Controversy Grows Over Excessive Real Estate Commission Fees as Property Prices Surge

When trading an apartment worth 1.5 billion won in Seoul, the maximum brokerage commission can reach 10.5 million won. As housing prices have soared from hundreds of millions to billions of won, the scale of brokerage fees has also increased, yet questions remain as to whether the difficulty of brokerage work actually increases in proportion to property values.

An analysis presented by Understanding: All the Knowledge in the World explores the structural contradictions of the South Korean real estate commission system, recent trends in court rulings, and international cases showing differences in service levels. The report, compiled by reporter Baek Jong-hun, goes beyond simple rate calculations to address the oversupply in the brokerage market and the lack of consumer protection systems.

Rates Rise Again as Property Prices Increase, Raising Questions About the "Dip"

South Korea currently follows a "maximum rate system" for real estate brokerage fees. Under this system, brokers and clients negotiate the fee within a maximum rate set by law. According to the Enforcement Rules of the Licensed Real Estate Agents Act, the maximum rate varies by price bracket: for transactions under 50 million won, it is within 0.6%, and for transactions between 50 million won and 200 million won, it is within 0.5%. The structure is designed so that the maximum rate decreases as the amount increases, which is interpreted as a way to prevent total commissions from exploding excessively, considering that higher-value transactions involve more risk and attention.

A peculiar aspect is that the rate rises again starting from the 900 million won mark. While a 0.4% rate is applied between 200 million won and 900 million won, the maximum rate increases to 0.5% for transactions between 900 million won and 1.2 billion won, 0.6% for 1.2 billion won to 1.5 billion won, and 0.7% for transactions of 1.5 billion won or more. Although the design considers the increased risk and responsibility for high-priced homes, critics point out a lack of rational basis for a structure where rates rise sharply for luxury properties.

Reporter Baek Jong-hun noted that "the work a broker does for a 300 million won house is not ten times different from what they do for a 3 billion won house," pointing out that the increase in asset prices is excessively reflected in the commission rates. With many apartments in Seoul exceeding 1.5 billion won, the analysis suggests that the practice of applying high rates for luxury homes, which was once the norm, now acts as a burden for the majority of citizens. The video also raised the speculation that this rate structure might be the result of a practice that once imposed heavy costs on a small number of luxury home buyers, now expanded to all Seoul citizens.

Excessive Fees Are Void; Is the Court's "Ex Officio Reduction" an Overreach?

Disputes over brokerage fees often begin with whether the legal maximum rate was exceeded. Any commission received in excess of the legal maximum is void. Recently, courts have issued rulings to adjust fees when a broker played almost no practical role or violated legal regulations. Furthermore, if a verbal promise not to receive a fee is proven through evidence, it can be recognized; even if parties contract directly without a broker, a duty to pay a fee may arise if the broker's contribution to the deal is recognized.

A representative case involved a dispute between a local housing association in Gwangju Metropolitan City and a brokerage firm. On October 18, 2021, the firm agreed to a 0.9% commission for its first item, just one day before an enforcement decree took effect on October 19, 2021, which lowered the maximum commission rate from 0.9% to 0.7%. Since the Ministry of Land, Infrastructure and Transport and the National Construction Committee had announced the plan to reduce commissions at that time—leading to protests and one-person demonstrations by brokers—it is analyzed that the firm likely knew about the changing regulations. Considering these circumstances, a lower court ruled that only half of the commission exceeding the limit should be recognized.

However, the Supreme Court of Korea reached a different conclusion. While it is true that the portion exceeding the maximum rate is void, the court held that a judge arbitrarily deciding an "appropriate fee" and cutting it in half constitutes an "overreach" of judicial authority. In other words, the principle was reaffirmed that while the portion exceeding the legal maximum should be treated as void, the area of negotiation within the maximum limit should be left to the autonomy of the parties. The Supreme Court determined it is inappropriate for a judge to use ex officio authority to decide matters that the parties should agree upon themselves within the maximum rate.

Era of 110,000 Brokerages: Service Levels and Consumer Protection Receive a "Failing Grade"

The South Korean brokerage market is criticized for being in a state of oversupply. Currently, there are approximately 110,000 licensed real estate agents in the country. This is a very high density compared to pharmacies (about 20,000) or convenience stores (about 50,000–60,000). Baek criticized the structure where excessive competition leads to a battle over commission fees rather than improvements in service quality, noting that "there are so many brokerage offices that they fill up all the prime first-floor spaces in neighborhood shopping districts." The fact that there are 550,000 certificate holders while only around 110,000 are actually operating businesses also supports the idea of an overheated market.

The qualitative aspect of service was also highlighted through comparisons with overseas cases. In the United States, the market operates under a free competition system without a legal maximum rate, with customary rates being high enough to reach the 5% range. In contrast, Japan adopts a method of increasing service levels by providing detailed housing descriptions and lifestyle convenience services in exchange for higher rates than those in South Korea. The core issue is not simply whether the commission rate is high or low, but whether the value provided matches the cost paid.

Conversely, it was pointed out that in South Korea, the compensation limit for brokerage accidents remains at the 200 million won level, which is woefully insufficient to compensate for the massive damages that occur in high-priced home transactions. The analysis suggests that a fragmented market structure centered on individual brokerage offices is hindering service improvement and institutional innovation.

Source: original video (YouTube)