By Ross Wilson

In this fourth part of the series on the hot topic of real estate fees, allow me to address the issue from a broader perspective.

Nowadays, there seems to be growing public resistance to what was once our industry’s traditional fee structure, in the form of a trend toward lower fees. To meet this demand head on and help increase professionalism, maybe it’s time all brokerages catch up by seriously exploring revolutionary new business models with alternative service options and fee calculation methods. To maintain industry viability, we may need a complete overhaul from the top down.



Let’s say a prospective seller objects to your normal rate, payable on completion of sale, even though there’s no fee if there’s no sale. Naturally, you’re reluctant to discount because you have mouths to feed. You also know how challenging it may be to sell their property, not to mention the expenses. All sorts of options may be available to handle this scenario in a mutually satisfactory manner. Here are a few to consider:

Charge a percentage relative to estimated market value.

The higher the value, the lower the rate. However, that could be a problem since it’s often more time-consuming and expensive to market luxury property.

Charge a lower percentage or flat fee with corresponding fewer services, chosen from a service menu – basic, intermediate or deluxe service.
Charge an hourly fee plus reimbursable expenses – whether or not the property sells – invoiced weekly based on docketed activities, with a non-refundable retainer, payable on execution of the listing contract.

Invoiced fees would be deducted from any percentage commission ultimately payable. The deposit could serve as a guaranteed minimum fee if for whatever reason – including an arbitrary change of heart by the seller – the listing fails to sell.

Under this scenario, for a faster sale with lower costs, homeowners would tend to list realistically. On the other hand, abuse is possible; agents might welcome a higher asking price because the longer a sale is delayed, the higher the revenue. They’d pray for long-term listings and no sales. Arguably, with such low incentive, the system could collapse. Just think about open houses though. They’d not be so boring, knowing you’d enjoy billable time for every dreary hour on the couch.

Charge a variable commission rate calculated on a sliding scale.

A homeowner acquires your services to buy another property and list their old home and you earn a full fee on that purchase. In exchange, you agree to reduce the total commission on their sale by, say, one percent if the property sells within two weeks. If unsold after this period elapses, the rate is reduced by only a half per cent, and with no reduction if unsold after another two weeks. To be fair, after yet another two weeks, the rate could increase by a half point and finally by a full percentage point if unsold after another predetermined period.

The length of seller incentive periods could be determined by your area’s average Days on Market (DOM). List at the highest rate and provide the seller with a signed addendum spelling out the formula. Since the seller would save money if the property sold quickly, they’d be motivated to price correctly from the start. You’d earn a quick but reduced commission. And regardless of how long it takes to sell, your fee would be reasonable, provided it eventually sells.

If your seller agrees to list and sell their property before buying another, and you feel it necessary to offer an incentive to work through you on the purchase, list at your personal full rate. Provide them with written confirmation that after they’ve unconditionally bought another property using your services, you’ll reduce the commission as agreed. This sliding scale program could obviously apply with or without an accompanying purchase. But with this option, it would seem prudent to ask for a buyer representation agreement contemporaneous with the listing contract.

Charge according to an association suggested fee schedule.

Medical and dental associations and insurance companies apparently provide non-compulsory fee schedules for their members, so why couldn’t our trade associations do the same thing? When real estate boards fixed its member’s MLS commission rates, we all played on the same level field. Then politically correct governments intervened to “protect consumers” from “unscrupulous” realty agents. On that day, our traditional industry model began to die.

We could employ any of these formats or any combination, but such evolutionary changes would probably need to begin at the top levels of the industry. In next month’s issue, in this continuing series on our industry’s fees, I’ll discuss the topic from the perspective of worth.

SIMILAR ARTICLES

  • Don MacKay

    I offered a “fee for service” option or some 23 years and never had one taker. In spite of the potential savings sellers preferred to pay the higher fee after they were sure their property was sold as opposed to an upfront retainer and pay as you go option.

    • Sellers obviously prefer that their agent assume all the financial risk during the marketing period by spending their own money and time. And that’s exactly why real estate commissions are as high as they are … or should be. The problem arises, however, when one considers that even though the agent has control of the proverbial marketing expense accelerator, the seller retains control over the brake. The homeowner can stop the whole process at any time for any reason, and loses nothing, whereas the poor sales rep must accept the loss.

  • Ron Stuart, FRI

    I successfully operated my practice on a fee-for-service basis for well over a decade. Consumers got it; agents and brokers, not so much, in fact hardly at all! Don’t look for much change as long as our industry (wish I could call it a profession) remains entrenched in a sales culture.

    • I agree with you, Ron, that registrants are still considered sales representatives when in fact, we should be called service representatives or some other title. And I also agree that many are far from behaving as professionals.

  • Basie

    Any article I read about “revolutionary new business models” in real estate, outlines at best a few ideas about pricing. When some people in the industry (or outside of it currently) build a new business model, it will be interesting to see what happens.

    • It will be interesting, indeed, when a truly evolutionary business model is introduced to the industry. When this occurs, though, I’ll probably be long retired.

  • Wes Jamison

    Competition bureau wants independent commissions based on your needs to keep overhead going and no collusion on rates or banning of alternative business models. There won’t be an industry standard but there will be new models to compete with.

    • Thanks for your comment, Wes. I understand what the “law” demands. But whether or not our members or the government likes it, our industry will evolve. Frankly, it’s already happening. So far, though, it’s highly disorganized.

  • Najib Shams

    interesting suggestion. I think if Real Estate Boards like to change the Fee Structure, they would have to survey all the members and then come up with a two tier systems and leave the client choose it.

    • Dave says

      Real Estate Boards do not set Fee structures.

      • Carolyne L

        Ah, but they DID, historically.

        Not only did the Boards set fees, because the board bylaws dictated such, but the division of the set fee also was
        designated:dedicated:dictated, at 50/50. You had no choice in the matter of how much the agent bringing the buyer’s offer was paid, and neither did he; it was a historically relied upon division. No if, ands, or buts.

        There were many disputes and arbitrations filed due to lack of knowledge or understanding, and unwillingness to learn the (mid-90s) changes to the bylaws, forms, and rules and regs. Largely brought about by the new buyer agency rules and regs. Here we sit, twenty-five years later still having this conversation.

        If memory serves me, things had been forever that way, long before when I was licenced in 1980, and then the whole industry seemed to have changed, seemingly overnight, in the mid-90s, with the advent of buyer agency. What happens in Realtor-land south of the border finds its way here (in this case Sarbanes-Oxley). We’ve heard the expression often quoted even newscasts: big sister USA sneezes and cousin Canada catches a cold.

        The real estate industry world as we knew it simply, seemingly suddenly, was no more. And suddenly MLS listings offered as little as one-dollar to the now-called co-op. No longer called sub-agent.

        It was in part due to the hard work and efforts of Ross Kay’s intervention regarding agency, buyer agency in particular, that the whole new world in the mid 90’s, of commissions and industry structures and standards came about in Ontario.

        Working at the time for a large corporate culture, in our specific trading area, the corporate branch rules forbid adjusting commissions, as a corporate decision. Absolutely verboten; yet a few miles away, in an adjacent town, the same (unfranchised at the time) corporate banner often engaged in using a sliding scale. Why? Best guess is because the domicile-specific board bylaws were different than ours.

        Already at the time, five years into the industry, I learned about this through a seller-client, not through the company where I was, yes, an employee (agent), who had a sister living in the subject adjacent city, had just sold her house, and had been offered the sliding scale without asking. And had shared that commission “structure” with her sister who was abundantly surprised that as an agent with the same corp, I had no idea to what she referred.

        So it became apparent that corporate could make in-house rules that played out differently in different Board domiciles, not always matching up with other Board rules and regs. In other words, their Board bylaws dictating commission structures were different than ours. And or head office made overriding rules on occasion (they knew well what it cost to run a business and show a profit at year end).

        Needless to say, I felt a little foolish and took the client comment to the branch manager, who didn’t know either, and had to check with head office. The sliding scale in fact did not apply in our board area, and I was told in no uncertain terms to keep my mouth shut about what I had learned.

        When Board rules changed in the mid-90’s, across the land, and by then I was my own corporate president, I got to make my own in-house decisions as to what was my corporate standard.

        But I did offer variables from which buyers and sellers as individuals could choose. 6, 7, or 8 points. I was worth every penny any client chose to pay and I proved it, time and time again; my clients netted top dollar in their pockets absolutely for certain in every transaction; and “that’s” where the magic is. The net is the magic.

        You are paid what YOU are worth (or ought to be), depending on what you yourself see your contributory worth to any transaction to be. But you do have a duty to spell out and play out your fiduciary duty to show and prove you actually earned whatever fee your client chose and agreed to pay you.

        In 38 years I never had any client dispute my fees. I never lost a listing presentation over fees, to the best of my knowledge, but I did elect a couple of times not to work for/with a couple of would-be impossible to serve grumpy cat personalities.

        One of the most “precious” repetitive events in my career was when a colleague, time and time again, recommended my services to their relatives: their children, their siblings, and aunts, uncles and cousins and even their ageing parents. Family doesn’t always want to work with family agents. This can be the most wonderful and mentally rewarding career in the world regardless of the long hours and personality variables. First and foremost, it’s a people-first business, a marriage made in heaven.

        The personality topic, to the best of my knowledge has never been taught in real estate courses. If you are new to the business make it a point to allot a portion of your time daily, to devote to current events, not to become a multi-topic expert but so that you can personally relate to your client interests, in even the most basic manner. It might help build a rapport that otherwise might not result in your engaging a client. Surprises never cease. You might even come to enjoy your chosen career and build a substantial income along the way.

        Carolyne L 🍁

        • Thanks, Carolyne, for your contribution. Prior to the introduction of the MLS System, the standard commission rate was 5% (and no tax). When MLS was in its infancy, if a homeowner wanted the advantages of being multiply-listed, they had to pay an additional percentage point for that benefit. If they chose to “save” money, they listed exclusively with one brokerage.

          I delve into the history of our industry in The Happy Agent. I felt it good to know from whence we came, so to speak.

    • Since boards no longer have the legal right to set commission rates, they could prepare a detailed proposal for presentation to the Powers That Be. And maybe, just maybe, those government bureaucrats (who I doubt truly understand our business) might see the light.

      • Gary Little

        Did Boards ever have the right to set commission rates?

        • Yes, Gary, boards once set the MLS commission rate at 6%. If a listing was submitted to them for processing that included a lower rate, it was rejected by the board. I delve into the history of organized real estate in Part One of my book, The Happy Agent.

      • Brian Martindale

        The only government bureaucrats whom might understand this business would be former Realtors with at least five years’ experience in the field. I doubt that there is even one bureaucrat alive who fits this description. Ergo, talking to ignorant-of-the-industry-workings’ bureaucrats about this issue would be like talking to them in an unknowable, un learnable foreign language. They just do not get it, and even worse, they are not motivated to deal with the issue. Only elected members of parliament/elected members of provincial legislatures ‘might’ be motivated to take this issue on ‘if’ enough public outrage demanded action.
        So far, the public is simply apathetic about this issue, across the board, and only if a unitary member of the public is negatively affected by the behavior of a Realtor from time to time (if he/she even realizes that a dirty deed or an incompetent deed has been committed against him/her) does a lonely voice of outrage cry out for justice. Then things die down again. It’s human nature; apathy rules the day.
        The guy to get to in Ontario is Tim Hudak, the new outsider OREA CEO; he is well connected to elected government types.
        Government licenses Realtors; maybe it should also have a say regarding how they are reimbursed, because the big money Realtors and brokerages will never want to change the current pay-scale system, for obvious reasons.
        The “I-wanna-get-rich-quick” artists should be kept out of the business. They will willingly stay out if they cannot see their way clear to achieve their dreams of wealth easily only by way of their sparkling personalities and slick presentation skills. Only people possessing professional, altruistic personality types delve into difficult-to-succeed-at vocations (that do not promise quick, easy wealth) that demand front-end sacrifices regarding education, substantial financial investment and intern servitude experience. These people do it because they ultimately want to be proud of what they do. Nothing worthwhile comes easily or cheaply, ‘else it would not be worthwhile. Professionals do not magically blossom from a few weeks acting like empty-headed plants potted in a classroom being droned at by text-book reading instructors followed by a few days learning on the job how to talk marks into signing listing agreements and thence hoping that those listings sell quickly and easily without any annoying irritants.
        Organized Real Estate needs to appeal to potential Realtors who have the dandelion gene; they will grow strong and flourish as they push up through the gravel and hard, barren soil of reality where other less well evolved species with poor roots fail because the reward, being public acknowledgement of their value to society, not to mention their own sense of accomplishment, will be worth the sacrifice to get to the sunlight. Income, therefore, should be a secondary consideration for wannabes. Studies show that the happiest workers do not list income as being the primary reason why they love their jobs. This is why most Realtors are ‘not’ happy campers. They are lured like moths to the flame by visions of achieving wealth unattainable (for them) by any other means at their disposal, and then they are sorely disappointed. Like scorched moths, they fall back to earth, their wings singed, their fragile egos demolished. But new moths are metamorphosed from caterpillars daily. Ergo, the ridiculous licensed Realtor failure rate lives on, and most consumers continue to be served by short-term amateurs with slick websites and crossed fingers instead of by actual professionals.
        The public deserves better than to be approached by moths, and the future Realtor population deserves to amount to more than fly-by-night short-lived bugs with pretty wings that don’t last.

        • Love your metaphors, Brian. And they’re accurate. We’re on the same page in many respects, as you’d see if you were to read my book (if you haven’t already), The Happy Agent. The problem is, though, that many of those of those “unprofessionals” don’t read.

          • Brian Martindale

            Ross:
            Your last statement is mirrored by the obvious lack of REALTOR members’ readership of REM, and more to the point, by the lack of comments herein over time. From a Canadian REALTOR population of over one-hundred thousand individuals, we see only a handful of respondents to REALTOR-specific articles herein. I would say that your statement “…that many of those unprofessionals don’t read.” is too lenient. I would say that ‘all’ unprofessionals don’t read. It is obviously too hard for them to take a few minutes per day to scan REM and thereafter offer a short comment, pro or con, on any given article. Can you spell “APATHY?” To my mind this is proof positive of the “sell, sell, sell” cultural mindset underlying a communal lack of interest in anything industry related above and beyond scoring a commission…today. It is also an indication of the relatively low bar that has been set by ORE for the establishment of a minimum intellectual standard for a REALTOR population that deems itself to be professionial.
            My first vocation was undertaken at age eighteen when I became a Steamfitter apprentice. I served five years as an apprentice and I invested about five times as much time as a real estate student spends pre licensing, respectively, in the classroom. Upon earning my Journeyman papers I had nowhere near the opportunity to financially affect the lives of the public (actually, no opportunity) as does a newly minted, usually know-nothing, REALTOR, whose first words post licensing, and for months to come are “what do I do now?”.
            P.S.: I have not read your book, but I will pick up a copy and read it soon.

          • I appreciate your honesty and candour, Brian. And as usual, I agree with your synopsis. A while ago, in a land not too far away (USA), a study was conducted on the subject of readership. I don’t recall the specifics, but it concluded that the vast majority of the populace (80-90%) don’t read anything beyond restaurant menus, and rarely buy books. Further, the small percentage of readers who buy books, including the print and digital variety, finish reading them, if they even start them.

            Based on my own experience with The Happy Agent, in which I offer a multitude of ideas and techniques on how to ethically improve one’s business and income – and importantly one’s life, I idealistically anticipated selling many thousands of copies. Though sales have been good, and feedback excellent, I’ve yet to achieve that early objective.

            To be considered a top-ten bestseller in our country, a book typically sells thousands of copies. And in a country with about 36 million people, that’s not much. Since it’s generally accepted that to learn and grow, one must read, such facts are a sad testament to humanity.

          • Brian Martindale

            You may count me in to purchase your book by week’s end. I will render a book review herein after I have read it. I am sure that it contains valuable and timely insights into both the real estate industry and human nature at large. By the way, speaking of restaurant menus, unbeknownst to most, I learned most of what I know from restaurant place mats. I now have a PhD in RPMS (Restaurant Place Mat Studies). Who knew?
            This is my second response to your post, because Jim the-Editor-guy must have decided that my concluding remarks within my first reply (which do not appear within this post) were too politically incorrect regarding Dave the Knave whom I am enjoying having a running flame war with via slinging personal insults back and forth on another thread. I need to get my fun-fix somehow.
            Jim gets to read all the good stuff.

          • Thanks Brian. I trust you’ll enjoy the read. Be prepared, though, for the occasional non-politically correct statement. :-) Jim might not find my book entirely politically correct, but in this newspaper, he obviously must mind the store.

          • Brian Martindale

            Hi Ross:
            I am prepared for anything after dealing with trolls herein like the incredible invisible sidewinding snake, Dave The Knave (He’s Gonna Cave). Can’t wait for his next feeble assault against my person. Whilst he is always trying to put out the flames after lighting his hair on fire, I play the part of the Cheshire cat playing with a retarded mouse.
            Jim is a good guy. What other editor would put up with some of the outrageous stuff that I come up with on this site? Many of my initial submissions end up in Jim’s special drawer of flammable material. He told me once that I hold the record for that distinction, lol. I guess I’m number one at something!
            If your book is not entirely politically correct, then it must have been written with honesty, and that is a good thing.

          • I wrote from my heart, especially the third section. Enjoy!