Withdrawal of 'Brokerage Fee Entry' in Real Estate Contracts Likely... Considering Industry Backlash

Attempted to Include Brokerage Fees for Buyers and Sellers
Strong Backlash from Licensed Realtors... Protest in Front of Ministry of Land
Ministry of Land Steps Back... Considering Upcoming General Election
Likely to Only Specify Payment Timing... Favorable to Realtors

On the 3rd, despite the government's measures, the Seoul real estate market continues its upward trend following last year. In a commercial area densely populated with real estate agencies in Songpa-gu, Seoul, prices for property sales and monthly rent are posted. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Moon Jiwon] The government's plan to mandate the recording of brokerage fees during real estate transactions is expected to be scrapped. The government initially intended to increase transparency of brokerage fees through this measure, but it appears to have withdrawn the plan due to opposition from the industry.

According to the Ministry of Land, Infrastructure and Transport on the 11th, the government has reportedly decided to ultimately withdraw the plan to include the brokerage fees agreed upon by licensed real estate agents and transaction parties in the confirmation and explanation document prepared during real estate contracts.

Previously, on October 31 last year, the government announced that the amendment to the Enforcement Rules of the Licensed Real Estate Agents Act, which included this provision, would be implemented starting from the 21st. The original amendment added details such as the maximum brokerage fee limit stipulated by ordinance, the agreed brokerage fees (seller and buyer), and payment timing to the 'matters concerning brokerage fees' section of the confirmation and explanation document.

Although the existing confirmation and explanation document included a brokerage fee section, licensed real estate agents often only recorded the maximum rate and then demanded the exact brokerage fee on the payment day, rendering the provision practically ineffective. Therefore, the government aimed to make the fee system transparent by having sellers and buyers confirm the brokerage fees they pay at the contract signing stage, thereby also making brokerage fees more realistic.

However, this provision is expected to be excluded in the final implementation stage. A Ministry of Land, Infrastructure and Transport official stated, "We are still in consultation with the Ministry of Government Legislation," but added, "Due to strong opposition and issues raised by the industry, that part will be revised."

The official explained, "The intention of the amendment was to increase transparency by disclosing brokerage fees from both sides," but "there were many concerns that conflicts could arise when the discount rates on brokerage fees differ between sellers and buyers, which could undermine the original purpose."

According to the Licensed Real Estate Agents Association, most of the regulations except for the brokerage fee payment timing are expected to be withdrawn in the final amended law.

Within the industry, there is speculation that the government may have been mindful of the upcoming general elections. It is analyzed that the government found it difficult to withstand pressure from the approximately 100,000 licensed real estate agents. In fact, the Licensed Real Estate Agents Association has been protesting in front of the Government Complex Sejong since the end of last year, demanding the withdrawal of the amendment.

An association official stated, "Transactions have significantly decreased, especially in the Gangnam area, making the situation very difficult," and added, "If the amendment proceeds as is, self-employed licensed real estate agents will face even more difficulties, so the government needs to coordinate well." Meanwhile, the Ministry of Land, Infrastructure and Transport is reportedly planning to officially announce the revised amendment as early as this week.