The commissions buyers and sellers typically pay on real estate trades came under scrutiny last week after two top aides to Prime Minister Justin Trudeau racked up some hefty moving expenses.
With commissions causing such a ruckus, it's a good time to remind sellers and buyers that they are negotiable and the local real estate market matters.
In case anyone missed the details, Mr. Trudeau's office shelled out more than $200,000 to reimburse the two aides for their moving expenses.
The amount raised eyebrows – How could two people spend more than $200,000 to move cities? – and it soon came out that the tally included the commissions on their real estate deals.
The staffers sold their Toronto houses in a blazing-hot real estate market and headed to an Ottawa market that is only slightly cooler. Since commissions are typically based on a percentage of the sale price, the real estate transactions attracted attention – especially from the Opposition Conservatives.
Last week, The Globe and Mail reported that the two aides who billed taxpayers are Mr. Trudeau's principal secretary, Gerald Butts, and his chief of staff, Katie Telford. By the end of the week, the pair had announced they would repay part of the expenses.
Mr. Butts sold his house at 199 Pacific Ave. in Toronto's popular High Park neighbourhood in July. The house was listed with an asking price of $899,000, according to a virtual tour created by real estate agent Susan Ginou of Royal LePage Real Estate Services Ltd. Property records show the house sold for $999,999, or $100,999 above the asking price.
Despite lower average prices in Ottawa, Mr. Butts appears to have moved up when his family purchased there a few days later: Mr. Butts paid $1,305,925 for a house in the Tunney's Pasture neighbourhood of Ottawa. The area has mainly low-rise residences with lots of older bungalows that are being torn down and replaced with newer, larger houses.
Ms. Telford sold her house at 70 Grenadier Rd. in the family-friendly Roncesvalles Village area of Toronto in April. According to the web site of listing agent Andrea Morrison of Royal LePage , the property was listed with an asking price of $860,000. Public records show the house sold for $1,005,000 for a $145,000 premium to the asking price.
A search of records did not turn up a house purchase by Ms. Telford in Ottawa.
The Prime Minister's Office drew attention from media and opposition parties when it was reported that one move cost nearly $127,000 and the other was more than $80,300, although it's not clear which cost is associated with which aide.
Mr. Trudeau says the moving expenses are within the rules.
In July, the average Ottawa residential sale price came in at $398,608.
According to Shane Silva, president of the Ottawa Real Estate Board, that city's market is typically stable, without the wild bidding frenzies that often break out in Toronto.
But in April, the market took off and, year-to-date in 2016, Ottawa has set a record for the number of units sold. Mr. Silva says the upswing comes after the market went through a sluggish patch in the previous two years.
OREB numbers show that six more properties sold in the segment above $1-million in August than in the same month last year. Mr. Silva isn't sure of the reason for the increased interest at the higher end but he figures the overall market is rebounding from some of the previous softness.
The Globe reported that the aides were reimbursed for the real estate and legal fees related to the sale of their homes.
The Real Estate Council of Ontario advises consumers to expect a commission of about 5 per cent on the sale of a property. The listing agent typically pays a portion – often 2.5 per cent – to the buyer's agent.
RECO's deputy registrar Kelvin Kucey explains that every transaction is different and individual agents set their own rates. Five per cent is just a rule of thumb, he says, not a fixed percentage.
"They may go below that to attract a listing," says Mr. Kucey of the 45,000 agents competing for listings in the Toronto area.
Some may trim that percentage to 4.5 per cent or less. Mr. Kucey stresses that consumers should always understand that the individual agent has discretion. Many potential buyers and sellers go with the figure the agent suggests, he says.
"They don't question it. It's just simply accepted."
In Ottawa, about 3,100 members of OREB are vying for business. Mr. Kucey says that typical commissions in Ottawa are similar to those in Toronto, though that market may not be as much of a battleground for agents.
In Toronto, where the average detached house fetches about $1.2-million, for example, the commission is about $60,000 at 5 per cent.
Mr. Kucey points out that that's a significant amount of money for most sellers so being educated about how commissions are set is important. RECO recently launched an education campaign to reach people new to the market.
"Our surveys indicate that people really could use the help," Mr. Kucey says. "I think a lot of people don't realize that it's negotiable. Everything is negotiable."