Franchise royalties, brokerage splits, desk fees and operating costs can shape brokerage economics, but they are not automatically direct charges to a client. Here is what buyers and sellers should compare before agreeing to compensation.
Written by Faiza Ahmed
Last updated on September 23, 2026
Large real estate brands can offer genuine advantages. A recognizable name can help an agent attract business, while a large brokerage may provide technology, training, administrative support, referral networks, office infrastructure and marketing resources.
Those resources also cost money. Franchise royalties, brokerage splits, desk fees, technology charges and corporate marketing can all form part of a brokerage’s economics. The mistake is to assume that each of those costs is a separate charge passed directly to a homeowner. That is usually not how compensation works.
A buyer or seller agrees to compensation with a brokerage. What happens to that revenue afterward can involve several layers of brokerage and agent economics. The useful question is therefore not simply whether a brokerage has overhead. Almost every business does. The better question is:
“How much am I agreeing to pay, what am I receiving for that amount, and does the compensation structure make sense for the services being provided?”
Canada and the United States should also be treated separately. Compensation practices, representation rules and MLS® policies differ by jurisdiction, and some of those rules have changed materially in recent years. This article uses Ontario examples for Canadian consumer obligations and separately identifies U.S. research and policy changes where they are relevant.
Percentage-based compensation remains common in real estate, but there is no universal commission rate that every consumer must pay. In Ontario, the RECO Information Guide states that the consumer and brokerage decide the amount paid for services. The amount is not fixed or approved by RECO, a government authority, a real estate association or a real estate board. A client may agree to a fixed dollar amount, a percentage of the sale price, or a combination of both.
That means examples involving 5%, 4% or 2.5% should be read as illustrations of compensation structures, not as mandatory or standard rates. If a seller agreed to total brokerage compensation equivalent to 5% of a $500,000 sale, the arithmetic would be $25,000 before applicable taxes. That does not mean the individual agent working with the seller would receive the full $25,000.
Real estate compensation can pass through several economic layers.
Brokerage arrangements vary considerably. For example, Keller Williams states that a Market Center is assessed a 6% franchise royalty on the first $50,000 of an agent’s GCI, subject to its stated cap structure. RE/MAX describes agent fees more generally as potentially involving a commission split or a monthly desk fee plus a smaller split, with other marketing, technology and training fees varying by brokerage and experience level.
These are examples of internal business models, not consumer fee schedules. RE/MAX itself notes that the costs vary by brokerage and experience level, and individual offices or agreements can differ. What the examples show is simply that the amount a client pays and the amount ultimately retained by the individual agent are not the same number.
That does not prove that the consumer should have paid less. Brokerages provide services too. It does mean a commission cannot be evaluated intelligently by looking only at the gross amount and assuming that it is the salesperson’s personal income.
For a broader explanation of the different ways consumers can be charged, see how real estate agent costs and commissions can work.
One thing the commission percentage does not tell you is how much attention, preparation or involvement a particular agent will provide. Two sellers can agree to the same percentage and receive very different levels of service. Two agents can also charge differently while doing remarkably similar work. I would be careful about using the commission rate itself as a proxy for either quality or value.
A seller paying a substantial fee may reasonably expect skilled pricing, property preparation advice, marketing, showings, negotiation, transaction management and professional judgment. Those services can be valuable. The harder question is whether the compensation structure bears a sensible relationship to the work and value being delivered in that particular transaction.
A brokerage can be extremely visible without a particular listing being particularly well marketed. Those are two different things. When I look at a marketing proposal, I am less interested in how recognizable the brokerage is than in what is actually going to happen to this property: how it will be presented, where buyers will encounter it, how inquiries will be handled and what happens if the first week does not produce the expected response.
Percentage compensation creates a simple mathematical effect: the dollar fee rises as the property price rises. A 2.5% fee on a $1 million property is ten times the dollar amount of the same percentage on a $100,000 property.
That does not mean the two transactions require exactly the same work. A higher-value property can involve specialized marketing, a smaller buyer pool, more complicated negotiations or substantially more time. The point is narrower: the difference in work is not automatically proportional to the difference in sale price.
The amount of work in a transaction does not rise neatly with the sale price. A higher-priced property can sometimes be straightforward, while a less expensive transaction can require repeated showings, difficult negotiations, financing extensions, inspection discussions, amendments and constant coordination. From an agent’s side of the transaction, complexity tends to come from the circumstances, not simply from the number on the purchase price.
A 2022 Consumer Federation of America analysis compared buyer-side commission rates in 17,805 U.S. sales across 35 cities and reported no consistent relationship between home prices and commission rates.
That research describes the earlier U.S. system and predates the major NAR practice changes that took effect in 2024, so it should not be treated as a description of every current U.S. transaction.
The question it raises is still useful:
If the dollar fee rises because the property price rises, what additional service, difficulty or responsibility accompanies the additional compensation?
Consumers can ask that without assuming that a percentage fee is automatically excessive or automatically justified.
Brokerages can incur costs for technology, offices, administration, recruiting, training, insurance, marketing and other operations. Franchise systems can also involve royalties or other franchise-level charges. Some of that infrastructure can benefit clients, but corporate infrastructure and property-specific service are not the same thing.
Brand recognition may generate inquiries. Technology may improve transaction management. Training and administrative systems may support agents. Referral networks may help connect clients across markets. None of those possibilities tells you, by itself, how well one particular property will be priced, prepared, presented or negotiated.
budget;
location;
property type;
bedrooms;
bathrooms;
parking;
approximate size.
But those criteria rarely tell the whole story.
A 2018 RealTrends brokerage analysis is useful as a historical illustration of how widely advertising and marketing expenditure could vary among brokerage models. It is not evidence of what a particular brokerage spends today.
One brokerage may invest heavily in offices, advertising and lead generation. Another may place more of those costs on individual agents. Another may operate with substantially lower overhead. None of those models is automatically better for the consumer. The relevant question is whether the cost structure produces something valuable in the transaction.
It would be too simplistic to say that every dollar spent on brokerage advertising is a dollar that otherwise would have been returned to the seller. Businesses do not price services that way. A brokerage with little national advertising could charge the same fee and keep a larger margin, while a brokerage that spends heavily on advertising may create infrastructure or business opportunities that indirectly support its agents and clients.
Consumers can still ask what the brokerage’s claimed value means for their own property. A useful marketing conversation becomes much more concrete when it moves away from brand visibility and toward specific actions:
Identify the concrete marketing activities planned for the listing, rather than relying on the brokerage brand in general.
Clarify which work will be handled by the agent, a team member, a hired professional or the brokerage itself.
Separate listing-specific work such as photography, floor plans, showing strategy and targeted campaigns from broad corporate advertising.
Ask whether a different brokerage or compensation structure would provide substantially similar property-specific service for a different fee.
Those questions are more useful than assuming either that large-brand marketing has no value or that brand recognition automatically justifies a higher fee.
The table below is arithmetic only. The percentages are illustrations, not standard rates, and the difference between two fee structures does not establish which arrangement is appropriate.
The calculations are straightforward. What is not straightforward is assuming that two arrangements provide identical services, exposure, representation or results. The percentage alone cannot answer that question.
In Ontario, RECO requires a representation agreement to state the amount a buyer agrees to pay the brokerage or how that amount will be calculated. The agreement must also address how that amount changes if the seller agrees to cover some or all of the buyer’s brokerage fees. RECO specifically warns that if the seller does not cover those fees, the buyer’s financial circumstances may affect how much they can offer or whether they can afford the purchase. This is set out in the RECO Information Guide.
That is more precise than saying buyers universally cannot finance a purchase if they have to pay their own brokerage. Some buyers may have the available funds; others may not. The practical point is that changing who directly pays the fee can change the cash-flow problem even when the economic cost of representation does not disappear.
Economists Borys Grochulski and Zhu Wang at the Federal Reserve Bank of Richmond examined the traditional U.S. buyer-agent structure in a 2024 economic brief on commissions and home-search efficiency. Their model argues that seller-funded percentage compensation can affect incentives because buyer-agent compensation is linked to the price of the home rather than directly to the cost of the service, while buyers can consume search and showing services without paying separately for each task.
In the model, a shift to cost-based, à-la-carte buyer services increased estimated buyer welfare by more than $30 billion per year.
That headline number needs an important qualification: most of the modeled gain was a redistribution of buyer-agent profits to buyers. When the researchers measured total social surplus — consumer welfare plus agent profit — the modeled increase was about $800 million per year.
Those are very different claims. The study should not be summarized as proving that the traditional system wastes $30 billion of resources every year. Its more useful contribution is showing how compensation design can change incentives, consumer welfare and the amount of search activity. It is also a model of the U.S. market, not a rule about what every Canadian buyer or seller should do.
The researchers also discuss a broader lock-in effect, where high transaction costs can discourage households from moving.
Again, that does not make commissions the only reason people stay in their homes. It means transaction costs can become one factor in the decision.
The cleanest way to understand potential savings is at the individual transaction level.
On a $400,000 sale, a total fee equivalent to 5% would be $20,000. A total fee equivalent to 2.5% would be $10,000. The difference is $10,000.
That calculation is straightforward.
What is not straightforward is assuming that both arrangements provide identical services, identical buyer exposure, identical representation and identical results.
The percentage by itself cannot answer that question.
In 2023, a federal jury in Missouri found the National Association of REALTORS® and certain brokerage defendants liable in the Sitzer/Burnett litigation and returned a $1.78 billion verdict. Several brokerage companies had settled related claims before the verdict without admitting wrongdoing.
The litigation then moved into settlement. A federal district court granted final approval of the NAR settlement in November 2024. On August 19, 2026, the U.S. Court of Appeals for the Eighth Circuit affirmed the district court’s approval of the nationwide settlement. The settlement and related practice changes therefore remain an important part of the current U.S. compensation framework.
The importance of the litigation is not only the size of the verdict or settlements. It brought much greater public attention to the relationship between a seller’s listing transaction and compensation for the professional representing the buyer.
Why was a seller’s listing transaction so closely connected to compensation for the professional representing the buyer?
The U.S. system has already changed materially. Under NAR practice changes that took effect on August 17, 2024:
Offers of compensation may still be negotiated and communicated outside the MLS, and seller concessions can also still exist.
Broker fees and commissions are not set by law and are fully negotiable — these are NAR MLS® policy requirements, not a single federal commission law applying identically to every real estate professional in the United States.
The broader effect is that buyer representation and buyer-agent compensation are becoming more explicit parts of the consumer conversation.
The U.S. settlement did not automatically change Canadian real estate rules. Canada has its own provincial regulation, real estate boards and associations, and federal competition law.
Commission rules are nevertheless under competition scrutiny in Canada. On February 20, 2026, the Competition Bureau said it had expanded its ongoing investigation to include Greater Vancouver REALTORS® as well as its existing focus on CREA-related commission rules. The Bureau is examining whether the rules may affect competition among real estate professionals, including whether they may discourage lower commission rates or alternative pricing and contribute to steering incentives.
That must be stated carefully:
The Competition Bureau expressly says the investigation is ongoing and that there is no conclusion of wrongdoing at this time. An investigation is evidence that a policy question is being examined, not proof that CREA, GVR or their members violated competition law.
The strongest lesson is not that one commission model is universally right or wrong. The evidence is more useful when it helps separate questions that are often bundled together.
Percentage and value are not the same question. A percentage tells you how the fee is calculated. It does not, by itself, tell you the level of service, the complexity of the transaction or whether the arrangement represents good value.
Brokerage economics and consumer price are related but not identical. Franchise royalties, splits, desk fees and corporate overhead affect the economics of a brokerage or agent, but they do not prove that every internal cost was passed directly to the client.
Historical U.S. commission patterns do not automatically describe the post-2024 market. The CFA research is useful for understanding the previous structure, while the NAR practice changes materially altered how buyer-broker compensation is communicated and contracted.
Economic models explain incentives, not individual outcomes. The Richmond Fed model helps explain how compensation design could influence search behaviour and welfare. It does not prove that every buyer is better off with hourly or à-la-carte representation.
A large brokerage is not automatically better or worse. What matters is what the consumer is agreeing to pay, what services are included, who will perform them and how the arrangement fits the transaction.
The answer is not to replace one automatic commission rule with another.
A 5% arrangement is not automatically bad. A 1% arrangement is not automatically good. A flat fee is not automatically cheaper once every required service and obligation is considered.
And a large brokerage is not automatically worse than a small independent brokerage.
Service lists can also be misleading because not every item on the list has equal value. Ten marketing activities do not necessarily matter more than one good pricing decision or one well-handled negotiation. I would pay attention not only to how many things an agent promises to do, but to which parts of the transaction they personally consider most important and how they approach them.
Before signing a representation agreement, ask questions that make the economics and service scope visible:
There is no completely risk-free formula for deciding whether a seller should contribute toward buyer-brokerage compensation. Offering more does not guarantee a higher sale price, and offering less does not automatically reduce exposure. The result can depend on local market conditions, buyer agreements, competing properties, financing circumstances and the actual terms negotiated between the parties.
In Ontario, the RECO Information Guide makes the core consumer point clear: the amount paid for brokerage services is something the client and brokerage agree on. There is no RECO-approved standard rate.
Large real estate brands have substantial operating structures behind them. Franchise systems, brokerage splits, technology, offices, recruiting, training and advertising can all carry costs. Some of those expenditures may create real value for a client. Some may primarily support the brokerage or agent’s broader business. Others may have little connection to the consumer’s particular transaction.
I do not think the lesson is that large brokerages are too expensive or that lower-cost models are automatically better. The more important issue is transparency. Real estate often packages different things into one compensation number: the agent’s work, brokerage economics, marketing, technology, administration and sometimes the value of a brand. Consumers are in a much better position when those things are separated and examined individually.
Once those pieces are separated, the conversation becomes less about whether a commission is simply “high” or “low” and more about whether the arrangement makes sense for the transaction in front of you.
Compare fee structures and see how real estate agent costs and commissions can work before you sign a representation agreement.
About the author:
Faiza Ahmed
As the founder of PropertyMesh, Faiza Ahmed is dedicated to making real estate more transparent and cost-effective. While she advocates for more transparent, flexible fee structures so sellers can keep more of their equity, her core focus is empowering buyers and sellers to make informed decisions. Faiza is a licensed real estate broker registered with the Real Estate Council of Ontario (RECO Registration #4791581) and an active member of the Toronto Regional Real Estate Board (TRREB).
| Sale price | Fee equivalent to 5% | Fee equivalent to 2.5% |
|---|---|---|
| $400,000 | $20,000 | $10,000 |
| $500,000 | $25,000 | $12,500 |
| $1,000,000 | $50,000 | $25,000 |
| Difference on $1M | $25,000 |
