What Is an Agency Fee and Why Is It Necessary?
The real estate agency fee in Korea is a legally regulated commission paid to a certified real estate agent for facilitating property transactions. This fee compensates agents for their professional expertise and the services they provide, which include:
- Legal and Procedural Security: Ensuring that all transactions comply with local laws and regulations.
- Negotiation Assistance: Mediating between the tenant and the landlord to finalize terms.
- Contract Preparation: Drafting and validating the lease or sales agreement to protect all parties.
Paying an agency fee ensures the safety, efficiency, and convenience of the transaction, helping clients save significant time and avoid potential legal issues. In Korea, both the tenant and the landlord are required to pay a commission once the transaction is finalized.
Legal Standards for Agency Fees
According to the Enforcement Rules of the Licensed Real Estate Agents Act, the agency fee is determined as follows:
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Formula for Calculation:
The fee is calculated using the formula:
(Deposit + Monthly Rent × 100) × Maximum Commission Rate
The maximum rate depends on the transaction amount and the property type. For example:
- Residential properties: 0.3%–0.9%
- Commercial spaces or other property types may have higher rates.
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Payment Terms:
- The timing of payment is typically agreed upon between the agent and the client.
- In the absence of a specific agreement, the fee is paid when the transaction amount (deposit or rent) is fully transferred, usually at the time of the main contract signing.
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Commission Rate Limits:
- The law mandates a maximum commission rate, which cannot be exceeded. However, the exact rate is determined through mutual agreement between the client and the agent within this limit.
Why Do Agency Fees Sometimes Exceed the Expected Rate?
- In many cases, properties in Seoul are classified as "neighborhood living facilities" rather than standard residential properties.
- This classification allows for higher commission rates (up to 0.9%) compared to the rates for residential properties (typically 0.6%).
- This discrepancy stems from high land prices and zoning regulations in Korea, which classify many buildings differently despite their primary use as residential spaces.