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Alberta Real Estate rules allow for brokerages to set their own commission rates. Understanding exactly what is a 2% commission rate, why it is growing in popularity and how to use it to your advantage can help you achieve huge savings.
Large markets such as Calgary and Edmonton have seen a steady increase in homes marketed with 2% commission. But how exactly does this commission rate compare to other models? And are there elements you, as the seller need to be made aware of?
The 2% commission rate is typically compared to the traditional 7/3 split commission rate. This has historically been the more widespread commission model in Alberta.
What is a 2% Commission and How does it Compare?
How a 2% rate is calculated
Let’s suppose you sell your home for $500,000.
- 2% is calculated on the final sale price
- 1% is paid to your listing agent
- 1% is paid to the agent that represented the buyer
Breakdown:
- A 2% commission rate would be charged on the $500,000, equaling $10,000.
- The $10,000 commission would then be split evenly between buying and selling agents, each receiving $5,000.
How a 7/3 split rate is calculated
Let’s suppose you sell your home for $500,000.
- 7% is charged on the first 100k of the final sale price
- 3% is charged on the remaining balance of the final sale price
- The total in commission is then divided between listing and buying agents
Breakdown:
- A 7% commission rate would be charged on the first $100,000 equaling $7,000.
- A 3% commission rate would be charged on the remaining balance of $400,000 equaling $12,000.
- The $19,000 commission balance would then be split evenly between buying and selling agents, each receiving $9,500
Real estate commissions can be confusing and unfortunately the real estate industry has not been very transparent with how they work or more importantly, how they relate to both the buyer and the seller.
Below we will cover more about the 2% commission rate, what is included and understand how commissions can affect both buyers and sellers.
How Much can you Save Using 2% Commission?
What is Included in the 2% Commission?
As described in the examples above, a 1% share of the commission will be paid to your listing agent (the agent that represents you in the transaction). Agents will list your home on the MLS®, market your home, and assist you with the sale process to completion.
The other 1% will be used to market your home to cooperating brokerages (the agent that will represent the buyer) on the MLS® system. This commission MUST be posted on the MLS® system.
It is important to understand that commission rates in Alberta are negotiable. This means that a buyers agent can request a different commission rate if they can not accept the 1% that is posted.
Negotiating Commission with the Buyers Agent
This is often a point of contention between sellers and the cooperating brokerage. It is common for us to hear things like; Why should I pay the other agent more commission, they are not doing any work! If I say NO to their commission, is the agent going to stand in the way of their buyers buying my home?
While these are fair questions to ask, the answers can be a little complicated. Therefore, it is important that you understand a few things about buyers agents.
The most important element to understand is that buyers agent MUST sign a buyers brokerage agreement with their client. This is a mandatory requirement in Alberta, similar to how a seller MUST sign a listing agreement with the brokerage listing their home.
The buyers brokerage agreement stipulates the commission fee that the buying agent expects to receive as compensation for their work.
Understanding this immediately provides clarity to the sellers concerns noted above. Primarily, the buyers agent and their client are in a binding agreement. As such, the agent may in fact create a barrier for the buyer to purchase a home if there is a dispute over commission.
Additionally, it is important to understand that a lot of hard work goes into being a buyers agent. While the role of the listing agent is more centric on information and marketing. The role of the buying agent is more centric on physically showing listings, submitting offers, and researching information. There a larger costs in terms of time and expenses such as fuel.
These elements play an important role during the negotiating phase. If the seller better understands how the real estate industry works, then they can better negotiate. The goal of the seller should always be to sell their home for the most favourable terms, while being mindful that a compromise is often required.
Ok, But What Does This All Mean?
Sellers must understand that real estate transactions are all about negotiating. The list price does not necessarily translate to what a home will sell for. Market forces may push the price above or below the posted price. Similarly, commission rates are subject to change. The key take away is that the final negotiated terms of sale (price & commission rate) to be as favourable to you as possible.
How Does 2% Realty Work to Achieve a More Favourable Sale?
It is crucially important that you partner with a 2% Realtor® that has a proven sales track record. Holly & Erick Home Team have completed over 400 transactions in the Calgary area market. They understand how best to negotiate favourable results for their clients. Learning how 2% Realty works can provide a seller with greater options, and save thousands on commission fees.
Time to Generate Offer
10 days
Showings Required to Sell
11 Showings
Commission Savings (average)
$5,527 (31% discount from market average)
*Based on 2022 sales performance for Holly & Erick Home Team. Commission savings based on 2% vs 7%/3% fee structure for Calgary & area market.
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Need More Info? - FAQ
What is the lowest commission a Realtor will take?
1% is likely the lowest commission that a Realtor® will accept. However, on a higher priced home it may be possible to negotiate a flat fee that is less than 1%.
Who many agents does 2% Realty Calgary have?
The Calgary office has over 30 dedicated agents. The 2% Realty brokerage as a whole has hundreds of agents spanning across Canada and the United States.
Is it common to negotiate Realtor commissions?
In our experience this will depend on current market conditions, Or the price of the home. Weaker markets tend to make Realtors® more protective of their commissions and they may behave more aggressive in their demands. A home listed under $300,000 may also experience a higher probability of buying Realtors® requesting a higher fee.
What percentage do most Realtors charge?
The 7/3 split commission continues to be the most common fee structure in Alberta. This continues to evolve each year as more competition enters the market with different commission structures.
