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As a licensed broker, I’ve spent years helping clients navigate one of the most confusing costs in real estate: commission. It’s often accepted as a given 5% split between agents but few sellers realize how much flexibility and strategy actually exist behind that number.
This guide is written with sellers in mind. It breaks down how commission works in Canada, what options are available beyond the traditional model, and how to assess value based on performance — not just price. For buyers, I’ve also included a high-level look at how agent incentives shape the transaction from the other side.
What Is Residential Real Estate Commission?
In a home sale, commission is the fee the seller agrees to pay for professional representation. It’s usually a percentage of the final sale price and is split between the listing agent and the buyer’s agent.
The most commonly cited total commission is 5%, but there’s no fixed rate. Actual commissions vary (roughly 3%–7%) by region, property type, and service scope. The 5% figure persists largely due to industry convention—not regulation.
What about residential leases?
Lease commissions use a different structure. In most Canadian markets, the landlord pays a flat amount equal to one month’s rent, typically split 50/50 if a tenant’s agent is involved. Taxes (GST/HST) apply, and payment timing is set in the listing/representation agreement.
How Much Does That Actually Cost?
Residential Sale Commission Example
Here’s how a 5% sale commission plays out in Ontario when HST (13%) is factored in:
| Sale Price | Commission (5%) | HST (13%) | Total Deducted |
|---|---|---|---|
| $500,000 | $25,000 | $3,250 | $28,250 |
| $750,000 | $37,500 | $4,875 | $42,375 |
| $1,000,000 | $50,000 | $6,500 | $56,500 |
Residential Lease Commission Example
For residential leases, commission is typically one month’s rent, plus applicable HST, and split between the landlord’s listing agent and the tenant’s agent (if there is one).
| Monthly Rent | Commission (1 Month) | HST (13%) | Total Commission |
|---|---|---|---|
| $2,000 | $2,000 | $260 | $2,260 |
| $2,500 | $2,500 | $325 | $2,825 |
| $3,000 | $3,000 | $390 | $3,390 |
Do Higher Commissions Deliver Better Results?
For residential sales, higher commission doesn’t automatically translate into better outcomes. Research in North America and Europe consistently shows that agent performance is determined more by strategy and execution than by the size of the fee.For Readers Who Want the Full Picture:
A peer-reviewed Dutch study comparing traditional and flat-fee brokerages found no disadvantage in final sale price for flat-fee listings.
In fact, homes sold 2.7% faster on average using fixed-rate agents (Gautier, Siegmann & van Vuuren, 2023). The Netherlands, like Canada, relies on shared listing platforms and dual-agent commission splits—making its market structure broadly comparable.Germany offers another insight.
There, regulatory efforts to force buyers to pay their own agents led to unintended consequences. Listing agents simply raised their rates to compensate. The overall cost to consumers rose, proving that agent behavior is more responsive to incentive structures than to regulatory intent (Stoll, 2023).In North America, the Richmond Federal Reserve modeled percentage-based commission systems and concluded that they introduce inefficiencies and misalign client-agent interests, especially on high-value transactions. Their estimates suggest that moving toward cost-based or hybrid models could result in billions in annual consumer savings (Grochulski & Wang, 2024).
So what does this mean in Canada?
While many sellers default to 5%, the commission amount is not a reliable indicator of agent performance. Instead, sellers should evaluate agents based on:
- Sale-to-list price ratio
- Days on market
- Track record in similar homes
- Service detail (e.g. staging, negotiation skill, digital marketing)
Real estate has evolved. Agents who adapt to modern tools and market data and not just those charging full price are often the ones who deliver the strongest results.
Commission Is Negotiable in Canada
Despite industry tradition, commission is entirely negotiable. There is no law requiring sellers to pay a set rate.
You can:
- Offer less than 5%
- Adjust buyer-agent compensation ~ not always recommended
- Choose flat-fee or hybrid options
A review of North American transactions by Brookings found that buyer-agent fees remained remarkably consistent over decades, regardless of home value or complexity—suggesting market inertia, not merit-based pricing (Barwick & Wong, 2019).
What Are the Alternatives to 5%?
| Model | What You Get | Cost Range |
|---|---|---|
| Traditional | Full-service marketing, staging, negotiation | 5% (or more) |
| Low Commission | Licensed agents with reduced rates | 1–2% listing side |
| Flat-Fee & FSBO | MLS® exposure, optional add-ons ~ Full Service | $1,000 – $7,000 |
Alternative models aren’t just cheaper they’re structurally different. You pay based on services provided, not a flat percentage tied to your home’s value.
In practice, they’ve worked. The Richmond Fed notes that flat-fee models align pricing more closely with effort, improving client-agent efficiency and consumer outcomes.
Why Agent Transparency Matters
In regions like Quebec, where public complaint records are more visible, agents behave differently. When their reputation is on the line, service quality increases. Transparency builds accountability.
“Agents under reputational scrutiny exhibited stronger professionalism and responsiveness.”
— Kryzanowski & Wu (2024), SSRN.
For sellers, this means choosing agents not just on rate, but on track record.
Do Buyers Pay Commission?
Not directly. In most Canadian transactions, the seller pays both agents, including the buyer’s. But this structure still affects buyers.
Buyer agents are usually paid a percentage of the sale price, which creates subtle incentive mismatches. Economic research has shown this leads to inefficiencies, as agents may prioritize higher-priced homes or longer searches:
“Percentage-based compensation introduces inefficiencies… and may misalign agent priorities with buyer goals.”
— Grochulski & Wang (2024), Richmond Fed.
In some Canadian markets, rebate or flat-fee buyer services are emerging as alternatives — but adoption remains early-stage.
What Is Commercial Real Estate Commission?
Commercial real estate commissions are earned for facilitating the sale or lease of commercial properties such as offices, retail units, and industrial sites. Unlike residential real estate, commercial deals vary widely in scale and structure, so commission models tend to be more flexible.
Typical Canadian commission ranges (for sales):
| Deal Type | Typical Commission Rate |
|---|---|
| Smaller commercial sales | 3%–6% of sale price |
| High-value corporate or institutional sales | Could be lower percentage due to volume |
For leases, commissions usually reflect a percentage of the total rent value over the lease term. Common Canadian ranges are 3%–6%, depending on property type and lease complexity.
How Much Does That Cost?
Commercial Sale Commission Example (4% rate, Ontario, with HST 13%):
| Sale Price | Commission (4%) | HST (13%) | Total Deducted |
|---|---|---|---|
| $1,000,000 | $40,000 | $5,200 | $45,200 |
| $2,500,000 | $100,000 | $13,000 | $113,000 |
Commission Structure for Commercial Leases
Commercial lease commissions are often calculated as a percentage of the total rent over the lease term. The listing (landlord) typically pays this at lease signing.
Example Structure Based on Lease Value:
| Lease Term | Annual Rent | Total Rent | Commission (4%) | HST (13%) | Total Deducted |
|---|---|---|---|---|---|
| 5 years | $60,000 | $300,000 | $12,000 | $1,560 | $13,560 |
Leasing commission may be paid in full at signing or in installments, depending on agreement structure.
Why This Matters
Commercial commission rates are not fixed. Their structure is shaped by deal complexity, property type, and broker capabilities similar to residential patterns, but often more bespoke.
While percentage-based models remain common, both sellers and landlords benefit from exploring flat-fee, tiered, or value-based structures, especially for high-value or long-term deals. Market research suggests that performance efficient negotiation, accurate analysis, effective marketing remains more important than commission size.
Commission and Control Belong to the Client
Whether you’re selling a home, leasing a storefront, or negotiating a large commercial sale, the commission structure is ultimately your choice.
For a deeper look at how flat fees compare to traditional models, see our guide on what flat fee means in real estate.