Cashback rebates can save thousands of dollars in real estate commissions
Negotiating real estate commissions is consumer-friendly, expert says
When Mehrdad Khayeri bought his dream house in the Greater Toronto Area earlier this year, he scored a big bonus: nearly $35,000 back. It was a perk he negotiated through a cashback agreement with his real estate agent.
"My wife and I did the bulk of the heavy lifting," Khayeri said, describing how they found most of the listings that interested them. "With so many online tools nowadays, like House Sigma and MLS … the [agents] are actually doing maybe less work."
His agent still earned 2.5 per cent commission on the sale price for helping him buy the home but gave about three-quarters of the fee to Khayeri. It's a practice that could become more common as homebuyers push back on commissions that have soared alongside housing prices over the past few years.
"I mean, 2.5 per cent on a few-hundred-thousand-dollar house is very different than 2.5 per cent on a million-dollar house."
Changing roles
In Canada, the home's seller usually pays a commission to real estate agents on both sides of the transaction as they assist with buying and selling the home. Some agents are willing to offer a cashback rebate to home buyers, which works as a kind of discount on the total purchase price.
The amount of the rebate depends on the percentage agreed upon and the final purchase price. In Vancouver and Toronto, where the average home currently sells for more than $1 million, a cashback agreement can add up to serious savings.
Alex Kvitnitsky, who works with brokerage firm Justo, gives as much as 50 per cent of his commission to clients. "That's money that you can use to offset your land transfer tax cost, you can offset legal costs, you can allocate it towards renovation," he said.
Kvitnitsky finds the incentive helps bring in more business. He said his customers range from first-time homebuyers to investors and are often far along in the process by the time they come to him.
As the real estate industry changes, his fees are changing too, he said.
"Buyers are now very, very savvy. They want to be a part of the process. And so they do their own research. They look for their own properties."
Shifting industry
Real estate commission rates vary across the country. But what many homebuyers don't realize is that they have evolved according to industry norms and aren't set in stone.
Tom Davidoff, an associate professor in real estate and strategy at the University of British Columbia, described cashback rebates as consumer-friendly. "Commissions are very rich and I think it's a good thing if these things are negotiated," he said.
Most real estate agents in Canada are free to give cash back — the Canada Real Estate Association code of conduct states that commission rates are "solely the choice of those providing the services."
However, some look down on the practice and argue smaller fees could lead to worse service.
Davidoff said he wonders if that resistance is driven by self-preservation. The more often commission rates are negotiated, the more likely the practice will become a new industry norm, he said.
Still, Davidoff doesn't think realtors are obsolete and said good agents can add value to a transaction.
For homebuyers looking to use an agent who offers cashback rebates, he said doing due diligence is key.
"Make sure you kick the tires," he said. "I'd want to check how many transactions they have taken care of in the past year. If they have a lot of experience, I don't think there's anything wrong with it."
Growing business
Mike Zhou, a 26-year-old real estate agent working in the GTA, launched Robin Hood Properties about two years ago. He charges a flat fee of $5,000, plus $35 per showing and $100 per offer. After those costs are subtracted, he gives the rest of the commission back to the client. "We're just very laid-back and buyer-directed … we don't look for properties for you," he said.
He said his hands-off approach might not be right for everyone. "There are some people that don't have enough time or maybe they're a little bit older, not as tech-savvy," said Zhou.
Jenny Korotkyi is a mortgage agent in Barrie, Ont., whose familiarity with the industry made her feel comfortable using an agent who offered a cashback rebate. She said she made the process quick and easy by doing her own research and recommended getting any cashback agreement in writing.
"On one of the purchases we saved about $20,000, another recent one was a small condo, so it was just about $6,000. But I mean come on, $6,000 is still a lot of money," she said.
Khayeri also said he had no regrets about using a cashback agent.
"This is the biggest purchase that you're likely making, so you might as well be informed. If you can kind of save some on the back end from the commission, that's helpful."
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With files from Laura MacNaughton