The agency commission paid during real estate transactions is one of the major initial costs. Especially for those dealing with Japanese real estate for the first time, you may feel uncertain about how much you will have to pay.
In this article, I will explain what the agency commission is, provide an estimate of the cost, and discuss the payment timing.
What is an Agency Commission?
An agency commission serves as a form of payment to real estate firms for facilitating various property transactions, such as buying, selling, or renting.
Under the Real Estate Brokerage Act, which governs land and building transactions, a real estate company must enter into a “mediation contract” and clearly state the compensation when they request intermediation.
A mediation contract is meant to “assist in finalizing a contract,” so no compensation is generated just by accepting the request. Instead, the agency commission acts as a “success fee,” only applicable when a contract is successfully established. Typically, payment is made upon the contract’s conclusion.
This means you won’t be charged an agency commission if you only view a property before renting, purchasing, or advertising before selling. It’s also illegal for anyone other than a licensed real estate broker to charge such a commission.
Consequently, no agency commission will be applied if a transaction occurs directly between the buyer and the seller, like in a private sale.
Agency Commission in Property Sales
The maximum agency commission for real estate sales can be calculated as “(sales price x 3% + 60,000 yen) + consumption tax” when the sales amount exceeds 4 million yen.
For example, the agency commission for a 50 million yen property sale would be (50 million yen x 0.03 + 60,000 yen) x 1.10 = 1,566,000 yen.
To calculate the agency commission based on specific sales amounts, please use the tool below.
Property Commission Calculator
Insert the property price (¥):
Who bears the agency commission when a sales contract is concluded?
If the seller and the buyer request intermediation from different real estate companies, each party will pay the commission to the company with which they have entered into a mediation contract.
If the seller and the buyer enter into a mediation contract with the same real estate company, it is called a "double-ended transaction." In this case, the single real estate company may receive commissions from both parties, up to the maximum amount.
Agency Commission in Rental Contracts
The market rate for rental agency commissions ranges from 0.5 to 1 month's rent. However, most real estate companies uniformly stipulate, "Our agency commission is equivalent to 1 month's rent." For reference, Blackship Realty, a foreigner-friendly real estate brokerage company that operates this website, also charges a uniform one month's rent as commission.
Estimated Agency Commission
Trivia: History of Agency Commission in Japan
Back in the days before World War II in Japan, there were no national laws governing real estate businesses. Instead, regulations were set by individual prefectures with a high number of real estate agents. It was a wild, wild real estate world out there!
For brokerage fees, each prefecture had its own unique set of rules, resulting in a variety of fee structures.
After the war, in 1952, the national "Real Estate Brokerage Act" was established. However, it initially stated that "fee rates are set by each prefectural governor." Interestingly, there were 10 different fee rate charts across the country. One can only wonder if there were any instances of mistakenly applying the wrong fee rate when conducting business across prefectures.
The government eventually took into consideration the concerns of local agents who were dissatisfied with the disparity in fees between major cities and rural areas. Consequently, in 1970, they decided to unify the fee rates across the country, adopting the higher rates of cities like Tokyo as the standard. This decision significantly impacted the industry.
By familiarizing yourself with the commission structure, payment schedules, and associated costs, you can confidently navigate buying, selling, or renting properties.
Use tools such as the Property Commission Calculator and stay informed about market rates to make well-informed decisions and prevent unexpected financial surprises.