The truth is that each Realtor® develops their own marketing and service plan, or at least they should. Knowing this, the first question should be: "What services are you offering?” The common perception is that the listing Realtor® collects all the commission for himself or herself. Nothing is further from the truth: MLS® (Multiple Listing Service) has been built based on the idea that every real estate brokerage should cooperate in selling a property and of course they should be paid for this cooperation. The seller recognizes that instead of hiring one Realtor® (exclusive listing), s/he can have every brokerage and every Realtor® looking for buyers. Since cooperating Realtors® are working for the benefit of the seller, they are entitled to a portion of the commission paid by the seller. In other words: the seller pays the Listing Brokerage, who then pays the Cooperating Brokerage. Both brokerages pay buying and selling Realtors®. By the time a Brokerage has been paid, the money has been split 4 ways and it is not the end of it. Brokerages are corporations providing support and training to individuals but most Realtors® are self-employed and they have to pay taxes and all other expenses related to their business activities and of course put bread on the table. Note that no commission gets paid to either party, until the property closes successfully and it is not uncommon that a property does not sell. Not many business models exist where all the work has to be completed before any money changes hands.
Realtors® are individuals operating their proprietorship businesses. To open a business one has to complete an educational process and be registered with the Canadian Real Estate Association, Ontario Real Estate Association and a local real estate board or association. A Realtor® must be associated with a Real Estate Brokerage. In other words Realtors® are subcontractors to a Brokerage and as such are solely responsible for all the costs of running their own business, including ongoing education and all monthly and yearly fees paid to all professional organizations and franchises. The fees vary from brokerage to brokerage and may be in the form of a percentage split, transaction or monthly fees, or a combination of all. It is hard to draw a monthly average but, for most, it ranges from 10% to 50% of gross earnings.
In addition to all of the above mentioned fees, Realtors® are responsible for all their business expenses just like any other business would. Anything from a sheet of paper to insurance falls into this category. Since Realtors® are independent contractors they are also responsible for generating the business and the costs associated with advertising and promotion. Some Realtors® go an extra mile for their clients and arrange for other services to promote and prepare homes for sale. All of this costs money and requires additional time.
And speaking of time, there is no formula as to how much time may be needed to successfully prepare and market a property for sale, how long the negotiations will last and when the transaction will close - each case is different. There is a common assumption that "all Realtors® provide the same service, but for different fees". The truth is that each person develops their own marketing and service plan, or at least they should. Realtors® are not hourly employees; we work regardless of the weather or time of day, there is no overtime, vacation or sick leave. We are expected to produce results and we don’t get paid if we can’t, regardless of the time invested.
We get paid for our knowledge and expertise just like a lawyer or an engineer. A Realtor® is both a marketer and a negotiator, in this order. If you want to sell your home you want to ensure that it is marketed properly to appeal to the right kind of buyers who will be the most interested in buying it. It is no longer a matter of putting a sign on your lawn or posting it on MLS®. Properly marketed property will net more dollars in your pocket than the one that is “just posted”. The skills and knowledge required to do this comes at a cost and you can ask yourself: “What’s better, saving “x” on commission or getting paid more for the house?”
Once a buyer can be found the negotiation process kicks in. This is when you don’t want someone who just needs to make a quick buck and move onto the next low paying job. You need to have a pro in your corner. Before negotiating a commission consider this: The commission is paid when your home sells. It may be difficult to estimate either the time needed to sell or the final marketing expenses. If you create an unrealistic budget for your Realtor® to work with, where is this person likely to cut the cost? Would you pay additional costs if the home didn't sell within your time frame or would you rather pay a bonus if it did?