Don’t restrict competition

The Seoul City Council’s Urban Planning and Management Committee last month shelved a review of an act proposing to revise real estate agent fees. The Gyeonggi Provincial Council passed a similar act to bring down agents’ commission rates. Due to the delay in the decision in the most populated city, people changing residences in Seoul could not enjoy the benefit of a reduction in real estate commissions. If the act passed, people moving into a property with a jeonse value of 300 million won ($274,298) could have saved up to 1.2 million won in broker fees.

The changes considered in Seoul and achieved in Gyeonggi reflected a government proposal. The government had proposed the maximum rate a real estate agent can charge for the sale of a property valued between 600 million won and 900 million won be cut to 0.5 percent from the current 0.9 percent of the property value. The fee ceiling for jeonse between 300 million won and 600 million won also was proposed to be lowered to 0.4 percent from the current 0.8 percent. The guideline was introduced in order to prevent arbitrary fee charges that are often higher in the rent trade than in sales. It also reflected changes from 15 years ago when high-priced homes accounted for just 1 percent of housing supplies at the time the table for real estate agents’ fees was first introduced.

According to the Korea Appraisal Board, people living in apartment complexes hosting more than 100 households in units that cost between 600 million won and 900 million won now account for 16.6 percent of households in Seoul and 7.1 percent in satellite cities. Households that live on jeonse between 300 million and 600 million won account for 25.4 percent of total households in Seoul and 10.6 percent around the capital. In Seoul, there are apartments that cost less than 300 million won in jeonse for a family of more than two. The people subject to maximum commission fees no longer fit into the “rich” category. The Korea Association of Realtors, however, wants to fix the rates. The Gyeonggi Province Council had to defer a vote on the real estate revision act that proposed to change the agency commissions across the board to a fixed rate due to protest by consumer groups.

If the maximum rate is changed to a fixed rate paid to agents, consumers would have to pay their agencies the maximum commission regardless of what kind of services they receive. For instance, under the government proposal, consumers and agents can negotiate terms within the ceiling cap of 0.5 percent. But if the fee becomes fixed at 0.5 percent for all agency services as demanded by the Realtors’ association, customers would have to pay the set maximum fees even for unsatisfactory service. Fixed commissions would undermine negotiations between consumers and agents and also discourage competition among agents by providing better services. Customers would be stripped of any negotiating power and would have to pay the top service fees.

The association claims a set rate would prevent any disputes, but it is unfair for consumers to be burdened with the most expensive fees just to avoid disputes. The Fair Trade Commission also concluded that it was inappropriate to set service fees ahead as the move can undermine price competitiveness and consumer rights.

The members of the Seoul Metropolitan Council are to be blamed for delaying an act that could have helped residents’ during the annual moving season. If further discussions were needed, they should have had them before they started their regular session. Consumer rights groups have been demanding the revision and yet Seoul council members never paid attention to the opinions of consumer groups. They are not fit to represent the city for shelving an act that could have eased the burden on hundreds of households during the moving season without any clear explanation. The Seoul city and Gyeonggi provincial councils should pass the revised act in the rightful form.

Translation by the Korea JoongAng Daily staff.

*The author is the co-head of price watch committee of the Korea National Council of Consumer Organization and chairwoman of the Korea Consumer Affairs Institute.

by Kim Yeon-hwa