Do I Still Pay Commission If My Realtor Buats My Home?

When it comes to purchasing a home, the role and commission of a real estate agent can vary based on the nature of the transaction. Let's delve into the specifics of when and whether you need to pay your realtor a commission.

Primary Home Market

When buying a property directly from a developer, whether it's a prelaunch, under construction, or a completed project, the responsibility and commission typically lie with the developer. The real estate agent acts as an intermediary and earns commission from the developer, not from the buyer.

To ensure full transparency, it's wise to register yourself as a client of the real estate agent who brings you to the project site. This step further protects your interests and clarifies the roles involved in the transaction.

Investor/Resale/Secondary Home Market

If you are purchasing a home that is not a new development but rather a resale property, the situation changes. In this scenario, you, as the buyer, will need to pay a commission to the real estate agent, typically ranging from 1% to 2% of the agreement value, plus GST where applicable.

The real estate agent serves as an enabler of the transaction, playing a crucial role in ensuring the deal is successful for both the buyer and seller.

Some Additional Insights

In certain regions like Canada, the responsibility for paying the realtor’s commission falls on the seller. Therefore, if you are buying a house, you do not pay the realtor, and they are paid by the seller.

It's also noteworthy that some realtors might use the commission in subtle ways to assist with their purchases. For instance, they might take a short-term loan from their 401K and pay the loan back using the commission after closing the deal. It's essential to clarify these terms directly with the realtor.

Listing Agreements and Negotiations

The commission payment is dictated by the listing agreement or negotiated terms. If your house is listed with an agent, the commission is typically outlined in the listing agreement and applied if the house is sold during the listing period.

If you negotiate a deal where the realtor undervalues the property for their personal gain, the payment of commission remains contingent on your agreement. It's advisable to review the listing agreement thoroughly to understand your obligations.

Lastly, if your realtor does collect the commission, they are required to pay income tax on that amount. However, if they offset the commission against the purchase price, there would be no additional income for tax purposes.

In conclusion, the payment of a realtor's commission depends on the specific nature of the transaction and the terms agreed upon. To navigate this process smoothly, it's crucial to understand and communicate your expectations and concerns with your realtor.