2024-05-14 28Hse Editor
When buying, selling, or leasing a property that involves real estate agents, both parties are required to pay a commission to the agents as a reward. How is this commission calculated, and when should it be paid? The following will provide answers to these questions.
For those looking to save on commission fees, property owners can consider listing their properties on online platforms; on the other hand, buyers or tenants can also search for properties directly from owners on these platforms. By transacting directly between the two parties, there is no need for the involvement of a real estate agent.
It is important to note that, aside from the legal aspect, property owners who list their properties themselves must be proactive and directly negotiate with potential buyers or tenants on matters of sale or lease, including spending time responding to inquiries and arranging viewings. This may not be suitable for owners who have busy work schedules.
If an owner chooses to list the property through an agent, a commission must be paid upon the successful conclusion of a transaction. But how much? In Hong Kong, there is no legal stipulation regarding commission amounts; they are negotiated between the buying and selling parties and the real estate agent. However, there is an industry norm known as the "market rule."
Under this "market rule," for secondary market property transactions, the commission is typically 1% of the property price from each party, meaning the agent receives a total commission equivalent to 2% of the property price. For rentals, a general rule is to pay the equivalent of one month's rent as commission, which is split between the owner and the tenant.
However, these "market rules" are for reference only. To ensure fair competition, the government introduced the Competition Ordinance in 2015 to eliminate anti-competitive practices. As there is no uniform commission fee in the agency industry, parties can negotiate with agents based on different circumstances and market conditions. If necessary, they can also offer a higher commission to expedite the transaction process.
Another common question is when the commission should be paid. There are no standard regulations for this; it depends on the terms of the agreement signed by both parties. Delayed payment of commission may lead to interest charges, so do not overlook the consequences of delaying or refusing to pay the commission.
Generally, there are two scenarios for commission payment: one is to pay at the time of signing the formal Sales and Purchase Agreement (SPA), as this immediately constitutes a binding commitment. Should any party back out, they would be considered in breach of contract and subject to compensation.
Others believe that the commission should be paid on or after the transaction completion date because there is still a lot of follow-up work before the completion date, and there is concern that agents might disappear after receiving the commission or lose interest in handling the remaining issues.
Comparatively, paying the commission on the transaction completion date is more secure, but ultimately, when to pay the commission depends on the terms negotiated with your agent or the policies of different agencies. Commission payments can be made through online transfer, mailed or electronic checks, or even in person at the agency's office.
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