By Ross Wilson

“If you don’t risk anything, you risk even more.” – Erica Jong.

In this third column in my series on the controversial topic of real estate fees, let’s talk about something that I suspect most agents fail to seriously consider when plying their trade – risk.

It’s your fiduciary responsibility to your clients to do everything possible to obtain the most favourable terms for them. Selling real estate is not, as they may believe, just a matter of signing up a standard form, uploading an ad onto a website and installing a lawn sign. If it were, you couldn’t begin to justify your traditional fee.



The lion’s share of the fee is earned during the advice stages. Establishing an estimate of fair market value and original and amended asking prices, advising on property preparation and offer negotiation – sometimes more than one – are the most critical services. The other marketing activities, though important, are secondary.

By accepting the listing, you agree to assume significant obligations. Hopefully, your new seller will appreciate that marketing expenses lower your net compensation, at least if the property sells. And if for any reason it doesn’t, remind them that you will be in a loss position. The risk is all yours and unfortunately, they’re in the “profit” driver’s seat. You have control of the marketing gas pedal, but they control the brakes. Their level of reasonable co-operation and your risk of loss are inversely proportional.

When sellers see the big commission number on their lawyer’s Statement of Adjustments, they sometimes resent parting with such a sizable sum for a particularly brief service period. They may not have appreciated the service provided, or more importantly, the risk you undertook, or the fact that for each listing that sells, there were many more that didn’t. Whether it sells or expires, agents incur marketing expenses on every listing.

There must be sufficient compensation for assuming all the risk. That alone justifies higher fees. You assume responsibilities and obligations with all associated expenses without any guarantee of a return on your investment of time, money and expertise. There must be a reasonable profit incentive, and not just reimbursement for time and expense. Otherwise, why be in the business? Key word: business.

It’s not a job where you trade time for money, nor are you a not-for-profit organization. You make the commitment with the hope that the market will favour you with a sale so you can not only be satisfactorily compensated, but make a profit. If it fails to sell, you lose – not the property owner. You’re out of pocket, both in money and what’s even more valuable – your time. Upon expiry, they can re-list with you or another brokerage without any penalty. For any investment, risk and rate of return should be directly related.

For understandable reasons, a commission based on a percentage of the ultimate sale price is an important agent incentive. It’s also an attractive inducement for a homeowner because it provides them with an opportunity to attempt a sale without any risk or expense and with minimal effort. That’s a huge seller advantage!

Here’s something else to think about. When accepting a listing, by charging a lower rate, you’re not actually reducing your fee. Why? Because there’s no fee yet; it’s merely a percentage of nothing. What you’re really doing is devaluing your service, your worth. You’re ultimately lowering your effective hourly rate – maybe to zero or less – and reducing the chance of generating a profit.

You’re entitled to make a reasonable living, just as the homeowners are. Typically, they’re paid a salary or hourly wage, whereas you’re paid by commission. If you fail to generate a sale that closes, you don’t get paid. Period.

Ask your seller how they’d feel if their employer instructed them to do their job, but without their usual compensation unless the company sold some product or was profitable. In such case, because of the risk of no pay, your prospective seller would no doubt demand a higher compensation from their boss. As I said, for the risk you agree to undertake, your fee is higher. Second mortgage rates are higher than those of a first mortgage for the same reason. It’s not complicated. You don’t work for free. Well, actually you often do. Greater risk goes hand in hand with higher fees. And the risk is normally spread out over all your listings.

For your usual fee, you’ve always accepted such risks as an integral part of the business because you normally generate sufficient “pooled” commission income from multiple listings to rationalize the individual risks. When you lower your fee without a major boost in volume, are those risks still justified? At some point, your traditional business model will no longer make sense.

That’s when the public will begin to notice a changing industry – possibly not a better one. Our business is already moving in that direction. In the next column, I’ll discuss our evolving industry.

  • Basie

    One of the better pieces I’ve read on the subject. For my part, I explain to my clients that this work would simply not be worth my time and effort for any less compensation than I currently garner. I’d go do something else instead. Because it is so much work and consumes so much time. As you imply at the conclusion of your article, the day that enough of us reach that point is the day that the real estate transaction model will be disrupted. There will not be sufficient revenue from licencees to fund the current infrastructure. Real estate marketing and sales will enter the wild, barely regulated online world unarmed, and consumers will enjoy sorting credible sources from fake news regarding the market, valuations, services, and results.

    • Thanks Basie. It seems that we are in agreement regarding our evolving industry. One day, consumers will awaken to a totally different service, and they may not be very happy with what they helped create. Just imagine what that will be like after the real estate market corrects, as it eventually always does, and sellers outnumber buyers!

  • John Grasty

    To your point about Realtors doing work and not getting paid, many of us have been involved in unsuccessful transactions without getting paid, so referring to our real estate fee as “commission” is erroneous. It is appropriate to use the term, “real estate fees” (as in the title), because it is in fact a contingency fee, and the remuneration being offered is contingent on us achieving a successful real estate transaction for our client. All of the activities performed by Realtors, many of which are mentioned here, add value to clients and are key to articulating our worth (and fee).

    • I believe we agree, John. However, I feel it’s simply semantics. The common vernacular to describe how our income is generated includes both of the terms “commission” and “fee”. Having said this, commissions are inherently subject to (contingent upon) the completion of a successful sale, whereas a fee could be charged and collected without such a restriction. In a later column, I suggest that this might, indeed, be how our industry’s fee structure evolves; flat fee for service. The so-called “big hitters” wouldn’t necessarily like such an outcome, but the smaller producers, who encompass the vast majority of registrants, might appreciate a steady, but lower income.

  • Carolyne L

    PED, you wrote: “… The CPA who graduated last in his class isn’t worth the same wage as the one who graduated at the top, nor is the dentist or plumber or teacher…”

    Just curious, PED. Absolutely true. How does one know the graduating status of any of them? Their graduating rank is not posted on the wall with their accreditation certificates. Likewise with students of the craft in our business. We all know agents who made 98-100% on any exam they ever wrote, and that makes them nothing short of excellent textbook students. Their “operating in the real life theatre” often has no relationship to their scholastic smarts or pursuits.

    There’s proof in abundance, agents with more than one degree who for an unknown reason were not successful as sales reps, some of whom as a result elected to become real estate office managers, teaching, helping, advising underlings how to achieve the industry success that evaded them.

    Is anything wrong with that picture? That’s not to say that successful salespeople make better managers because we know that not all successful salespeople are cut from management cloth, or even have any desire to manage, acknowledging their own strengths. Ahhh! That unknown quantity sometimes referred to as the great divide.

    It is just my personal opinion that how much an agent is worth is tied directly to his ability to consult and position himself in whatever area of expertise he can prove, that being direct specific product knowledge in the given client location – perhaps as in farming, (not the whole province in which he is licensed, and not within all facets of the industry).

    I refer to the farming topic often, only because it worked for me. Of course I didn’t just farm. I made use of marketing skils I didn’t even know I had. Sort of the domino effect. Once you find out what works, replicate it. Broaden it along with your skills. Parrot and mimic the successful people who cross your path; they didn’t get where they are in real estate flaunting their degree in the sciences. Proof positive. It isn’t worth the paper it’s written on if the agent relies on it to achieve success in our field of expertise. It will take him no place in the real estate field. What’s often funny: the math teacher or prof often has no good command of language and sometimes is a terrible speller. Likewise the history teacher or history prof, assigning homework or reports to be marked by someone who cannot even spell (and often one cannot even decipher their own handwriting). Cursive hasn’t been taught in many moons.

    And no one at any level of his expensive education taught him to syllabicate or enunciate. Or to put himself in the position of his client.

    I once knew a kind woman doctor who for all intents and purposes was a good doctor (however one evaluates that). The medical association decides how much she gets paid for each appointment (not based on her education or even her skill set) and or what she did to help her patient, what services. That system is another one that is completely broken. Fees? Non-negotiable. Hmmm.

    Next on the CB invitation list? How much would we pay our doctor if we were the ones to decide? And just exactly how would we arrive at that conclusion, having sat in the waiting room for two hours? The rent has to be paid, but that is not accounted for in the system of how much the doctor can bill for each ten-minute patient appointment. Some rents are higher priced locations than others. Likewise capital investments. Should the patient pay for real leather chairs in the waiting room?

    Then she opened her own office. WHOOPS!

    But she quickly discovered she didn’t know how to run an office, (not part of her degree program) how to hire reputable support staff, and didn’t know how to evaluate their performing; how correspondence was to be handled in written form. Wicked. Out of her frustration, one day she shared with me what she didn’t know, that was playing on her nerves, as a letter had gotten into a wrong envelope, arrived in the wrong place, revealing private patient information. She had signed the letter, but she had not placed it in the envelope. Her files were in total disarray, and she was about to be sued.

    A year later I booked an appointment for a few weeks down the road. Papers covered the big glass windows. She was gone.

    How would she have survived in the real estate business, with her multiple degrees? Probably not. Why? She had no sense of direction. But give her a scalpel and tell her where to cut; or need an antibiotic? She likely would know which one to prescribe.

    It’s just a demonstration of the sad world we live in. So how does an agent decide what he’s worth; what does he charge. When many of us started in the business, some nearly forty years ago that decision was made for us – by the real estate boards, and stayed that way until buyer agency came on the scene and suddenly almost overnight, each local boards of directors under the ministry guides, and CREA and OREA (in Ontario) intervention were told they had to stipulate new rules; they were no longer able to dictate how much would be charged. And ever since, the freedom to make their own choices as to what an agent could and would charge has been a constant source of quandary. Each to his own.

    But in the end, it isn’t the agent’s decision what to charge… The decision is made by the seller and/or the buyer: what will he choose “to pay.” And to whom. So, on that note, exactly how does the seller and/or buyer arrive at exactly what to pay for real estate services, and to whom? And how exactly does he arrive at his decision? That is the question.

    Carolyne L 🍁

    • Thanks for your comments, Carolyne. I agree that the seller obviously has direct input in what they choose to offer as compensation for services to be rendered by their real estate sales rep, and to whom to make such an offer. However, the agent also has the power of choice whether or not to accept the seller’s offer. The agent must decide if the proffered “potential” fee is sufficient compensation to justify the investment of their time, expense, expertise, effort and – importantly – .the risk.

      I have both lost opportunities to list a property because another agent agreed to charge a lower fee, and refused to accept listings because I was unable to justify the risk. I made conscious business decisions and to this day, have no regrets. I continue to believe that as aware consumers, we usually get what we pay for.

  • Brian Martindale

    Let’s face it: When a newly minted registrant enters into the workforce, he/she is one of the babes-in-the-woods neophytes who does not really know what he/she is doing. Almost all newbies have no relevant experience, period. Therefore, how can they claim to be professionals demanding the same incomes for services that experienced, ethical, successful registrants who have been on the ground for more than five years demand? They can’t, but they do, and therein lies the problem.
    When I entered the workforce at age eighteen as a steamfitter apprentice, I was paid forty percent of the hourly wage of a licensed journeyman during my first year on the job. Then I went to full-time eight-hour day classes for eight weeks at a time (on my own dime) every year or two thereafter. Note: Speaking and writing the English language correctly was one of the courses, believe it or not! I was paid fifty percent during year two (after successfully completing the previous eight week education segment), sixty percent during year three, seventy percent during year four (again, after successful completion of classes including additional yearly scheduled extra night school classes on top of the regular day classes), and finally, I was paid eighty percent during year five. I eventually received one hundred percent journeyman wages after successfully writing a final licensing exam (after having served a minimum hourly hands-on work requirement in the field). All of that just to work unsupervised installing construction related equipment on new job sites. Compare that to what is minimally required to become an unsupervised (for the most part) licensed real estate “professional” dealing with consumers’ most expensive purchases/sales during their lifetimes! Ridiculous! There is no comparison; there is only a juxtaposition!
    Another poster to this thread has demonstrated via the wording of said post that the correct usage of the English language (both spoken and written) ought to be part of the real estate salesperson (read consultant/advocate) licensing education curriculum. Duh!

    • I couldn’t agree more, Brian. Compensation should be directly related to knowledge, expertise and experience, and not to how big an advertising budget they purport to possess or how vociferous they are during presentations. It just makes perfect sense.

      However, with our industry’s huge attrition rate, wherein, according to some old statistics (but likely still applicable), 4 out of 5 agents quit the business within their first 5 years. So, at any given time, our roster is chock full of novices. Maybe RECO should introduce a new sub-category of registrant – apprentice – thereby permitting consumers seeking a lower fee to more easily identify those agents who work for less. Food for thought.

      • Brian Martindale

        Ross:
        When I was accepted into the ranks of the Appraisal Institute of Canada (AIC) in pursuit of working as a real estate appraiser, I was registered as a “Candidate”. I worked under the supervision of the owner/CRA of the business. I already possessed a university degree as well as a multitude of varied industry-related experience. I undertook/completed six university level courses during my candidacy, all of which were much more in-depth and demanding than most real estate university courses that I later easily completed with a minimum of attention directed thereto. I worked as an appraiser candidate for a little over five years, completing thousands of appraisals (as many as six per day during busy times). I was three months shy of completing my final demonstration report before I left the business (too many ethics disagreements with the boss) and gravitated back into real estate as a Realtor. A few weeks later (after completing the education-lite real estate courses) I was fully licensed (unsupervised) within the real estate transaction business. I was lucky; I already knew what I was doing, and I knew what I knew, contrary to what Realtor newbies know/don’t know. Contrast the Realtor and appraiser pre-licensing/post-licensing processes/experiences and the obvious ramifications vis a vis public/fiduciary interactions thereof, and the problem becomes glaringly apparent.
        In the appraisal case: mega-preparation and time involvement pre-licensing working ultimately for fees (so much per appraisal). In the real estate sales case: mini-preparation and time involvement pre-licensing ultimately working for hoped-for get-rich-quick mega-commissions. Which career path do you think a naïve, usually not-well-educated, can’t-find-a-job-for a-decent-income-anywhere-else, eyes-on-the-shiny-money-ball, willing-to-invest-in-only-a-short-term-prep-time gambling personality-type would choose to pursue? It is no wonder that so many try, and so many fail, all at the expense of the public trust and too often mistrust. We have the real estate industry leaders (CREA, provincial associations, local boards etc.) most of whom are pure sales types who lovingly embrace the commission money-ball, to blame.
        I liken the real estate post-licensing game to the Kentucky Derby, wherein the gates open, the horses run like hell, breathlessly sprinting toward the finish line for the big prize, except for one big difference: newly minted registrants are not proven thoroughbreds to start with who have worked their ways up through the ranks whereby they have earned the right to compete at the elite level within their field of expertise. Being a Realtor should be a profession populated with elites who can operate professionally, from the get-go, within a rarified field of expertise.
        RECO (Ontario) and the Ontario government need to review their licensing requirements. I am not a government bureaucracy fan…but…the lesser of two evils (government vs in-house foxes-guarding-the-henhouses collecting-the-dues associations) needs to be engaged in pursuit of producing truly professional Realtors. Enough with the gamblers already.

        • We’re on the same page, Brian. I couldn’t agree with you more. And I love your super-hyphenated-catch-all sentences! :-)

          • Brian Martindale

            Thanks Ross:
            I’m just a super-hyphenated running-off-at-the-mouth wannabe-turned-post-wannabe hands-off (should-have-my-hands-on) used-to-be-unbiased now-biased loud-mouthed observer writing from my mother’s basement, in the cold room, under the front porch beside the recently sprung mouse trap.
            The hyphens come into play every time I lose my train of thought, and it’s a long train with dual huffing and puffing steam engines but without a caboose.
            Holy crapola; I just wrote a sentence without a hyphen!

  • PED

    Some cogent points. But these attempts to justify a commission fee always fails on these points with consumers:

    There is no cogent explanation for wild swings in compensation or the hourly fee as you break it down to unless every house is an entirely different challenge. Two slightly different houses on the same street can vary in sales price by tens of thousands of dollars yet where the Realtor is willing to accept say 2.5% on $500,000 yesterday, there is no logical argument to be made for being worth 2.5% on the $550,000 property across the street or 2.5% on the $400,000 condo around the corner, tomorrow.

    When we speak of discounts it is meant to say a fee less than what the industry generally charges and which is undeniably measured by the co-op fee – 2.5% within the GTA. To suggest that every real estate representative is worth 2.5% is ludicrous! It seems to be the only vocation that proffers that claim.

    As a consumer, none of us would expect when we’re hiring that every contractor, accountant, roofer, bookkeeper, lawyer, handyman, plumber or even our office managers are all worth the same compensation. Yet some within the industry toss that logic aside when it comes to our fees.

    Those doing it, need to step back, place themself in the position of the consumer and they’ll conclude these pitches sound stupid! Charge what you believe you’re worth, justify it based on what you do and not what the industry suggests you’re worth or what expenses you have to pay – the consumer doesn’t give a damn how much you’re paying your brokerage or for your fees or for the lease costs of your Mercedes, they’re doing the same calculation in their head for your expense that they will put out.

    The fiduciary risk is one massive reason to justify one’s fees as is knowledge, ability and the strategic processes one will provide to the client, the rest is fluff and filler in the consumer’s eyes and only people in this industry think it has any effect on the consumer.

    • Heather Holdship

      In answer to your first statement. It fails because
      Of discount agents who do not provide the service that some agents provide. The public is not informed enough because they only do a couple transactions in there entire life. So they are at the mercy of whomever they already know who
      May or may not have had a quality agent. Discount agents are out there trying to undercut. Perhaps to justify a lessor amount of work for them to get a pay check. Secondly. With regard to the different selling price on the same street. Every house is as unique as it seller and therefore every sale is also unique. my experience is that every situation is unique sometimes it is more difficult sometimes it is easier. The risk is always the same. Therefore the commission should be the same. To charge less with the public believing the service is the same is misleading.

      • PED

        To your statement on the two houses on the same street that the commission should be the same but that to charge less to to the public believing the same is misleading. Sorry but that’s bunk!. My qualified statement was: -two slightly different houses. Slight does not warrant some excuse about the uniqueness of each property being worth more in fees. We in this industry really need to stop kidding ourselves that equivalency in our service is not based upon our time, effort or knowledge but rather the value of the property. The CPA who graduated last in his class isn’t worth the same wage as the one who graduated at the top, nor is the dentist or plumber or teacher, so why are Realtors just because they affix the highest fee possible? Consumers get that, none of them are compensated in that way and that is why they get angry when we try to sell them such bunk.

        We’d be far better off concentrating on the lack of ability and knowledge in this field so as to get rid of the inept and unqualified, than what some dude decides to charge.

        To the first point. That too is nonsense. I can name dozens of long-time well known Realtors who charge the maximum fees we know of and point to the fact they claim that a deal has been terminated if a buyer fails to deliver the deposit or that a landlord can give a tenant with a lease 60 days notice to get out or that the 10 day status wait is not 10 business days. Those are simple things that everyone ought to know but don’t. Charging a non-discounted fee doesn’t automatically make anyone capable or knowledgeable, so let’s not kid anyone here.

        Additionally, discounting isn’t just about charging a lower fee. Discounting includes rebates which is far more prevalent today and among those who actually demand that 2.5-3.% listing fee just as the previously commonplace offer to reduce their co-op fee so as to get the property for their buyer client was as well. Yet for some reason, a certain snobbishness causes some to disregard either of those as discounting. That type of activity is prevalent and everywhere!

        I agree that discounting often denotes reduced services. It may even be an indicator that the Realtor has a low opinion of their own value, but it doesn’t necessarily mean they’re worse than the flunky who thinks them self a rock star because they refuse to charge less than the highest rate know.

      • If I understand you correctly, Heather, I agree with your premise to a point. Consumers are often, indeed, naive when it comes to our industry and its service. All they typically know is what they read and hear from the mainstream media, which is, in my experience, not the whole truth.

        I believe that agents typically charge their worth, unless, of course, such discounted fees are a conscious reflection of their business model. In such a case, they are depending on larger volume to generate a profit, or at least, a decent living.

        Where I disagree with you is when you state that the risk is always the same. During my career, I have experienced many different situations in which I had wonderful and trusting clients for whom I was able to provide successful service. And I suffered from the occasional contract with a miserable, demanding client, who I later regretted accepting in the first place, from which I never generated a return on my investment. Thus, risk is definitely not always the same.

        One must determine the risk level before accepting a contract for a certain fee. It’s just good business sense.

    • I believe we agree, PED. If I seemed to imply that every agent is worth the same fee, then I apologize for my lack of clarity. What I meant was that each sales rep must individually determine their worth and what fee to charge. I believe in a free and competitive marketplace, wherein prices find their own levels. I also believe that everyone possesses the power of choice, and that those choices should be exercised with prudence and careful discernment.