Buyers’ Agent Fees & Lending Values

Buyers-Agent-Fees-MortgageGoogle “flat-fee MLS” and you’ll find Realtors willing to list your home for as little as $110, or less.

That’s a far cry from the 1% to 3% listing commission that most Canadians have paid for years.

With perceived savings like that, flat-fee Realtors seem destined to win market share.

This change is being fostered, in part, by CREA’s historic rule changes in October. And, as more Canadians choose flat-fee Realtors, there are a variety of implications—including implications for lending values.

For years, it’s been common for home sellers to pay the buyer’s agent’s and listing agent’s commission from the proceeds of the home sale. But now, people can get their property on MLS for a hundred bucks (or for free in one case).

Many of the cost-conscious sellers who use these flat-fee Realtors will refuse to pay commissions to the buyer’s agent. Over time, that could make it increasingly common for buyers’ agents to charge home purchasers directly.

The problem is, many buyers don’t want to pay buyer’s agent fees out of pocket. This is especially true for first-time buyers who have saved just enough for a down payment and closing costs.

So that raises a question.

On a typical home sale today, it is normal for lenders and mortgage default insurers (such as CMHC) to include both the listing agent’s and buyer’s agent’s commissions in the lending value. That lending value, in turn, helps determine the maximum allowable mortgage amount.

But what about a case where the seller hasn’t offered to pay the buyer’s agent? How can the buyer’s agent’s fee be included in the mortgage (so the purchaser doesn’t have to pay it separately at closing)?

CMHC spokesperson, Charles Sauriol, tells us: “As has been our long-standing practice, CMHC will consider a purchase price which includes real estate commission, as long as the payment of that commission is included in the purchase agreement, and the total purchase price, including commission, does not exceed the lending value of the property.”

He adds: “CMHC does not accept the addition of fees, for example buyer agency fees, that are negotiated separately. CMHC expects the purchase price submitted by lenders to be exclusive of fees that are negotiated outside of the purchase agreement.”

purchase-agreementThis incentivizes buyers to convince non-commission-paying sellers to add a buyer’s agent’s commission in the purchase agreement. Otherwise, a lender won’t include that commission in the purchaser’s mortgage.

If the buyer’s agent won’t facilitate that negotiation, the buyer may choose to do it themselves. Sean Kirk from flat-fee service,, says, “The rule changes in October now allow the buyer to negotiate directly with the seller. Realtors are no longer required to present offers or negotiate terms.”

That said, there’s a lot to consider when you’re evaluating a listing that offers no commission to your Realtor. As a buyer, make sure you discuss this scenario with your agent in advance.

Rob McLister, CMT

  1. This is a non issue. As an example, would you rather pay 10K and have it added to your mortgage OR pay 2K out of your own pocket. The buyer will save far more money worrying about negotiating a better commission than worrying about whether it can be included in the mortgage.

  2. @BuyerBeware – That isn’t true for everyone. Paying $2000 on top of closing costs is very much an issue with young or lower income buyers. In my experience they finance everything they can and would add legal fees to their mortgage if they could.

  3. Rob,
    CREA’s agreement with the Competition Bureau has raised all kinds of issues that likely won’t be resolved until we’ve had a decade or more of law suits and (likely) further intervention by one or more governments to fix some of the problems this intervention has created. Since the agreement was announced: a) CREA/OREA have introduced a number of new forms and procedures for listing realtors taking “mere postings” and buyer representive realtors dealing with the sellers; some real estate boards have also added their own new procedures; b) CREA has confirmed that their position on due diligence hasn’t changed – the listing realtor is responsible for the accuracy of the information in the listing and the realtor can’t contract out of this responsibility; c)knowledgable lawyers (e.g. warned realtors, lawyers and the public about the additional risk they will be exposed to and offered some ways of mitigating these new risks; d) new business models have emerged from some part-time realtors using real estate services as a loss leader to sell second mortgages or legal services; e) a serious effort is under way by some prominent realtors to “take back the industry” from CREA and local RE boards.
    In addition, some very important issues remain unresolved. For example, will FINTRAC expect the “mere posting” realtor to have the same data collection, storage and reporting responsibilities as ordinary realtors? Will realtor error and ommissions insurance distinguish between the two types of real estate? How will lenders react?
    While the uncertainty is bound to continue for some time, a few short term trends seem to be emerging: a) lawyers fees will go up as they take on some of the work and risk from realtors; b) the administrative cost and additional risks in dealing with “mere posting” listings means that most realtors will be very reluctant to show these properties – consequently FSBOs will become harder to sell; c) financing will become more problematic as lenders grapple with the “buyer realtor commission” and FSBO information integrity issues.
    Because of the incomplete nature of the Competion Bureau’s work, its not clear if this agreement is a messy, but essentially irrelevent change or a transformative event which will sharply reduce the number of competitors in the real estate industry and leave it dominated by a small number of major corporations, something like banking.

  4. Very interesting perspectives. Thanks a bunch for the post.
    One thing I know from experience is that flat-fee listings attract notably less traffic, so sellers who use flat-fee Realtors should expect their home to sit on the market longer (unless they pay a good commission to the cooperating agent).
    For some, that’s not a worry. For my wife and I (who sold our last home in a declining market), it was.
    That said, the Internet is driving disintermediation on a wide scale. So buyers and sellers will someday interact more directly and this may become less of an issue. But for now, exposure from other Realtors matters, and Realtors want to be paid to show a property.

  5. You know Rob, they say Realtor’s are greedy, expensive and in some cases useless. I can tell you that a Realtor earning 100K in commissions in a year is working for about 30 Cents on the dollar with all the over head he or she has to pay. Take into account the risk of being self employed, the fact that the average Realtor makes about 35K/year US gross according to NAR. It’s not much.
    The number one challenge that Realtor’s have when taking a listing usually is getting the pricing right. Most seller’s think their house is worth much more than it actually is. With that said, in my area many private sales are over priced with buyers getting ripped off left and center with price and lack of due diligence due to lack of experience.
    If I where a buyer looking at a private sale, the following are must haves: 1. Full BANK appraisal done by bank or buyer to assure accuracy. 2. Full inspection by certified inspector with experience. 3. Get a property disclosure statement filled out. 4. Put any deposit with the lawyers in trust, never to the seller directly.
    Also, If there is no Realtor involved, I would not pay full market price, ask for your “NO Realtor” discount. If they are saving some money, so should you, so ask for 2.5% plus HST off asking price or better appraisal price.
    Just my .02 cents

  6. They are the same borrowers who will be in deep trouble when they have to renew their mortgage at rates much higher than they enjoy now. They shouldn’t be in the market in the first place.

  7. CREA isn’t the only group setting standaards for “mere posting” listings; regulators are getting into the act, too. In Ontario, the Real Estate Council of Ontario has issued a series of Q & A about the consent agreement. Verifying and remaining responsible for the accuracy of information in a listing remains the responsibility of a “mere posting” listing broker. See

  8. @MK – You can’t make a blanket statement like that. Some people may fit your description but many don’t. Many simply have better uses for their free cash.

  9. As a lender, one of my concerns is how FSBO listings on MLS will impact the research done by appraisers seeking the best comps. I would hate to rely on FSBO samples over properties that had been brought to market and sold via more traditional means.

  10. Hi AL, Thanks for the note. Due to concerns like this and others, it wouldn’t be surprising if CREA and the boards eventually start scrutinizing flat-fee Realtors and finding ways to enforce listing accuracy and authentication. Just a hunch…

  11. This was written in such a manner as some of the newspapers do when real estate is rising at an incredible rate. Hyping it further. Or when it drops a few percentage points. Playing it up like the market is crashing when it is just normalizing.
    The fact is that in the U.S. buyers and sellers have had the same options that they now have in Canada for at least 10 years. There has been very little impact on the overall market. There is no need to attempt to sensationalize a change or to play it to be more than it is. Just another option.
    In reality a seller on MLS without an agent is just another FSBO trying to negotiate with every agent that calls. Only to find out that his neighbour is priced lower and paying a much higher commission rate for real service. Therefore not getting the showings that they would like to have because again they don’t want to pay a fair rate.
    You left out both sides of the story in order to sensationalize the point you were wanting to make which was inaccurate at best. In a newsletter that is supposed to represent our industry this is unacceptable.

  12. Hi Aeriol,
    Accusations aside, thank you for sharing your thoughts. :)
    Quite honestly, I’m unsure which statements you see as hyped or inaccurate. We’re also hazy about what motivation we could possibly have for sensationalizing flat-fee listings. We tend not to go out of our way to tick off Realtors to make a few bucks more in advertising.
    The crux of this story was about how buyer’s agent fees can’t be tacked on to the mortgage when separate from the purchase agreement. The only positive mention about flat-fee listings regarded the lower listing cost (e.g. $110 vs 1-3%) and an expectation that flat-fee listings will win market share. The former is mere fact and the latter is quite consistent with other analysts’ expectations following CREA’s decision. Moreover, “win market share” doesn’t have to mean that flat-fee listings will take a massive part of the market.
    If you read my comments above from a few days ago you’ll notice my statement about the inferior marketability of flat-fee listings. I know that to be true from personal experience.
    The impact of flat-fee Realtors on agent commissions is a sensitive topic for many Realtors. I get that. But our position in this article was factual and objective throughout.
    All the best to you…

  13. Rob,
    I am constantly impressed with your handling of critical remarks. You put up with a lot more quibbling than I would.
    I also want to say that CMT does a sensational job at keeping us in-the-know and I’m not sure you get enough credit for it. It has become a staple of my morning routine.
    May both you and your wife have continued success with the site in 2011. Cheers,

  14. I did a 110 dollar listing 2 months ago, it was great, we got exactly what we paid for, listed on MLS with no extra services. We had realtors come out to the house trying to get us to sign with them, saying they would list for 2000$ flat fee, i laughed at them and showed them the door.
    I learned one thing from selling privatly, whenever a realtor says they want to see the property, NEVER show it to them. They are just trying to get you to sign with them.

  15. With such an eloquent and persuasive argument Nada how can anyone argue that…at least put your real name if you want to debate my points. You are obviously a for sale by owner or a fsbo company owner!

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