Can I pay my realtor’s commission from the sale proceeds?
Can I pay my realtor’s commission from the sale proceeds? Yes — and here’s precisely how to protect your money and minimize tax exposure when selling a home in Milton, ON.
Quick answer for Milton home sellers
Yes. Paying your realtor’s commission from the sale proceeds is standard practice in Milton and across Ontario. Closing day is when the lawyer (or notary) pays the commission from the funds the buyer provides. That commission — plus HST and legal fees — is deducted before you get your net proceeds.
This post explains the legal steps, tax effects, negotiation tactics, and local Milton market realities so you don’t leave money on the table.
Why this matters for Milton sellers
In Milton’s competitive market, price and timing matter. You need to know what comes off your sale check before you promise your next mortgage payment or reinvestment. A well-structured commission and closing plan does three things:
- Keeps more cash in your pocket on closing day
- Lowers taxable capital gain if the property isn’t fully exempt
- Avoids surprises from HST, legal fees, mortgage penalties and adjustments
Use this guide to control costs and make decisions that match Milton’s market realities.
How paying commission from sale proceeds works (step-by-step)
- Listing agreement: You sign a listing agreement that spells out the commission percentage (example: 5% + HST). This contract is your legal commitment.
- Offer accepted: Buyer deposits funds. The sale price becomes the gross proceeds.
- Lawyer prepares closing statement: The lawyer calculates payoffs — mortgage balance, mortgage discharge fees, property tax adjustments, condo fees (if any), legal fees, and the realtor commission (including HST).
- Commission paid at closing: The lawyer sends the commission to the listing brokerage on closing day from the sale proceeds. You receive the remainder as net proceeds.
This is the usual flow in Milton closings. Sellers rarely transfer commission funds separately before closing.
Commission and taxes: what Milton sellers must know
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Commission reduces your proceeds of disposition: Under CRA rules, selling costs such as realtor commission and legal fees are subtracted from the sale price when calculating capital gains. That means the commission lowers any capital gain if your property is not fully covered by the principal residence exemption.
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Principal residence exemption: If the property was your primary residence for the entire period you owned it, you generally owe no capital gains tax. Even if you qualify, keep records: the commission and legal fees still matter for accuracy and CRA audits.
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HST on commissions: Real estate commission is a taxable supply. In Ontario you’ll typically see HST applied to the commission amount. The HST is included in the commission line item on the closing statement and is paid from the sale proceeds.
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GST/HST and land transactions: The sale of used residential property is normally exempt from HST, but services (like agent commission) are not. A local Milton realtor and your lawyer will make sure HST is applied correctly.
If your property was used partly for rental or business, the tax picture changes. Keep detailed records and consult a tax pro.
How commission affects your net proceeds — a simple Milton example
Scenario: Selling a detached home for $900,000 in Milton
- Agreed commission: 4% total (negotiable) = $36,000
- HST on commission at 13% = $4,680
- Legal fees and closing costs ≈ $2,000
- Mortgage payout = $300,000
Gross sale price: $900,000
Less mortgage: -$300,000
Less commission + HST: -$40,680
Less legal fees: -$2,000
Net proceeds ≈ $557,320
This shows how much commission and related costs reduce the cash you actually receive. The commission also reduces the proceeds for capital gains calculation.
Negotiating commission in Milton — do it smart
Don’t accept the first number. In Milton, commission structures are negotiable. Options to discuss:
- Flat fee vs percentage: For higher-priced homes, a flat fee can save money.
- Tiered commission: Lower percentage above a threshold price.
- Reduced commission for in-house or dual-agency situations.
- Performance-based splits: Lower commission if the agent hits certain time-on-market targets or price targets.
Ask your listing agent to show recent Milton closings where their fee produced a better net for the seller. Top agents will prove value by showing net proceeds comparisons, marketing spend, and time-to-sale metrics.
Common pitfalls Milton sellers face
- Assuming commission is negotiable but not asking: You’ll never know if you don’t ask.
- Forgetting HST: Commission plus HST can add materially to closing deductions.
- Not accounting for mortgage discharge penalties: Some mortgages charge penalties that reduce net proceeds.
- Failing to track selling expenses: Keep invoices for commission, staging, repairs, and legal work — these reduce capital gains if applicable.
Avoid these by planning early: get a net proceeds estimate from your lawyer and a clear commission breakdown from your agent before you list.
When commission might not be paid from sale proceeds
- Private sale with separate arrangement: If you sell privately and prepay the agent, that can be structured differently. Rare in Milton for full-service brokerage listings.
- If buyer credits are used: Sometimes buyers ask for credits for repairs — those are separate adjustments on closing statements.
- Contractual disputes or holdbacks: If there’s a dispute, funds could be held in trust until resolved.
Most sellers in Milton still have the simplest and cleanest route: commission paid from sale proceeds on closing day.
Local considerations for Milton, ON sellers
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Market speed: Milton’s market can move fast. A strong agent who earns their commission by getting the price and timing right often pays for themselves in higher net proceeds.
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Neighborhoods and comps: Agents who know Dempsey, Old Milton, or the Beaty area price and market differently. Commission negotiations should consider the agent’s local track record.
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Provincial rules: Ontario law and CRA rules apply. Milton sellers must follow Ontario Real Estate Council (OREA) standards and CRA tax reporting.
How your lawyer and agent collaborate at closing
- Agent provides commission invoice to the closing lawyer.
- Lawyer confirms mortgage payoffs and prepares the final statement of adjustments.
- Commission and HST are paid from the trust funds received from the buyer.
- Seller signs final documents and receives net proceeds.
Trust the process but confirm the numbers in writing before you agree to anything.
Real-world tips to keep more cash in Milton
- Negotiate commission structure upfront; get it in the listing agreement.
- Use a net proceeds worksheet before you accept an offer.
- Confirm HST treatment and who pays for what in writing.
- Save invoices for repairs, staging, and selling costs to reduce capital gains if needed.
- Work with an experienced Milton agent who can command a higher sale price and justify their fee.
An aggressive agent who earns 1% more on sale price can pay for themselves many times over compared to saving 1% on commission.
Why choose an expert for Milton closings
Closing is where theory meets math. A top Milton agent and a responsive lawyer coordinate to maximize the cash you receive and minimize tax shocks. They know local comps, pricing strategy, staging ROI, and closing logistics.
Tony Sousa is a Milton real estate expert who specializes in taxes and financial considerations for home sellers. He provides net proceeds estimates, transparent commission breakdowns, HST explanation, and local market strategies. Contact Tony: tony@sousasells.ca | 416-477-2620 | https://www.sousasells.ca
FAQ — Milton, Ontario home sellers
Q: Can my realtor’s commission be deducted from the sale proceeds on closing day?
A: Yes. That’s the standard method in Milton and Ontario. The lawyer pays the commission from the buyer’s funds at closing.
Q: Does paying commission from sale proceeds change my capital gains tax?
A: Commission and legal fees are selling costs and reduce your proceeds of disposition. That lowers any capital gain. If the home is your principal residence for the full ownership period, capital gains tax usually won’t apply.
Q: Is HST charged on realtor commission in Milton?
A: Yes. Realtor services (commissions) are taxable. You’ll typically see HST added to the commission on your closing statement.
Q: Can I negotiate lower commission in Milton?
A: Yes. Commission is negotiable. Ask for flat fees, tiered rates, or performance-based terms. Make the agent justify any lower fee with a clear plan to maximize your net proceeds.
Q: What happens if I find a buyer myself?
A: If your listing agreement includes a fee for procuring a buyer, you may still owe the agreed commission. Some agreements allow reduced fees for owner-found buyers — clarify this before listing.
Q: Will my mortgage payout affect commission payment?
A: Mortgage payout is a separate line item. The lawyer disburses funds in priority order: buyer funds → pay off mortgage → pay commission → seller receives net. Always get a written payout estimate from your lender.
Q: How do I document selling expenses for tax purposes?
A: Keep invoices and statements for commission, legal fees, repairs, staging, and advertising. These reduce proceeds for capital gains calculations and protect you in case of CRA questions.
Q: If part of my home was rented out, how does commission affect taxes?
A: If the property wasn’t entirely your principal residence, you may owe capital gains tax on the non-principal portion. Commission still reduces proceeds, but you’ll need a tax professional to allocate the gain correctly.
Q: Who pays closing costs other than commission?
A: Sellers often pay legal fees, realty commission (plus HST), adjustments for utilities/property taxes, and mortgage discharge fees. Buyers pay land transfer tax and lawyer costs on their side, typically.
Q: How do I get an accurate net proceeds estimate for my Milton home?
A: Ask a local agent for a net proceeds worksheet and a lawyer for a payoff statement. Compare scenarios with different commission structures and marketing plans.
Need help running the numbers for your Milton sale? Get a clear, no-fluff net proceeds estimate and commission strategy from a local expert. Contact tony@sousasells.ca or call 416-477-2620. Visit https://www.sousasells.ca for more local guides and calculators.
