'Reigniting the Fixed-Rate Brokerage Fee Debate: "Less Conflict" vs "Higher Commission"'

Kim Jong-ho, President-elect of the Licensed Real Estate Agents Association, Key Pledge
Removal of "Negotiation Within" Phrase, Fixed Commission Rate
Advocates 'Single Rate' Regardless of Sale Price
Persuading Consumers, Government, and Local Authorities Remains a Challenge

Discussions on switching to a ‘fixed commission rate system’ for real estate brokerage fees have reignited. If brokerage fees are paid according to a set rate, disputes over fees between clients (buyers and sellers) and brokers are expected to significantly decrease. However, some worry that the opportunity to reduce brokerage fees will disappear, leading to consumer resistance.

Promotion of Fixed Commission Rate System

According to industry sources on the 18th, the Korea Association of Realtors is considering a plan to promote a fixed commission rate system. The discussion was reignited after Kim Jong-ho was elected as the new president of the Korea Association of Realtors on the 10th. Kim made the fixed commission rate system a key campaign pledge. In this election, two out of three candidates, including Kim, made the fixed rate system a campaign promise, highlighting it as a long-standing industry demand.

The fixed commission rate system applies an upper limit rate to the brokerage fees payable to licensed realtors. Currently, brokerage fees are negotiated between the client and the realtor within the upper limit rate. The core of the fixed rate system is to remove the phrase ‘negotiated within the limit’ and apply a fixed commission rate. The current upper limit rates are set as follows: 0.6% (maximum 250,000 KRW) for transactions under 50 million KRW, 0.5% (maximum 800,000 KRW) for 50 million to under 200 million KRW, 0.4% for 200 million to under 900 million KRW, 0.5% for 900 million to under 1.2 billion KRW, 0.6% for 1.2 billion to under 1.5 billion KRW, and 0.7% for 1.5 billion KRW and above. If the fixed rate system is applied, these rates cannot be discounted and must be paid as is.

The industry argues that introducing the fixed rate system will reduce disputes since there will be no need for negotiation between clients and brokers. An industry insider said, "Consumers want to pay as little as possible, while brokers want to receive as much as possible. Because they are told to negotiate, conflicts arise," adding, "Many brokers are willing to accept lowering the current upper commission rates if it can reduce friction."

Aligning with the Commission Fee Ceiling

However, there are many hurdles to overcome for the transition to the fixed rate system. First, consumers must be persuaded. Since proposals to lower brokerage fees will become impossible, clients may be disadvantaged.

Professor Kim Cheon-il of Gangnam University’s Department of Real Estate and Construction said, "For houses priced over 200 million KRW, only the upper limit rate is set, and there is no cap on the fee amount," adding, "If housing prices rise sharply, brokerage fees will increase, which could lead to consumer dissatisfaction." For example, if the sale price jumps from 1 billion KRW to 1.2 billion KRW, the client would have to bear an increased brokerage fee of 1 million KRW (from 5 million KRW to 6 million KRW, applying the current 0.5% rate).

Although it is not a legal amendment, cooperation from city and provincial councils is essential, which remains a challenge. Professor Kim emphasized, "Since only brokers have actual transaction data such as brokerage fees, consumers have weak bargaining power," and added, "The government and local governments should carefully decide on the system change."

Additionally, the association is also promoting a plan to apply a single commission rate regardless of housing price, instead of applying different rates based on transaction price, alongside the fixed rate system. An industry insider said, "From the consumer’s perspective, there was a lot of confusion because rates varied depending on the transaction amount," adding, "If changed to a single rate, complex calculations will not be necessary, allowing consumers to intuitively understand the scale of their expenses."

However, this approach applies the currently highest rate to expensive houses, effectively reducing brokerage fees only for high-end properties, leading to criticism that only the wealthy would benefit.