Let’s Talk About Real Estate Commissions

Dawn Magee March blog

Are you a Nova Scotia homeowner gearing up to sell your property and wondering about the costs involved, especially real estate commissions? Depending on any improvements you plan on making, the real estate commission is the next biggest expense that sellers will encounter during the sale of their home if they sell through a real estate brokerage. 

Negotiating Real Estate Commissions

Real estate commissions, often a significant concern for sellers, can be negotiated and agreed upon by the seller and their agent prior to signing the listing agreement. It can be a percentage of the final sale or a flat rate. There is HST applicable to this amount. This commission amount can vary depending on factors such as market conditions, property complexity, and the services provided by the listing agent.

Included in Commission

It’s essential for sellers to understand what real estate services are included in the commission rate. From marketing strategies to staging consultations and negotiation skills, each aspect contributes to the value provided by the listing agent. By discussing these services upfront, sellers can ensure they’re getting the best value for their money.

Sharing of Commission

Additionally, it’s crucial to remember that in Nova Scotia, the commission fee that was set out in the listing agreement is shared between the listing agent and the buyer’s agent. This ensures fair compensation for the agent who brings the buyer to a successful purchase.

Choosing the Right Realtor

When selecting a realtor, sellers should consider not only the commission rate but also the agent’s track record, local market knowledge, and personalized approach. By choosing an agent who offers competitive rates and valuable services, sellers can maximize their return on investment and enjoy a seamless selling experience.

realtor dawn magee

Paying of Commission

Currently, the amount of commission that is being offered to the buyer agent is noted on the MLS listing information. This commission amount is deducted from the funds or mortgage amount once forwarded from the buyer to the seller on closing day. So while the commission technically gets paid from the seller’s proceeds, the sale price that the buyer is paying to the seller does include the commission amount. 

Negotiation

So while the commission is negotiable, it is important to understand what is being provided by the real estate agents and what services are being offered as part of that commission, which can help you make informed decisions when selling your home.

The Nova Scotia Perspective on Commissions

There have been lots of news reports this past week from the US on real estate agent commissions. It has to do with the National Association of Realtors agreeing to a settlement for a class action lawsuit by home sellers. The sellers argued that brokerages were setting the buyers agent commissions ahead of there being an offer and then the sellers being on the hook to pay the fees. The resulting theory in media reports is that if the sellers don’t have to cover both the buyer and seller sides of the commission, then the price of homes will come down. 

“Inclusions”

Here in Nova Scotia, I liken realtor commissions much like other inclusions in a home sale, such as appliances. Sure, a buyer could pay for their own, but it makes the property more attractive if the appliances are already included! Sellers have the option to incorporate these commissions into their listing price, akin to including new appliances in a home. 

The Impact of Commissions on the Buying Process

This strategy not only makes the property more appealing by eliminating the buyer’s need to secure appliances and funds for the commission separately, but also simplifies the buying process. At the height of the pandemic, having appliances included in the sale was a hot button negotiation item due to the wait times on certain appliances, with sellers wanting to take the appliances and buyers wanting them to stay because both sides knew they were on backorders for many months!

The Importance of Commission Structure in Listings

During listing appointments, it’s crucial to discuss with sellers how the commission structure operates. Currently, in Nova Scotia, a portion of the total commission is offered to the buyer’s agent, who successfully facilitates the purchase. This aspect is a critical component of the listing strategy, ensuring that all parties understand the financial dynamics at play.

Addressing Potential Concerns with Commission Rates

Concerns may arise about setting a low commission for the cooperating (buyer’s) agent, as it may potentially deter them from showing the property. However, my approach has always prioritized representing the buyer’s interests. If a property aligns with my buyer’s needs, the commission rate becomes secondary. Although a below-average commission could imply to potential buyers a seller’s reluctance to negotiate on price, which is a significant concern,.

Transparency in Commission Agreements

Nova Scotia realtors, upon agreeing to work with a buyer, sign a Buyer Designated Brokerage Agreement, which details the relationship’s terms, including duration and commission. This agreement clarifies that the buyer’s agent’s commission will be deducted from the seller’s sale proceeds at a rate that was agreed to by the sellers and their agent when the property was first listed. The commission available to the buyer’s agent is transparently stated on the client view of the MLS listing cut sheet; at the bottom, it is noted as SP ( selling percentage) 

Seller Offering Less

If the commission that the buyer and their agent agreed to in the Buyer Designated Brokerage Agreement exceeds what the seller is offering, the buyer would technically be responsible for covering the difference. However, it’s common practice for the buyer’s agent to amend their BDBA commission to match the seller’s offer, avoiding any out-of-pocket expenses for the buyer.

The Role of Commissions in Housing Affordability

The topic of realtor commissions has been a sensitive one, especially with the great increases in home prices, with many pointing the finger at the commissions, exacerbating the affordability of homes. In Nova Scotia, the primary driver behind price increases has been a housing shortage, not commissions. 

The pandemic’s peak even saw a reduction in commission rates, attributed to the fast pace of sales and fewer transaction conditions. As far as affordability, Nova Scotia has a number of other factors that have contributed, as detailed in last week’s blog.

NAR Lawsuit

In the U.S. the class action lawsuit was initiated by home sellers, who argued that the buyers agent commission should be negotiated by the buyers and paid by the buyers. In theory, this would allow the home sellers to be more competitive when selling and pricing their homes. Media reports in the U.S. are projecting a decrease in commissions of 25–50% per sale. There is no projection offered in this article by CNN Business as to what exact impact that would have on home prices.

Comparative Market Analysis and Seller Preparedness

The standard practice in Nova Scotia is for agents to review all associated and potential home selling costs, including commissions with the seller. Along with conducting a comparative market analysis to determine the estimated sale price, this ensures sellers are well-informed about what their net proceeds will be. The negotiation of commission and list price is an integral variable to determine seller’s bottom line. 

A Shift in Commissions

A shift in commission responsibilities to buyers in the U.S. raises concerns about more buyers approaching and negotiating with  sellers without representation, potentially increasing legal risks and workload for sellers’ agents. This scenario could necessitate higher seller commissions to reflect the additional work and liability involved with unrepresented buyers.Incorporating all these insights—like the importance of understanding the regulatory context under the Nova Scotia Real Estate Trading Act, the role of CMAs, and keeping an eye on market trends—helps us navigate the complexities of real estate commissions. It’s about making sure both buyers and sellers are educated and prepared, whether through real estate resources, or one-on-one chats.

And who knows? With the way things are changing, especially with those discussions in the U.S., we might see shifts in how commissions are handled here too. But no matter what, staying informed, ethical, and transparent is key. After all, whether we’re talking commissions or the latest in kitchen appliances, it’s all about finding the best fit for your home and your wallet.

just listed with dawn Magee

https://www.theglobeandmail.com/investing/markets/indices/TXOE/pressreleases/24823786/24823786

https://www.bnnbloomberg.ca/realtor-group-strikes-418-million-deal-to-end-suits-over-commissions-1.2047378

https://www.cnn.com/2024/03/15/economy/nar-realtor-commissions-settlement/index.html

More Questions a Seller May Ask

Key Questions Arising from the Article

  1. How might the US class action lawsuit impact real estate commissions in Nova Scotia?

    While the lawsuit is specific to the US, it could lead to discussions and potentially similar actions in Nova Scotia. However, any changes would need to consider the unique market dynamics and legal frameworks in place.

  1. Why are appliances compared to real estate commissions in the article?

   Appliances are used as an analogy to illustrate how including commissions in the listing price can make a property more attractive to buyers, similar to how appliances do, by simplifying the purchase process.

  1. What is the significance of the Buyer Designated Brokerage Agreement in Nova Scotia?

   – This agreement outlines the terms of the relationship between the buyer and their agent, including commission details, ensuring transparency and clarity for all parties involved in the transaction.

  1. Could lowering the commission for the buyer’s agent deter them from showing properties?

   While there’s a potential risk, the primary focus for agents is finding properties that meet their clients’ needs. Commission rates are secondary to fulfilling client requirements

  1. What factors contribute to housing affordability issues in Nova Scotia?

   The article suggests that the main driver behind housing price increases in Nova Scotia is a shortage of available homes, rather than the structure of realtor commissions.

Key Takeaways

  1. Realtor commissions in Nova Scotia can be included in the listing price, similar to home appliances, to make properties more attractive to buyers.
  2. The commission structure is a critical component of the listing strategy and should be discussed thoroughly during listing appointments.
  3. Transparency and understanding of the commission agreements, such as the Buyer Designated Brokerage Agreement, are vital for all parties involved.
  4. The primary driver of housing price increases in Nova Scotia is a shortage of homes, not the commission structure.
  5. Staying informed, ethical, and transparent is key in navigating the complexities of real estate commissions, ensuring that both buyers and sellers are well-prepared.

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