Most that are involved in buying or selling a house or condo in Toronto will rely on the expertise of a realtor to assist them. This means that there may be a necessity to pay this professional by way of a commission for the services they perform. The way houses are bought and sold has changed over the years which has created some significant changes in commissions and for the methodology used by realtors to entice clients to use their services. One of these newer methods is by way of a cash back incentive.
What is a Realtor Commission Rebate Cash Back?
The standard procedure when it comes to using realtor services is to pay them a commission based on the services they are performing. In a normal circumstance, the realtor will charge a specific percentage on the sale price of the home they have been instrumental in selling.
A realtor may decide to give the buyer of the home an amount of the commission they received as a “thank you” or as a reward for becoming a client.
What is the standard commission?
There is no set rule what the realtor will charge as it can vary across Canada. Standard practice in Ontario has been around the 5% mark.
Sharing of the Commission
In a real estate transaction, there are normally two separate real estate agents involved: one for the seller and another for the buyer. An agreement is normally reached between the two agents concerning the commission.
It is a common practice for the realtors to equally share the commission, although there is no rule that states this is a rule. It can turn out that one agent may receive more than the other.
Some agents will offer a higher percentage to an agent to entice them to bring their clients through a specific home.
Can a Realtor Give Cash Back Commission Rebate to a Buyer?
There are ways that realtors can legally give cash back to a buyer. It is not a practice that a lot of real estate agencies are in agreement about. There are a few realty companies in Vaughan, Kleinburg, Richmond Hill, Maple, Toronto, Ontario that do offer a commission rebate or cash back, but it is not as common as what some may think.
For example, one company is offering 15% rebate to a home buyer on the agent’s 2.5% commission they are going to receive as a result of the purchase of the property.
Another agent is prepared to go as high as 80% as cash back on his 2.5% commission.
Can a Realtor Give a Cash Back to a Seller?
Normally the realtor negotiates the commission that is going to be charged at the time they are given the listing of the property. If they are going to give any incentives, it may be by offering a lower commission percentage. Rather than by way of cash back.
Real Estate Commission Rebate Taxable Canada
No doubt that many homebuyers who receive a commission rebate are quite happy with the money they receive from this. But, what they may not realize it there could be tax repercussions to this.
A rebate could be perceived as a cash gift. An individual should check with their accountant or the CRA to determine if the commission rebate they received is taxable.
Why Would a Realtor Offer a Real Estate Commission Rebate?
Many potential homebuyers have become far more proactive in their search for the properties they are interested in. They have access to better resources such as the internet. Or, by taking it upon themselves to visit open houses. All of these have had an impact on the type of demand for reality services currently exist.
It is not unusual for home buyers to seek out the property they want. Then to only need their realtor to present the offer. This may adversely affect these professionals in some ways. It benefits them in other ways.
How Does it Adversely Affect the Realtors?
- The realtors no longer get the opportunity to show properties that they may feel will suit potential buyers which means it reduces their chances of picking up a client.
- That, in turn, reduces their chances to earn a portion of the commission.
- It creates more work for the realtor. To go out and try to find potential clients.
- More marketing and advertising efforts are required.
How Does It Act Positively for the Realtor?
- A good reliable realtor earns their money. No matter whether they are representing the buyer or the seller.
- When representing the seller, they have to spend a great deal of time sourcing out viable properties. Finding ones that the client may be interested in. If the client does most of this research, it saves the realtor the time and effort
- Once the client finds a house of interest, they can rely on the realtor to conduct the showing, which creates a need by the client for the realtor. There is already an interest on behalf of the client, so this is one part of the realtor duties that has been eliminated. Again, another time saver.
- If all the realtor has to do is draw up the offer yet is still going to receive half of the commission, they don’t mind offering the client a portion of this.
The Controversy of the Real Estate Commission Rebate
There are many within the real estate industry that are against this practice. Not only in Vaughan or Toronto and across Ontario but other regions of Canada. Some believe that it is unethical.
There is the risk of the rebates becoming too competitive. Realtors will end up with very little.
Others say realtors that have to offer rebates to get clients may not be quality type professionals. That they are not able to compete effectively.
It comes down to what the agent feels comfortable doing. Keeping in mind that the agent often doesn’t end up with their full share of the commission. A portion of it is going to the broker.
For the homebuyer, it can work out to be a lucrative return on some money when it comes to their house transaction.