Commission Calculations

There is no standard commission for real estate or mortgage brokerage services in Alberta. Commissions to licensees are negotiable.

Wise consumers know that the cheapest deal isn’t always the best deal. Before choosing a licensed real estate professional, you’ll likely want to compare the services and fees of a few licensees. These interviews can help you understand the range of commission rates available, and the services provided at the various rates.

Commission is something you can negotiate with your real estate professional. Some licensees and brokerages aren’t willing to negotiate their commission while others are. That’s their right. As a buyer or seller, you have the right to work with someone who charges a commission that you’re comfortable with.

RECA requires licensed real estate and mortgage brokerage professionals to tell you how they’ll be paid for their services. It’s important you know this, as it could prevent unexpected expenses later and have an effect on how your transaction proceeds.

Remember, all payment agreements you enter into are between you and the brokerage, not between you and an individual licensee. You pay the brokerage, which then pays the individual licensee.

Individual licensees cannot demand or accept payment directly. If you encounter a situation where a licensee demands direct payment, refuse the request, and call the licensee’s broker.

Real estate and mortgage brokering are services, making GST applicable.

RECA requires residential real estate, property management, and mortgage brokerage licensees to have a written service agreement with clients. This agreement outlines fee payments between you and the brokerage.

You and your real estate brokerage can negotiate any terms agreeable for services provided. The seller in a real estate transaction typically agrees to pay commission to their brokerage upon a successful sale. That agreement will also indicate how much of that commission will be paid to (shared with) the buyer’s real estate brokerage.

Any of the following calculations are possible:

Percentage of the Sale Price
  • For example, a property sells for $500,000. The agreement bases commission on a percentage of the sale price, in our example, 5%. The commission will be $500,000 X 5% = $25,000 plus GST.
Split percentage of the Sale Price

One amount of percentage charged on a portion of the sale price and a different percentage charged on the balance of the sale price.

  • For example, 7% on the first $100,000 and 3% on the balance. If this property sells for $500,000, then the commission will be $100,000 X 7% + $400,000 (the balance) X 3%, or $7,000 + $12,000 = $19,000 + GST.
Flat Fee

The fee remains the same regardless of the sale price.

  • For example, a client and licensee agree to a flat fee of $15,000 + GST regardless of the final sale price. The home lists at $500,000 and sells 45 days later for $489,750. The licensee still receives the flat fee of $15,000 + GST.
Fee for Service
  • For example, a client may agree to compensate the brokerage for specific services that will be provided. In this case, the client and the brokerage should agree in writing to which services and the fee for each. The agreement could base the fee for service(s) on an hourly rate, specific amount for each service provided, or in the case of property management, a monthly service fee for specified services performed each month. Depending on the number of services provided, you may require an addendum to the service contract.
A Combination of Fee Calculations
  • For example, a flat fee plus a fee for services based on an agreed list of extraordinary services provided during the agreement period. The total fee includes a $5,000 flat fee for listing and marketing the property, and $5,000 more for three extraordinary services consisting of: $2,500 for open house marketing; $1,500 for preparation and distribution of a unique property brochure; and, $1,000 for development and maintenance of a single property website. Total is $5,000 + $2,500 + $1,500 + $1,000 = $10,000 plus GST.

The Real Estate Act prohibits a real estate brokerage from calculating a fee based on the difference between the gross sale proceeds and the net sale proceeds deemed acceptable by the seller. This situation may occur when a poorly informed seller under-estimates the value of a property, and a dishonest practitioner fails to offer proper advice and takes advantage of the situation.

For example, a seller tells his real estate professional he thinks his property might sell for about $500,000 because another property in the neighborhood sold for that amount. The real estate professional already knows of the neighborhood sale. In fact, he has been in the property and knows his seller’s property is far superior. Rather than $500,000, the licensee thinks his seller’s house can sell for $550,000 or more! The licensee realizes the seller is unaware of the true value of his property. If he is unscrupulous and willing to contravene the Real Estate Act, he may tell the seller, “If you’re happy with $500,000, I’ll try to sell your property for that, and keep anything above that as my commission.”

The uninformed seller may think this is a fine arrangement; after all, his neighbour got $500,000, but then had to subtract the commission costs and his agent is offering to get him $500,000 and will only keep what he might get over that amount. However, the seller is unaware of the value of the property. If the property sells for $550,000, the agent would collect $50,000 as his commission—far more than he would typically earn on a sale of this value.

The Real Estate Act does not permit this type of commission payment.

Lenders or borrowers can pay mortgage brokerage fees. It depends what is written in the service agreement, and may also depend on which party is the client.

Residential borrowers

Residential mortgage brokerages are prohibited from requesting fee payments before certain events occur—such as an accepted mortgage commitment and the lender supplying a disclosure statement. However, this only applies to personal, family, or household mortgages.

Commercial borrowers

If your purchase requires mortgage financing for commercial, industrial, business, or professional property usage, the mortgage broker will canvass various lenders looking for ones that are interested in your application. They will send a detailed proposal to those lenders. Despite this work, lenders may turn down your application because it doesn’t meet their qualifications—not because your broker failed in their efforts. To cover this service expense, the brokerage may charge a non-refundable fee, ensuring compensation whether a lender accepts your application or not.

Keep in mind the mortgage licensee must disclose to you in writing that the fee is non-refundable before accepting it from you. Again, this isn’t a requirement for personal, family, or household mortgages.

Make sure you know whether the fees are refundable, and don’t sign any agreement until you’ve read, understood and agreed to it.

A bonus is a payment over and above the usual fee. It’s sometimes offered to encourage activity on a property.

You’re entitled to know about any payments a licensee might receive as a result of your transaction. Knowing this information will help you determine if the licensee is acting in your best interest.

For example, a seller looking to sell quickly is offering buyers’ representatives a “bonus” so they notice his listing. Before accepting this payment, the licensee must advise their buyer client of the bonus and obtain their written consent to receive it. As with all fees, the seller must pay the bonus to the brokerage, which then pays the individual licensee.

Licensees will often refer clients to other professionals for services. For example:

  • a real estate professional may refer a client to a mortgage broker for their financing needs
  • a mortgage broker might refer a client who has discussed mortgages with them to a real estate professional to purchase a property
  • a residential real estate professional may have a client who wants commercial or property management services, and may refer the client to an appropriate brokerage
  • a client may be moving to a community where his current real estate professional has no experience. The real estate professional can refer the client to a licensed professional in that community

Before accepting a referral payment, licensees must disclose to you in writing that they are forwarding your information, and that they may receive a referral fee. They must take reasonable steps to ensure the person they refer you to is licensed (if applicable) to perform the activities in question. As with all fees, payment of referral fees goes to the brokerage, and the brokerage pays the licensee.

More Info: