even if you have no dependents. Keep in mind, we also don’t get extended health benefits or a pension so we must set aside money for the dentist, eye doctors, retirement etc. This also does not take into consideration expenses such as car payments or phone bills (as this is something most people pay). This example is also for an agent that works at home, so renting any office space would be an additional expense as most brokerages do not offer free office space.   

This is also using an ‘affordable’ brokerage that might not be as well known. Every licensed real estate agent in BC has to work under the umbrella of a ‘brokerage’ in order to get their license and sustain it. This means you cannot be ‘independent’ unless you were to upgrade your license and start your own brokerage (but that’s another ballgame).  This is in order to regulate the industry and to have the benefits of belonging to a Real Estate Board as well (which gives access to the MLS, professional development etc.). Some of the top-brokerages (recognizable names that I will not mention) charge a lot of money to work for them and represent their brand. They are all structured a bit differently but some will charge $1000 + a month (and a small percentage of your commission) and others just take a big cut of your commission when you get paid (30-40%). 

It’s important to note that the example above is based on my experience and some of the expenses can fluctuate based on how many deals you are doing, the types of properties you are selling and how much you spend on marketing (this amount includes all the listing expenses such as professional photography, floorplans etc.). Most of our expenses are payable monthly as well, meaning we have to always have a cushion to get us through to the next pay-day (which is sometimes months away). For pre-sale deals, we often do not get paid until completion (which can be YEARS away). So, in order to make a decent living, you almost have to make double what the average agent makes (especially if you have a family). Keep in mind, the busier we are, the more expenses we encounter (such as implementing database management software or hiring an assistant). 

BC Real estate agents charge the lowest rates in all of North America. The majority of agents in Eastern Canada and the United States charge a flat 6%. On a $500,000 sale this would cost a seller $30,000, nearly double what an agent in BC would charge (which based on the 7%/2.5% amount would be $17,000). There are also no guarantees of ‘getting paid’ in this industry. You front all of the costs for your listings and sometimes they don’t sell or your clients decide not to move anymore. Or you show 30 properties to your buyer and their plans change suddenly and they decide to rent instead. I believe there are risk and rewards with many jobs but hopefully this helps explain why we charge what we do. We need to mitigate our risks so that we can have enough stability to support ourselves and our families.