How do real estate agents get paid?

by Grant Graham

There seems to be a lot of confusion and misinformation out there around how a real estate agent is paid. Hopefully this blog post will clear that up.

First off, real estate agents are 100% commission based. They do not get a salary or a weekly pay cheque. The only time they are paid is when a sale is closed. If the transaction falls apart, then they are not paid for that sale.

Usually, an agent is paid a certain percentage of the sale amount. This varies by location and also by how much the property’s sale price is. The amount can be negotiated when selling a home and when buying, the amount is usually set prior to the home being listed. This is set prior because it is the seller that is paying the buyer’s agent to bring a buyer for the sale. Since the seller is the one who is paying for the service, the agent will have the buyer sign a buyer representation agreement that formalizes the fact that the agent is working for the best interests of the buyer and not the seller.

The fact that an agent is not paid unless the sale is complete might make you think that they will pressure you into a sale. Please know that it is against the real estate agent’s code of ethics to behave in such a manner. They have a fiduciary responsibility to provide you with the best advice possible so that you can make the decision on whether or not you proceed.

Real estate agents are not employees. They are contractors working for a brokerage. As such, they have to track their own HST collections and submit that back to the CRA every year at tax time. They also have to put away a percentage of the money they earn as income tax. This varies by the revenue coming in but is somewhere around 35%. An agent works for themselves. There is not a company benefit package, no pension and no paid vacation time. We have to track all of our expenses and pay out of packet for all of our business activities with the hopes that we will sell something to bring in some money.

In order to act as an agent, we have to register with the Ontario Real Estate Association and pay into an annual insurance policy and pay registration fees There are mandatory continuing education requirements where we must pay for and attend classes on a regular basis to keep our skills up to date. We also have to pay the brokerage a hefty monthly fee to work there. This covers off some essential items like access to the software and MLS listing data. Lastly, not all of the money received goes to the agent on a sale. There is an agreement with the brokerage for a split of that income where a good part of that goes to the brokerage. At the end of the day, the agent does not take home nearly as much as you might think.

So there you have it. A job where you have to pay someone else for the privilege to work where you might not see a pay cheque for several months at a time. When you do get some pay, the brokerage takes a bunch of it and you have to save almost half of the rest to give to the government. When the market is well balanced then yes, it can be a very rewarding occupation. When the market is ridiculous with not much for sale and crazy competition for the homes that do miraculously hit the market, then it is a struggle to put it mildly.