Commission payable to estate agents

2017-03

In my last article I wrote about the importance of appointing a licensed estate agent and the qualities of estate agents (such as whether they have participated in the Continuing Professional Development Scheme) that a consumer should focus on. This time I would like to bring up another issue that many people ask about – the payment of commission to the estate agent.

In the past, it was a customary practice for the estate agency trade to charge client commission at a rate of 1% of the purchase price for the sale/purchase of a property, and half a month’s rental for concluding a tenancy, in respect of property transactions in the secondary market. However, consumers should note that the law has no stipulation on the amount of commission that an estate agency company is entitled to and they are free to negotiate the amount or rate of commission with the estate agency company. In addition, while estate agency companies are also free to determine independently their own policy about commission rates and/or whether to negotiate with their clients on the rate, with the implementation of the Competition Ordinance, it is no longer appropriate for estate agents to tell their clients that charging 1% of the purchase price is “a customary practice or a norm”, “a standard rate in the industry”, or that all other estate agency companies would charge the same rate, otherwise they might be in breach of the Competition Ordinance.

With regard to residential properties, the amount/rate of commission and when the commission should be paid to the estate agent should be clearly stated in the estate agency agreement. Generally speaking, according to the estate agency agreement, consumers are liable to pay the commission upon the signing of the agreement for sale and purchase or upon the completion of the transaction. However, the client shall have no obligation to pay any commission to the agent if the completion of the property transaction falls through due to no fault on the part of the client.

In the event of purchasing first-hand residential properties, the situation might be different. Due to keen competition, some estate agency companies might offer a cash rebate (from the amount of commission receivable by the estate agency company from the developer) to the purchasers. Under such circumstances, consumers should note that estate agents must set out in writing any promise of incentives, including any gifts, discounts or rebates they have made to prospective purchasers, and stipulate clearly the terms and format of such incentives. In this regard, consumers are advised to obtain the written evidence from the estate agent so as to avoid future argument or dispute.

Indeed, as I always advise my friends and the public, consumers should not only focus on the amount of commission/rebate that the estate agents charge/offer them. Instead, one should also focus on the standard of their services and reputation. An estate agent who can provide professional service and advice to their clients can make a transaction much smoother, which could possibly save clients more time, money and hassle. They should in turn be properly rewarded too.

Ruby Hon
Chief Executive Officer
Estate Agents Authority