Burden of ‘brokerage compensation of houses’ will be significantly decreased following ACRC’s recommendations for institutional improvement

- Ministry of Land, Infrastructure and Transport reflected
ACRC’s recommendations for institutional improvement
in pre-announcement draft of legislation of Enforcement Decree & Regulation of the Licensed Real Estate Agents Act -

(14th Sep. 2021, ACRC)

A significant decrease in brokerage compensation of houses and enhanced protection of consumers against incidents in real estate transaction is expected as early as this October.

The Anti-Corruption and Civil Rights Commission (Chairperson : Jeon Hyun-hui, hereinafter ACRC) revealed that the pre-announcement of legislation of the revised Enforcement Decree and Enforcement Regulation of the “Licensed Real Estate Agents Act,” which reflects considerable parts of the “institutional improvements on brokerage compensations and services in real estate transaction” recommended by the ACRC in February is expected to ease the people’s burden of brokerage compensation.

As the demand for improvement on the brokerage compensation system has increased, due to reasons including the recent rise of house prices in the metropolitan area, the ACRC held online discussions and collected opinions in February via its online platform, People’s Idea Box, and recommended institutional improvements “to ease the people’s burden of brokerage fees and minimize complaints” to the Ministry of Land, Infrastructure and Transport (hereinafter MoLIT) and local governments.

* In the results of the opinions collected via People’s Idea Box, 53% of the 2,478 participants answered that current brokerage compensations are overburdensome due to soaring real estate prices (Answered by 1,233 people working in the real estate industry and 1,245 ordinary citizens, between November 2 ∼13, 2020)

Following recommendations from the ACRC, MoLIT made a pre- announcement of legislation of the revised Enforcement Decree and Enforcement Regulation of the “Licensed Real Estate Agents Act” on September 2∼3, after conducting commissioned research and discussions.

The pre-announcement draft stipulates lowered caps on brokerage compensations in real estate transactions (0.9%→0.7% for sales, 0.8%→0.6% for lease), setting the maximum rate for each range of transaction price in the Enforcement Decree and decided within the ranges by enforcement decree. But considering local situations, they can be settled within the range of the maximum rates for each range of transaction prices with a 1/1000 adjustment of the real transaction amount.

Moreover, the draft includes measures to protect consumers and prevent conflicts such as increased guarantees of indemnification of losses and obligations to confirm and explain the object of brokerage and to specify the rights regarding the object of brokerage.

The pre-announced draft of MoLIT reflects most recommendations made by the ACRC, including the ease of the maximum brokerage rates; subdividing the high-price range where the top brokerage rate is currently applied; and solutions to prevent the reversal (lease > sales) of brokerage rates for the houses valued at more than KRW 600 million(USD 505,000) and less than KRW 900 million(USD 760,000), with expectations that the financial burden of the people due to expensive brokerage fees will be substantially mitigated.

Furthermore, other recommendations by the ACRC for the protection of consumers were also reflected such as the increased guarantees of indemnification of losses and the obligation of hanging up the business license in a brokerage office.

But for the recommendations that were not reflected in the revised draft such as burden of brokerage fee when a transaction is ultimately cancelled, the ACRC will actively consult with MoLIT and continue to improve on them.

Also, since most of the metropolitan governments submitted their implementation plans to revise relevant enforcement decree after the revision of the law by MoLIT, it is also expected that the burden of brokerage fees of tenants would be significantly eased, especially for the residentially vulnerable groups of the low-income class, young adults, and newlyweds.

* 13 (Busan, Daegu, Incheon, etc.) out of the 17 metropolitan governments have submitted their implementation plans

The ACRC recommends institutional improvements on preventing corruption and handling public complaints to approximately 1,500 organizations, including central administrative agencies, local governments, and public organizations. Since the new administration took office in May 2017, the ACRC has made 216 recommendations for institutional improvement, and its acceptance rate is as high as 98.7%.

Yang Jongsam, Director-General of the Institutional Improvement Bureau of the ACRC said, “Thanks to the coordination of relevant agencies such as MoLIT, it is expected that the people’s financial burden of brokerage compensation will soon be eased.” He also added that “the ACRC will continue to actively find and improve on unreasonable systems that cause inconveniences and financial burden to the people.”