Double-end commission still at high levels

According to an article in ZAi Online, some of Japan’s major real estate agencies are collecting double-end commissions on over half of their sales. Collecting brokerage fees from both the buyer and seller may be illegal in some countries, but is a legal and common practice in Japan. Many times the buyer or seller will be unaware as there are no duties to disclose this to the customer.

In some companies, the agency has represented both the buyer and seller for as many as two-thirds of all transactions. Agencies are heavily dependent on this practice as it makes up a significant portion of their annual sales, and it is not likely that heavy regulation will be introduced to curb this behavior.

In early 2016, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) introduced reporting requirements for agencies that use the REINS online listing database. Agencies with exclusive-listing agreements are obligated to update the status of the property on the database if an offer has been received. This is an attempt to boost transparency in the real estate market, but appears to have had a limited effect.

AGENCY % OF TRANSACTIONS INVOLVING DOUBLE-END COMMISSION AVERAGE BROKERAGE FEE COLLECTED
O◇ 71% 5.54%
M◇ 66% 5.39%
S◇ 62% 5.23%
D◇ 45% 4.69%
C◇ 36% 4.40%
T◇ 28% 4.15%
N◇ 15% 3.74%
*Agency names appear in the original article but are not being published above.
*The maximum brokerage fee that can be collected from one side in a transaction is 3% + 60,000 Yen + sales tax. An agency collecting an average brokerage fee of over 3% is likely to have represented both the buyer and seller.

 

Whether you are a buyer or seller, relying on an agency that prioritizes double-end commission presents issues for you as a customer. It is similar to hiring a lawyer to represent both sides in a court case.

As a buyer, that agency is more likely to only show you properties on their books that will net them a double commission, which means you may not be shown single-commission listings. This may result in missing out on an ideal property.

As a seller, that agency is going to be more focused on keeping buyer-side agents and their buyers away from your property since it would only result in a single-side commission. You may find your property sits on the market for a long time with little interest since the agent has limited it just to potential buyers they find directly. The property may end up selling for less than if it was widely accessible by all agents.

Source: ZAi Online, November 18, 2017.