How Realtor Commission Is Paid at Closing in Ontario

If you are selling a home, the commission is usually the largest single cost on your closing statement. You may be wondering when it is taken, how HST is added, and whether you are also paying the buyer's agent.

This article explains how commission generally works at closing in Ontario, what else comes off your sale proceeds, and what to check before you sign. Your own listing agreement and agreement of purchase and sale control the details, so read them closely.

How much commission, and who sets it

Realtor commission is typically 2% to 6% of the sale price, and it is negotiable. The rate you agreed to is in your listing agreement with your brokerage, so that document is the first place to look.

Commission on Ontario real estate is a service related to real property in Ontario, so HST at the Ontario rate of 13% applies to it. How the commission and the HST are laid out on your closing statement depends on your own documents, so it is worth asking your lawyer to show you each line before closing day.

Who pays the buyer's agent

The buyer's own agreement with their brokerage must set out how that brokerage's fee is determined. It must also show how the amount the buyer pays changes if the seller agrees to cover some or all of the buyer's brokerage fees.

If you agree to cover some of that fee, the payment is made through a remuneration clause in the agreement of purchase and sale, which is an agreement between the buyer and the seller. That means an offer may ask you to contribute, and you can negotiate that term like any other. Read the clause carefully before accepting the offer.

How commission and HST come out at closing

When a brokerage holds the buyer's deposit in trust, it first deducts the commission owing. The balance owing to the seller may be released only when the transaction is completed, or with the mutual written consent of both parties.

How any commission beyond the deposit is settled on closing depends on your listing agreement and your agreement of purchase and sale, so it is worth confirming with your lawyer before closing day. Where HST applies to the commission, it is charged at the Ontario rate of 13%. The statement of adjustments and the mechanics of closing-day payments come from the agreement of purchase and sale, so ask your lawyer to walk you through the numbers before closing day.

Other costs that come off your proceeds

Commission is not the only seller cost. These are the items to plan for:

On the penalty, one example from the Financial Consumer Agency of Canada involves $200,000 at 6% with 36 months left. Three months' interest is $3,000, while the interest rate differential is $12,000. Your own penalty depends on your mortgage contract, so ask your lender for a written figure.

There is an exception for long mortgages. If a mortgage is not payable until more than five years after its date, the borrower can pay it off at any time after five years by paying principal, interest and three months' further interest. This rule does not apply to a mortgage given by a corporation.

If the sale does not close

If a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of any damage. A court can grant relief against forfeiture in some cases, for example where the deposit is out of all proportion to the seller's damages and keeping it would be unconscionable. Whether commission is owed on a deal that collapses depends on your listing agreement, so get advice before assuming either way.

What to do next

• Re-read your listing agreement for the commission rate and when it becomes payable.
• Check any remuneration clause in the offer for a contribution to the buyer's agent.
• Ask your lawyer for a draft statement of adjustments and closing figures before closing day.
• Get a written mortgage payout and penalty figure from your lender.
• Ask whether HST is shown separately on the commission line.

Frequently asked questions