Real estate commissions to plunge next month with new caps

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Real estate commissions to plunge next month with new caps

A real estate agency in Songpa, Seoul. The government announce it will be lowering the real estate brokerage commission. [YONHAP]

A real estate agency in Songpa, Seoul. The government announce it will be lowering the real estate brokerage commission. [YONHAP]

Real estate brokerage commissions are set to drop dramatically in October, some by about half, as new caps are put into place.
 
The change will be especially notable for flats priced above 600 million won ($516,800).
 
For properties sold between 600 and 900 million won, the rate will be 0.4 percent of the price, down from 0.5 percent.  
 
For properties between 900 million won and 1.2 billion won, the commission will be 0.5 percent, for those between 1.2 and 1.5 billion won 0.6 percent and for those above 1.5 billion won, the rate will be 0.7 percent.
 
Before the change, all apartments above 600 million attracted a rate of 0.9 percent.
 
In a 900-million-won transaction, the fee will be 4.5 million won instead of the 8.1 million won, a 44.5 percent drop.
 
The rate for housing units below 600 million won will remain the same.
 
For those sold between 200 and 600 million won, the realtor is allowed to charge as much as 0.4 percent.
 
For apartments valued between 50 million and 200 million won, a 0.5 percent rate is applied, but with an 800,000-won maximum.  
 
For those below 50 million won, the real estate can charge as much as 0.6 percent, but with maximum of 250,000 won.
 
New rates will also apply to jeonse contacts.
Instead of the 0.4 percent rate charged on contracts valued between 300 and 600 million won, the rate will be lowered to 0.3 percent.  
The new rate will be: 0.4 percent for contracts between 600 million and 1.2 billion won; 0.5 percent for those between 1.2 and 1.5 billion won and 0.6 percent for contracts that are 1.5 billion won or more.  
 
Currently, 0.8 percent is charged on all jeonse contracts exceeding 600 million won.  
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Changes in commissions will be significant for contracts above 600 million won.
 
The broker will be taking home a maximum 2.4 million won on a 600-million-won contract, which is half of the 4.8 million won that the real estate agent could pocket under the current rates.  
 
Fees on contracts below 300 million won will remain unchanged.
 
A 0.3 percent rate is charged on contracts between 100 and 300 million won, 0.4 percent on those between 50 million and 100 million won, with maximum of 300,000 won, and 0.5 percent on those valued less than 50 million won, with a 200,000-won ceiling.  
 
For monthly rentals, the base used is 100 times the rent plus the deposit.
 
“The commissions on real estate transactions are an issue that directly influences the lives of the average people,” said Han Jung-hee, a director at the Land Ministry. “Once the changes are implemented next month, we expect the burden that people feel from real estate brokerage to subside.”  
 
The revision on the commissions charged by real estate agents started after it was reported that real estate agents were enjoying hefty paydays as a result of rising apartment prices under the Moon Jae-in administration.  
 
Some of the clients started to complain about commission charges by the real estate agents while raising questions about the actual contribution that the agents have made during the transaction process.  
 
Last month, 408,492 people applied for the real estate brokerage license exam. That is the largest number of applicants since the exam started in 1983.  
 
The number is believed to have spiked after it was reported that real estate agents successfully selling even just couple of high-end apartments could make as much as the annual salary of an employee working for a large corporation.  
 
The real estate agents claim that unlike what has been reported, many real estate agents are struggling with rising competition within the industry.  
 
The Korea Association of Realtors pointed out the commission rate in Korea is already low compared to countries like Japan, where it is 3 percent, and the United States, where it is about 4 to 6 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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