Real Estate

First time buyer - use a realtor?

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  • Aug 10th, 2017 5:48 pm
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto

First time buyer - use a realtor?

First time home buyer, previously invested in real estate but had my partner take care of all the work associated with it. Now I'm looking to buy my first home in southern Ontario ( Listowel area ). Homes are priced well in this area so I'd be buying without a mortgage ( not sure if this matters ). Is it advisable to use a realtor? What's a typical commission I can expect to pay if I do choose to go with a realtor?
20 replies
Deal Guru
Dec 11, 2008
13064 posts
3755 upvotes
Use a real estate agent unless you think you can do better with negotiation.

Otherwise, you do not directly pay the agent, the seller does.

I would only go on my own if I think I can get a good discount which would reduce real estate agent fees which would reduce the price of the home to a LOWER amount than the buyer's agent fee. So typically the buyer's agent gets 2.5% from the seller. If I can get a really good price (same as with an agent on my side) and I can get the price lower by 2.5% or more, go by yourself.

Otherwise, find an agent and have them do all the work.
Deal Fanatic
Jul 4, 2004
7430 posts
4677 upvotes
Ottawa
COMCRUISE wrote: https://www.realtor.ca/Residential/Sing ... rio-N4W1N2

Looks like a great house. Go to a RE lawyer and get an offer written for 290K with home inspection. You will save 2.5%, so about 280k in then end. Small town like Listowel not much choice, less need for an agent.
FWIW, I do not think you'll save 2.5% in this scenario; the listing agent will just be getting 2.5% more commission but he'll still be working for his client which is the vendor. I think there are not many cases where it's beneficial to buy without an agent (typically most sellers won't accept less just because you don't have an agent. they just want to profit themselves).
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto
It seems like going with a realtor is the best option for me. The big question is, how will I know if I've chosen a good one? What can I expect to pay in commission as a buyer? Are rates negotiable?
Deal Guru
User avatar
Mar 23, 2008
13006 posts
10009 upvotes
Edmonton
TheSandman1 wrote: It seems like going with a realtor is the best option for me. The big question is, how will I know if I've chosen a good one? What can I expect to pay in commission as a buyer? Are rates negotiable?
You don't pay directly. The seller pays the commission, and they determine the rate they'll pay. You MAY be able to negotiate a deal with your realtor to get part of that back, depending on how badly they want your business.

C
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto
So I as a buyer don't pay anything? The buyer foots the bill for his realtor and my realtor?
Deal Fanatic
Jul 3, 2011
6517 posts
3798 upvotes
Thornhill
rjg4235 wrote: Assuming a $1.3m average for a detached house in Toronto is someone really going to save me the extra $13,000 whether they get 1.5% or 2.5% commission?
The answer is yes.

I've had clients wanting to commit to a higher price usually the other party's counter and I've asked them to allow me to negotiate lower and won. In fact, I've yet to have a client who hasn't believed I would prevail and they've all won.

It's naive to think that a good Realtor will not push the envelope. The answer lies with client confidence and confidence in their Realtor to succeed.
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto
Oh okay. So trying to understand better. The piece of pie both buying/selling realtors get is 5% total, right? Now, I can ask for 1% back from my realtor? In turn he would be settling for 1.5% commission?
Deal Expert
Feb 22, 2011
16520 posts
21862 upvotes
Toronto
TheSandman1 wrote: Oh okay. So trying to understand better. The piece of pie both buying/selling realtors get is 5% total, right? Now, I can ask for 1% back from my realtor? In turn he would be settling for 1.5% commission?
You can ask. Many, if not most will say no. They feel their expertise is worth the extra percent. It really depends on you, if you really need step by step guidance then you would probably have to pay the full commission.
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto
Okay. That's a fair assessment. Not going to fight over 1% but it's good to know for the future. Is the 5% commission added to the cost of the house or is that already factored into the selling price?
Member
Mar 3, 2016
389 posts
250 upvotes
TheSandman1 wrote: Okay. That's a fair assessment. Not going to fight over 1% but it's good to know for the future. Is the 5% commission added to the cost of the house or is that already factored into the selling price?
The realtor's commission would be factored in the price of the house. The seller pays the realtors' commissions with the buyer's money. If you find an FSBO listing, there will be no commission involved provided you are not bringing an agent on your side. If you don't know how to search for listings, and can't get a lawyer to submit offers, and don't know how to negotiate, sure get a realtor. But this is not rocket science. There are plenty of resources online for you to educate yourself on this process. Once you reach an agreement with a seller and you do a proper home inspection, the lawyer does most of the heavy lifting to complete the purchase. Whatever you do, many realtors will want you to sign a buyer representation agreement. Make sure you read this well before signing. Always limit this agreement to no more than 2-3 weeks or even less, especially if you don't know the realtor. You can always not sign it and find another realtor (There are plenty of them) if the terms and conditions are not what you want to be in.
Deal Addict
User avatar
Dec 13, 2016
4529 posts
4058 upvotes
rjg4235 wrote: This is what people say, and it's technically true. However you are the one buying the property, you are the one spending money, you are paying for everything in the end.

Everyone has a different opinion but I would never buy a place unless I got 1% cash back from the realtor. Assuming a $1.3m average for a detached house in Toronto is someone really going to save me the extra $13,000 whether they get 1.5% or 2.5% commission? I'd argue if they won't negotiate on your behalf for 1.5% they aren't working in your interest and only care about themselves.

I personally think it's a crime that someone would get paid 2.5% or $32,500 to help you look at a house and put in an offer in Toronto. Many agents don't have degrees in economics or finance, or any degree at all. They could literally be a high school drop out and help you invest a million dollars in a complex economic market? Absurd.
Yes. It's called capitalism. I am also pretty sure that 90% of agents don't make much over 40-60k a year.

At least they are self employed and not funded by taxpayer like TTC.
Deal Guru
Dec 11, 2008
13064 posts
3755 upvotes
Yes to what others have said. In the end you are indirectly paying for the commission because the price will reflect that. Sellers know.

Sellers pay directly to both agents the 5%; with each agent getting 2.5%.

You CAN ask your agent to get some money back. We asked our agent to only collect 1% commission and she gave us the rest back. In turn we refer her to everyone we know to increase her business.
Sr. Member
Aug 15, 2013
881 posts
419 upvotes
Guelph
As buyer, OP.. you are the only one bringing in the cash in this transaction, so you are in effect paying to the Seller, the seller's realtor as well your realtor if you have one. And all 3 of these parties (even your realtor) stand to make more in this deal, as you pay more for the house.

Now whether you need a realtor or not, depends on the time and confidence you have to understand the process of buying a house. Fyi, the process is very straightforward and an overwhelming majority of realtors are not what you would call professionals, and they are still in the industry.. so its clearly not very demanding.

I would argue a realtor is the least important person in the home buying process. More important are lawyer, mortgage broker and home inspector, spend a bit extra money to get good ones. And spend some time to learn the process of home buying and hire a realtor that simply offers you most cashback. There are many who will offer 1-2% rebate, if you can do all the legwork.
Member
Aug 16, 2015
387 posts
188 upvotes
Toronto
Okay, so if I find the house I want. I can negotiate with their realtor and avoid paying 2.5% commission for a buyers realtor? Is there a website tailored to the full process of home buying in Ontario? That would probably help. I wish I knew a little more about this.
Member
Mar 3, 2016
389 posts
250 upvotes
TheSandman1 wrote: Okay, so if I find the house I want. I can negotiate with their realtor and avoid paying 2.5% commission for a buyers realtor? Is there a website tailored to the full process of home buying in Ontario? That would probably help. I wish I knew a little more about this.
The commission discussion is only between the seller and their realtor so you are not paying any commission directly but you should keep this at the back of your mind when you submit your offers as the seller will factor this when deciding to accept or reject your offer. If you find a house, I would first call the seller or their agent to schedule a viewing to actually check if you really like the house. PropertyGuys and CMHC have a step by step guide for buyers:
https://propertyguys.com/downloads/Prop ... sGuide.pdf
https://www.cmhc-schl.gc.ca/odpub/pdf/60946.pdf

If you really like the house and want to submit an offer, there are 4 ways to proceed:
  1. deal with the seller's realtor directly. They usually would want you to sign a customer service agreement with them and the only service they will give you is doing the paperwork for the offers. Sellers still pay them an additional commission above the 2.5% but I don't believe it's the full 2.5% on the buyer's side. Still, them getting an additional commission may actually play in your favour in getting your offer accepted even though it's not supposed to but money talks.
  2. find a real estate lawyer (You would need one later on for closing anyway) and they can submit offers/counteroffers for you. They generally charge a nominal fee of $100/200 but usually you can get a package if you will do the closing with them. You usually works with one of their assistants for the offer process.
  3. find a cash-back realtor. These will usually take a commission of 1-1.5% of sold price from the seller and gives the rest of the 2.5% commission to you.
  4. find a full-service realtor. These are usually supposed to do a bit more work for you but there is no cash back to you. Usually they are the ones requesting you to sign a buyer representative agreement for period of time so as they are guaranteed a commission whether you ultimately buy a house with them or not during that period. I would be very careful before signing any such agreement.

If you found the house yourself, I would only go with the first 3 options. There are many strategies to go when making offers but I usually make sure to include the financing and home inspection conditions in any offer to protect yourself first and foremost. Usually conditions have to be met after 5-10 days for you to get the financing approved and home inspection completed. You should read the offer document to know on what basis you can negotiate (most important is the price, closing date, anything else to be included). Comfree has a good page on this: http://blog.comfree.com/2014/11/24/maki ... YxV32eBz30
Deal Fanatic
Jul 3, 2011
6517 posts
3798 upvotes
Thornhill
Sam9876 wrote: ...
  • find a cash-back realtor. These will usually take a commission of 1-1.5% of sold price from the seller and gives the rest of the 2.5% commission to you.
  • find a full-service realtor. These are usually supposed to do a bit more work for you but there is no cash back to you. Usually they are the ones requesting you to sign a buyer representative agreement for period of time so as they are guaranteed a commission whether you ultimately buy a house with them or not during that period. I would be very careful before signing any such agreement.
Good response however these two are not mutually exclusive.
Deal Addict
Sep 13, 2016
3606 posts
2409 upvotes
Mississauga
TheSandman1 wrote: Okay, so if I find the house I want. I can negotiate with their realtor and avoid paying 2.5% commission for a buyers realtor? Is there a website tailored to the full process of home buying in Ontario? That would probably help. I wish I knew a little more about this.
There is no such thing as tailor made process. But it is getting increasingly common for buyers to ask a cashback from their realtor. I mean if you have already decided the house, and the only thing realtor is going to do is to push paperwork for you, you can very well ask them to split their commission 50-50 or a percentage both of you are comfortable with. Yes, it is true that the seller pays both realtors, but it is also true that most sellers factor this money in their pricing, so as a buyer, you are essentially paying a portion of realtor's commission as well.
Sr. Member
Aug 15, 2013
881 posts
419 upvotes
Guelph
TheSandman1 wrote: Okay, so if I find the house I want. I can negotiate with their realtor and avoid paying 2.5% commission for a buyers realtor? Is there a website tailored to the full process of home buying in Ontario? That would probably help. I wish I knew a little more about this.
Fyi, as a buyer you are not paying your or the seller's realtor directly. So you cannot negotiate the realtor's commission itself. The commission agreement is between the seller and the listing agent/brokerage. In effect, the commission is kinda set and you can't change that. But.. do majority of the search work yourself, and hire a "puppet realtor" who will receive the buyer's realtor commission, and you take a chunk of that.

Though it is an option, I would avoid the seller's realtor. Just go to kijiji or do a search online or call few local realtors. Business is slowing right now, there are tons who would offer you rebate, whether or not you did the house search. The key thing is contact a few and negotiate like crazy.

http://oneflatfee.ca/cash-back-commission-real-estate

This guy offers 50% commission rebate if you do the search. Put in some efforts, am sure if you will find someone who will offer even more.

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