Brokers push for fixed commission rates, but clients fear losing room to negotiate

Korea's licensed real estate brokers association raises need for fixed-rate commissions

'Frequent disputes demand predictability,' association says

Consumers likely to push back as negotiation rights would be eliminated

Association defends proposed property-visit fee as quality-of-service measure

"I agreed to negotiate the commission, but the real estate agent only knocked off a tiny amount from the ceiling rate. I didn't even sell at the price I wanted. What a waste." (Post from a real estate online community)

"The current system can lead to disputes between contract signing and final payment when a client changes their mind. We need to move to a fixed-rate system and raise service quality." (Kim Jong-ho, chairman of the Korea Association of Realtors)

Property listings posted at a real estate agency in Gangnam-gu. [Yonhap]

A debate over fixed-rate real estate brokerage commissions has reignited after the Korea Association of Realtors recently raised the need to introduce such a system. The so-called "bokbi," or brokerage fee, is currently set through negotiation between clients and licensed agents within a legally prescribed ceiling rate, an arrangement that has long generated friction over how much clients actually pay. While a fixed-rate system could improve agents' financial stability and reduce commission disputes, it would eliminate clients' ability to negotiate, and significant pushback is expected.

The debate resurfaced last month when Kim Jong-ho, chairman of the Korea Association of Realtors, raised the issue at a press briefing marking the association's 40th anniversary and its launch as a statutory body. "There are cases where a commission is agreed upon at the time of signing, only for a dispute to arise at the final payment stage," Kim said. "The current system disrupts transaction order and creates grounds for conflict, so we are pushing to implement a fixed-rate system."

Under current law, the ceiling commission rate for housing transactions is 0.4 percent for sale prices between 200 million won ($147,000) and 900 million won, 0.5 percent for 900 million to 1.2 billion won, 0.6 percent for 1.2 billion to 1.5 billion won, and 0.7 percent for properties priced at 1.5 billion won or above. The actual commission paid is determined by negotiation between the client and the agent within those ceilings.

Disputes over service quality during that negotiation process are common. Real estate forums regularly feature complaints such as, "I'm unhappy with how the agent handled things — do I still have to pay the full commission?"

Rising home prices have also pushed the absolute amount of commissions higher. For Seoul apartments, where transaction prices can run into the billions of won, commissions calculated at the ceiling rate can easily exceed 10 million won ($7,350). Clients naturally have a growing incentive to push rates down.

The industry argues that ongoing commission disputes and the threat to agents' financial stability make a fixed rate necessary.

"No other service industry uses a negotiated fee structure," an association official said. "Unless there is a dramatic difference in service quality, clients deserve a predictable cost structure through a clear commission system." The official added that adopting a fixed-rate system would actually open the door to broader discussions about rate levels, and that the current volume of on-the-ground disputes made it the right time to have that conversation.

Apartment buildings in Seoul. [Herald DB]

The key question is how willing clients will be to accept such a change. A fixed-rate system would entirely remove any room for negotiation from the client's side.

In 2015, Gyeonggi Province pursued a similar move to convert brokerage commissions to a fixed rate, but the Korea Fair Trade Commission pushed back, saying a fixed-rate system "excludes price competition and restricts consumer interests, making it less desirable than a ceiling-rate system."

"There have been past attempts to change the commission rate structure, but they fell apart due to opposition from consumer groups," an association official said. "Cooperation from provincial and city councils is also needed."

The commission debate has been further inflamed by reports that the association was pursuing a plan to charge clients a separate fee for property viewings — sometimes called an "imjang fee." The controversy grew when Kim, asked whether he had withdrawn the proposal for a basic property-viewing fee, replied that he had not.

The Ministry of Land, Infrastructure and Transport moved to tamp down the controversy, stating that Article 33 of the Licensed Real Estate Agents Act prohibits agents from receiving money beyond the commission or actual expenses stipulated under Article 32, regardless of what the payment is called, and that a property-viewing fee would therefore be impermissible.

The association said the property-viewing fee remained an aspiration rather than an active proposal, and that the timing was not yet right to pursue it formally. "If agents provide clients with satisfying reports and thorough service, consumers will not begrudge paying for a property visit," an official said.

lucky@heraldcorp.com