Buyers prefer fixed rates
Real estate agencies’ commissions need to be systematized for the benefit of both consumers and agents. The industry says that it cannot encourage further negotiations in fees at a minimum level and want to set rates at fixed terms to minimize conflict and disputes with consumers. The Seoul Metropolitan Council is mulling setting a cap on the maximum rate brokers can charge for their services and making it a fixed rate for real estate commissions. A committee of the Gyeonggi Provincial Council last month passed a revised act for the real estate trade with fixed-rate commission. City and provincial legislatures of Seoul, Sejong, North Jeolla and North Chungcheong decided to put off a decision for further review and plan to hold meetings and hearings to hear the voices of the industry and consumers.
The conversation about real estate agency fees so far had been too occasional. The government did not discuss the matter sufficiently with the industry and threw it in the laps of local governments. Lower fees were enjoyed by a select number of people who can afford to live in expensive apartment units - 9 to 10 percent of citizens in Seoul and 5 percent in Gyeonggi - and yet they were publicized as if all people were eligible for the lowered rates. The fee cut was touted as a means to revitalize the real estate market.
Consumer rights groups claim a fixed rate would deprive consumers of the ability to negotiate service charges. But unlike what activist groups say, consumers actually prefer having the fees be fixed, according to surveys by the Korea Consumer Agency and other state organizations.
In a 2012 survey by the Korea Consumer Agency, 63.9 percent approved of changing real estate agents’ fees to set rates for expensive and other houses. Seven out of 10 consumers who actually required the help of brokers approved of the idea. In a separate survey by the Gyeonggi Development Institute, 66.4 percent were for the idea of setting agency fees for each housing category. They said the reason they preferred set rates was to avoid getting into arguments with agents. A poll by Research DNA sponsored by the Korea Association of Realtors in 2015 showed 77.4 percent wanted fixed service charges.
Some raise concerns about increased costs for consumers and the possibility of price collaboration among brokers under fixed service fee terms. But since fees are capped for sales of homes worth 600 million won ($548,596) or less and jeonse of less than 300 million won, there is no need to worry about a hike in service charges.
When service charges were simplified to four categories from the previous nine in 2000, a study by the Korea Research Institute for Human Settlements on which the changes were based had reflected actual brokers’ fees. This suggests that rates in practice have already been fixed.
If there is only a ceiling on fees, it won’t be used to prevent extra payments, but rather give grounds for consumers to wrangle with agencies to demand lower fees. A fixed rate could prevent such distress.
Realtors in a business that totaled 45,000 in 2000 now exceed 85,000. Registered individual Realtors total over 340,000. The real estate agency service is in oversupply because there is no restriction to entry. There is no room for fee collaboration. Some real estate agencies willingly lower fees to stay competitive.
The government has been carrying out policies to protect small businesses. But real estate agencies have been neglected. The argument that a fixed service charge can restrict price competition is wrong. The benefit of preventing arguments between consumers and agents and raising service quality should be considered more. Fixed rates would be the optimum policy to help smoother real estate transactions.
Translation by the Korea JoongAng Daily staff.
*The author is the head of the Korea Association of Realtors.
by Lee Hae-gwang