04/28/2014 05:50 EDT | Updated 06/28/2014 05:59 EDT

Is It Really Free to Hire An Agent When You Buy a Home?

I've been helping people sell their homes privately in Toronto for years, and home owners are generally very knowledgeable and aware of all the money they can save by selling their home without paying a commission. However, when it comes to buying a home, I find most people think that hiring an agent is free. This is one of the biggest misconceptions in the real estate industry, as there is actually a significant cost if you hire an agent when you buy.

In a typical real estate transaction, the seller pays a 5 per cent commission, with 2.5 per cent going to the listing agent, and 2.5 per cent going to the buying agent. This is why buyers think hiring an agent is free, because there is no up front cost to them, and technically the seller is the one paying the commission. But is this actually the case? Remember, that 2.5 per cent commission that the buyers agent makes is part of the purchase price, so it is part of the buyer's mortgage, and part of their down payment. In the end, it comes from the buyer's pockets. If the buyer wasn't using an agent, they could get a 2.5 per cent discount on the purchase price because the seller wouldn't have to pay that commission.

I decided to test this myself when I was buying a condo in downtown Toronto. I decided not to hire an agent, and arranged showings myself. When I explained my plan to listing agents, they were very welcoming, and saw the benefit to both sides. From their end, they were still going to make the same 2.5 per cent commission, so all they wanted was a qualified buyer for the property. They also saw the benefit of selling to me, because by not using an agent I could take 2.5 per cent off the asking price, and the property was immediately more affordable to me, so from their perspective I was more likely to buy the property. I had my lawyer handle all of the documentation, so I had no worries there. In the end I got a great deal and saved almost $10,000 by not using a buyers agent.

Now this solution is not for everyone, and buyers agents definitely provide a valuable service. Access to sold data is important, and for many buyers, they would prefer to have someone do the negotiating on their behalf. Having said that, any contract is negotiable, and many buyers agents are open to a custom arrangement.

After all, in today's world buyers are doing more work and are more educated than ever before, so it makes sense that they need less help when buying a property. Going forward, home buying will continue to evolve the same as the home selling has with more innovative options for consumers offering better value. With house prices in Toronto still going up at record rates, this could be a great way for buyers to make their next home purchase more affordable.


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