Property brokerage commission cap to be cut to 0.7 percent
Brokerage commissions on property purchases are to be cut from 0.9 percent to 0.7 percent.
The Ministry of Land, Infrastructure and Transport on Tuesday held a panel discussion regarding three possible options. In February, the ministry formed a task force with 12 experts from local governments and civic groups, including the Korea Association of Realtors and the Korea National Council of Consumer Organization, to discuss the issue.
A total of 3,370 complaints about commissions were filed in 2019 and 2020, according to data compiled by the Anti-Corruption & Civil Rights Commission.
“Due to the recent surge in real estate prices, people have to pay more money to real estate agents when completing transactions," the Ministry of Land, Infrastructure and Transport said in a statement. "People are complaining that the commissions are increasing while the information and service they receive from realtors are same as in the past."
A realtor charges a commission based on the actual traded price on a sale or jeonse long-term deposit rent contract. Currently, realtors can charge up to 0.9 percent of the transaction amount. The rate is 0.9 percent for properties that cost 900 million won ($765,000) or more. They can charge up to 0.5 percent for properties that cost between 600 million won and 900 million won and 0.4 percent for properties that cost between 200 million won and 600 million won.
The Ministry of Land, Infrastructure and Transport plans to limit the maximum rate to 0.7 percent from current 0.9 percent.
The Ministry of Land, Infrastructure and Transport has three options on how to change the rate, aiming to select one and make announcement by the end of month.
Under to the first option, real estate agents will be able to charge up to 0.4 percent of commissions for transactions between 200 million won and 1.2 billion won. For deals involving more than that, the commission can be up to 0.7 percent. The parties in the transaction can negotiate prices within the range.
The second option increased the number of categories: 0.4 percent for transactions ranging from 200 million won to 900 million won; 0.5 percent between 900 million and 1.2 billion won; 0.6 percent between 1.2 billion won and 1.5 billion won; and 0.7 percent for all transactions above 1.5 billion won.
In the third option, real estate agents can charge 0.4 percent for trades between 200 million won and 600 million won, 0.5 percent for those 600 million won to 1.2 billion won, and 0.7 percent for properties selling for more than 1.2 billion won.
For a sale price of 1.25 billion won, the median price of Seoul apartments in July, commissions will be halved to about 4 million won to 5 million won from the current 9 million won.
The commissions for jeonse apartments and monthly rents will also change, with the cap lowered to 0.6 percent from current 0.8 percent. For monthly rentals, the base used is 100 times the rent plus the deposit. The Ministry of Land, Infrastructure and Transport is scheduled to pick one of the three options and make an announcement this month.
Brokers are dissatisfied, arguing that the government is not considering their situation.
“The government’s plan doesn’t include the details about the situations that real estate agents face currently, which is one of the most important factor,” Youn Sang-hwa, an executive from the Korea Association of Realtors said. “The number of property transactions declined 22.3 percent to 386,000 during January-to-July period this year compared to same period a year earlier. At this rate, the number is likely to decrease further.”
The Korea Association of Realtors also pointed out the commission in Korea is already very low compared to foreign countries. The commission rate in Japan is around 3 percent and about 4 to 6 percent in United States.
“Before making a revision, the government should look at the situation more clearly in the long term,” Youn added. “A total 110,000 brokers in Korea are also people who run small- and medium-sized businesses in the country.”
Since Aug. 13, members of the Korea Association of Realtors have started facing single-person protests in front of the Blue House in central Seoul and the National Assembly building in Yeouido, western Seoul.
The government's plan is not being welcomed by the public as well. People are arguing that the revision will not be effective as the commission for properties that cost between 200 million won and 600 million won will stay unchanged at 0.4 percent.
“The ultimate goal of the revision is to ease the financial burden of consumers. But in terms with this, I don’t think the current options are enough to meet the goal,” Lee Jeong-su, security general at the Korea National Council of Consumer Organization, said. “Of all transactions made in Korea in 2020, about 49.8 percent were between 200 million won and 600 million won, but the rate in the range didn’t change.”
“I doubt if the government announces this revision, consumers could really feel that the government helped them to lighten the burden.”
BY SARAH CHEA [firstname.lastname@example.org]