Can I pay my realtor’s commission from the sale proceeds?
Can I pay my realtor’s commission from the sale proceeds? Here’s the blunt truth that will protect your cash.
Quick answer — yes, and here’s how to make it work for you
Short answer: Yes. In Georgetown, Ontario, realtor commission is normally paid out of the sale proceeds at closing. Your lawyer or closing agent deducts the commission (and applicable HST) from the funds the buyer provides, then pays the brokerage. That’s standard practice. But “yes” isn’t the whole story. There are tax, legal, and timing details you must understand to avoid surprises and keep the most money in your pocket.
What sellers in Georgetown need to know — plain and practical
- Commission is a contractual expense. The commission amount and who pays it are set in your listing agreement. Read it. Negotiate it.
- In Ontario, brokerage fees are negotiable and regulated by the Real Estate Council of Ontario (RECO). There’s no fixed statutory rate.
- Commissions are usually deducted from sale proceeds by your closing lawyer at closing. If proceeds aren’t enough to cover mortgage payoff and fees, you must bring money to closing.
- HST (13% in Ontario) generally applies to real estate commission fees. The HST amount is paid with the commission and increases your total selling costs.
- Selling costs, including realtor commission and HST, reduce the proceeds for capital gains calculation. If the property is your principal residence, capital gains tax likely won’t apply. For investment properties, commissions lower your taxable gain.
How the payment flow works at closing (step-by-step)
- You sign a listing agreement. It states the commission percentage or flat fee, and whether commission is shared with the buyer’s agent.
- You accept an offer. The sale price, conditions, and closing date are set.
- Your lawyer prepares the closing statement. It lists sale proceeds, mortgage payoff, discharge costs, realtor commission plus HST, legal fees, adjustments, and net proceeds.
- On closing day, buyer’s funds go to your lawyer. The lawyer pays off mortgage and liens, pays realtor commission (plus HST), pays legal fees and other disbursements, then issues your net proceeds.
- If the sale proceeds are insufficient to cover required payouts, you must provide the shortfall.
This method makes paying commission from sale proceeds the practical default for most sellers.
Taxes that matter for Georgetown home sellers
- HST on commissions: Brokerage fees are generally subject to HST (13% in Ontario). Your lawyer pays brokerage the commission plus HST at closing.
- Capital gains: Selling costs (brokerage commissions, HST on commission, legal fees, advertising) reduce the proceeds you use to calculate capital gains. If you sold an income or investment property, these costs lower your taxable gain. If the property was your principal residence for every year you owned it, the principal residence exemption normally eliminates any capital gain tax.
- Municipal and provincial taxes: The seller typically doesn’t pay Ontario Land Transfer Tax — that is paid by the buyer. Municipal fees or property tax adjustments may be part of the closing adjustments; they’re not commission-related but affect net proceeds.
Common seller traps and how to avoid them
- Trap: Assuming commission is fixed. Don’t. Negotiate a lower rate or alternative fee structure (flat fee, tiered commission). Use local market data to justify your ask.
- Trap: Ignoring HST. HST pushes commission higher. Confirm if your brokerage includes HST in the advertised rate or adds it on top.
- Trap: Neglecting the net proceeds calculation. Run the numbers before you sign the listing and before you accept an offer.
- Trap: Letting short sale surprises happen. If your mortgage balance plus selling costs exceed sale price, you must bring cash to close or renegotiate.
Real numbers — sample net-proceeds calculation (Georgetown example)
Sale price: $900,000
Listing commission: 5% (3% listing + 2% buyer’s agent) = $45,000
HST on commission (13%): $5,850
Total commission cost: $50,850
Mortgage payoff: $400,000
Legal fees, closing costs, adjustments: $3,000
Net proceeds = $900,000 – $50,850 – $400,000 – $3,000 = $446,150
If this is an investment property, your capital gain is reduced by $50,850 (commission + HST) and other selling costs. That lowers taxable gain at the 50% inclusion rate.
Negotiation levers every Georgetown seller should use
- Ask for a lower percentage or a capped commission.
- Offer a tiered commission: lower rate on the first portion of the sale price, higher on the amount above a target.
- Consider a flat-fee brokerage if the property is easy to sell and you don’t need aggressive hands-on marketing.
- Demand clarity on HST: is it included or extra? Get it in writing.
- Compare multiple local brokers. Georgetown market knowledge matters. A cheaper agent who stalls the sale can cost you more.
Legal and regulatory points for Ontario sellers
- RECO requires brokerages to present accurate, transparent fee agreements.
- Commissions must be spelled out in the listing agreement. Unsigned or vague documents are dangerous.
- If you disagree with a commission distribution between listing and buyer agent, resolve it before closing. Once funds are disbursed, reversing payments is difficult.
When commission can’t be paid from sale proceeds
- Shortfall at closing: If the sale proceeds don’t cover mortgages and selling costs, you must bring the difference in cash.
- Private contract terms: If your listing agreement requires a different payment method, follow that contract.
- Legal disputes or holds: A lien or court order can freeze proceeds until resolved.
Checklist for Georgetown sellers who want a clean closing
- Read and understand the listing agreement before signing.
- Ask the brokerage to disclose whether HST is included in the commission rate.
- Get a preliminary net-proceeds worksheet from your lawyer before accepting offers.
- Confirm payoff amounts for mortgages and any registered liens.
- Negotiate commission terms if the listing broker resists standard market rates or you have a simple sell.
- Keep funds available in case closing requires top-up.
Why local expertise matters — Georgetown, Halton Hills context
Georgetown sits in Halton Hills with a mix of older homes, modern subdivisions, and commuter buyers. That mix affects pricing, time-on-market, and marketing strategy. An experienced local broker knows how to position your property so you capture the highest net proceeds after commission, HST, and closing costs. That’s not theory — it’s cash.
Call to action — make the right move
If you’re selling in Georgetown, get a clear net-proceeds estimate before you sign anything. I help sellers run the numbers, negotiate commission terms, and avoid closing-day surprises.
Contact local realtor Tony Sousa for a straightforward net-proceeds breakdown and a no-nonsense selling plan.
Email: tony@sousasells.ca
Phone: 416-477-2620
Website: https://www.sousasells.ca
FAQ — fast answers for Georgetown home sellers
Q: Can my realtor take commission directly from my sale proceeds?
A: Yes. That’s the normal process. Your lawyer deducts commission (plus HST) from the buyer’s funds at closing and pays the brokerage.
Q: Is realtor commission taxable in Ontario?
A: Brokerage commission for residential resale services is typically subject to HST (13% in Ontario). Confirm with your broker.
Q: Does paying commission from proceeds affect my capital gains tax?
A: Selling costs, including commission and HST on that commission, reduce the proceeds used to calculate capital gains. For principal residences, the exemption usually eliminates capital gains tax.
Q: What if the sale proceeds don’t cover my mortgage and commission?
A: You’ll need to bring funds to closing or renegotiate the deal. Your lawyer will inform you before closing if a shortfall exists.
Q: Can I negotiate the commission?
A: Yes. Commission rates are negotiable. Ask for lower rates, tiered fees, or flat fees depending on the service you need.
Q: Who pays HST on the commission?
A: The seller pays the brokerage the commission plus applicable HST. If commission is paid from proceeds, HST is part of what’s deducted at closing.
Q: Are selling expenses (commission, HST) deductible?
A: They reduce the selling proceeds for capital gains calculations. For investment properties, that reduces your taxable capital gain. For a principal residence, the exemption often removes capital gains taxes entirely.
Q: What should I bring to closing?
A: Typically nothing, if sale proceeds cover mortgage and costs. If not, bring certified funds for the shortfall as advised by your lawyer.
Q: How do I get a net-proceeds estimate?
A: Ask your listing agent and your real estate lawyer to prepare a draft closing statement using the agreed sale price and current mortgage payoff figures.
Q: Where can I get local help in Georgetown?
A: Contact Tony Sousa for a clear, no-nonsense breakdown tailored to Georgetown and Halton Hills markets.
Selling a home is math plus negotiation. Knowing how commission, HST, mortgages, and selling costs interact keeps you from leaving cash on the table. Don’t guess. Get the numbers before you sign.
Contact: tony@sousasells.ca | 416-477-2620 | https://www.sousasells.ca
