Misunderstandings About Maximum Claims and Appropriate Responses
Revision of Real Estate Brokerage Compensation Regulations and Key Considerations
On July 1, 2024, the compensation regulations for real estate brokers were revised, raising the maximum brokerage fee for affordable housing priced at ¥8 million or less to ¥330,000. This is the first revision in six years, expanding the special provisions for sales transactions and increasing brokerage fees for rental properties that have remained vacant for extended periods.
However, since this revision, I have received numerous inquiries such as:
“I was told that the brokerage fee increase was mandatory and was charged ¥330,000 for brokering a ¥2 million property, but this amount was not stated in the brokerage contract. Am I required to pay it?”
This misunderstanding likely stems from a lack of accurate understanding regarding the conditions for utilizing the “special provisions for affordable vacant properties” and the regulations on renewing brokerage agreements.
Regardless of the type of brokerage contract, certain conditions must be met when renewing an agreement.
- Both parties have agreed to the renewal.
- When renewing the validity period, the broker must notify the client in writing or through other means.
If the above conditions are met and no special agreement is indicated in the brokerage contract (such as the property price or brokerage fee amount), it is considered that a contract with the same terms as the previous one has been established.
The key point is that, regardless of the type of brokerage contract, if the brokerage fee amount is changed, the contract must, in principle, be re-signed.
To utilize the “special provisions for affordable vacant properties,” the broker must explain the fee amount within the maximum limit at the time of contract signing and obtain the client’s agreement in advance.
Therefore, a brokerage firm can only charge the maximum amount under the “special provisions for affordable vacant properties” if, at the time of signing or renewing the contract, they have explained this provision to the client, obtained their agreement, and specified the exact amount in the brokerage contract.
As a result, clients are not obligated to comply with payment requests that have not followed the proper procedures.
One of the main causes of these issues is the emphasis on the increase in the brokerage fee cap, while there is a lack of understanding regarding the conditions for contract renewal and fee adjustments. Additionally, some brokers may assume that being transparent about these changes would lead to rejection, leading them to make improper claims such as, “The fee cap has been raised, so we are billing you accordingly.”
With this in mind, we will now review the right to claim brokerage fees and the applicable limits.
Definition of Affordable Vacant Properties
Under the revised law, “affordable vacant properties” are defined as land or buildings with a sale price of ¥8 million or less or land/buildings involved in an exchange transaction with a value of ¥8 million or less.
A key feature of this definition is that it not only includes vacant houses but also occupied homes, residential land, and empty lots.
Key Changes in the Definition and Scope of Application
One major change after the revision is the expanded scope of properties eligible for the special provisions.
- Before the revision: Properties required to meet specific conditions, such as needing on-site surveys and other additional costs, to qualify for special brokerage fee regulations.
- After the revision: The scope has been broadened, allowing a wider range of real estate transactions to benefit from the special provisions.
One of the most significant changes is the increase in the maximum brokerage fees that can be collected from both the seller and the buyer.
Condition for Charging the Maximum Brokerage Fee
However, an important condition remains:
Brokers must explain the brokerage fee amount to the client in advance and obtain their agreement.
For sellers, this is straightforward since a brokerage contract must be signed before the property is listed for sale. However, for buyers, the timing of contract signing can be more complicated.
- Ideally, the brokerage contract should be signed at the first meeting.
- However, presenting a contract and asking for a signature immediately may lead to resistance, as the buyer may say:
“I haven’t even decided to purchase through your agency yet.”
Common Practice and Potential Issues
- Many agencies use a general brokerage agreement, allowing clients to engage multiple brokers.
- In such cases, brokers must thoroughly understand the client’s budget and, if the property qualifies as an affordable vacant property, explain the brokerage fee upfront.
Most clients have basic knowledge that brokerage fees are calculated based on the transaction price.
- If a broker attempts to charge the same fee for a ¥1 million property and a ¥6 million property, it will likely cause confusion or dissatisfaction.
- This could explain why some brokers use misleading statements such as:
“Due to the law revision, the brokerage fee is now ¥330,000.”
However, the stipulated brokerage fee is merely a maximum limit, and clients understand that the actual fee can be negotiated.
Risk of Disputes
If brokers attempt to charge the maximum fee without prior explanation, it could lead to disputes and dissatisfaction among clients.
Relationship with Consensual and Non-Formal Contracts
Relationship with Consensual and Non-Formal Contracts
Under the Civil Code, brokerage contracts are considered consensual and non-formal agreements, meaning that they can be established through an oral agreement between the client and the real estate agent, without the need for a written contract. A consensual contract is one that becomes effective once both parties agree, and there is no requirement for a written contract to be signed.
For example, if a client verbally requests, “Please sell this property” or “I would like to purchase that property,” and the real estate agent agrees, the brokerage contract is considered established.
However, while the creation of a written brokerage contract is not a formal requirement for the contract to be valid, it is essential to prepare a written agreement to avoid future disputes. In fact, Article 34, Section 2 of the Real Estate Brokerage Act states, “When a brokerage contract is concluded, a written document must be prepared without delay, signed and sealed, and provided to the client.”
Priority Between General and Special Laws
A common question arises regarding whether general laws, such as the Civil Code, or special laws, such as the Real Estate Brokerage Act, take precedence. In cases where general laws and special laws conflict, special laws take priority. This principle is widely accepted in the legal field and can be summarized by the saying, “Special laws take precedence over general laws.”
But what happens when both laws are special laws, such as the Consumer Contract Act and the Real Estate Brokerage Act? In that case, the Consumer Contract Act takes precedence due to the “principle of later law prevailing”, which suggests that later-enacted laws should be prioritized when they conflict with earlier laws. The Consumer Contract Actwas enacted on April 1, 2001, while the Real Estate Brokerage Act came into force on August 1, 1952, so the Consumer Contract Act would prevail in the case of a conflict.
Application of the Consumer Contract Act
The Real Estate Brokerage Act regulates those who conduct brokerage as a business, with the aim of facilitating smooth transactions. On the other hand, the Consumer Contract Act applies to contracts between businesses and consumers more generally. Therefore, even if an action is not prohibited by the Civil Code or the Real Estate Brokerage Act, it may still be invalid if it contradicts the provisions of the Consumer Contract Act, such as unfair contractual terms or improper solicitation.
Consideration of Brokerage Fees
Brokerage fees are governed by Article 46 of the Real Estate Brokerage Act, which specifies the following:
- Section 1: The amount of compensation a real estate broker can receive for services related to buying, selling, exchanging, or leasing land or buildings is determined by the Minister of Land, Infrastructure, Transport, and Tourism.
- Section 2: Brokers cannot receive compensation exceeding the amount specified in Section 1.
- Section 3: The Minister must publicly announce the prescribed compensation amount.
- Section 4: Brokers must post the prescribed compensation amount at a prominent location in their offices for public viewing.
The “special provisions for affordable vacant properties” are determined by the Minister of Land, Infrastructure, Transport, and Tourism, and it is often mistakenly believed that the right to claim fees exists automatically, regardless of whether an explanation was provided. However, this regulation primarily ensures the protection of the general public by invalidating amounts exceeding the prescribed compensation and defining the scope of allowable fees.
Additionally, while the Real Estate Brokerage Act sets a maximum limit on the compensation a broker can receive, it does not automatically allow brokers to claim the maximum amount.
Importance of Prior Agreement and Documentation
To claim fees under the “special provisions for affordable vacant properties”, it is essential to obtain prior consentfrom the client. Moreover, to verify this consent, the specific fee amount must be written in a brokerage contract (or a written agreement in the case of renewals or changes), and it must be signed and sealed by both parties.
Even if the fee cap has been raised due to legal amendments, failing to follow the proper procedures when requesting payment could result in a violation of the Real Estate Brokerage Act.
Summary
In the public comment period conducted before the revision of brokerage fees, many opinions were expressed opposing the increase in fees. The main points of opposition included arguments such as, “This will only strengthen the vested interests of real estate agents and will not promote the circulation of vacant properties,” and some also questioned whether ¥8 million could truly be considered “affordable housing.”
In response, the Ministry of Land, Infrastructure, Transport, and Tourism explained that, in order to address the uneven distribution of real estate agents and promote the circulation of affordable vacant properties, it was essential to review the fee caps. They also clarified that when claiming fees based on the special provisions, brokers must explain the range of the fee in advance and obtain the client’s consent when the brokerage contract is signed. The Ministry further emphasized the importance of making this clear to avoid misunderstandings.
Given this background, under the revised Real Estate Brokerage Act, if a broker requests fees based on the special provisions without prior explanation and a dispute arises, strict measures may be taken.
While there is no problem with requesting the fee cap based on the special provisions, it is essential to follow the appropriate procedures and ensure that the claim is made transparently in order to avoid any potential issues.
Original Article: 【媒介報酬改正後の注意点】上限請求に関する誤解と適切な対応
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