The "agency fee" that you will definitely hear about when searching for a rental property is paid to the real estate company as compensation for their assistance in mediating between the landlord and tenant.
Since brokerage fees are part of your initial costs, they are one of the costs you want to keep to a minimum if possible.
Additionally, there are some real estate companies that charge more than the legal maximum amount for brokerage fees, and various problems have been reported.
So, in this article we will explain in detail about rental agent fees.
We will also explain ways to reduce initial costs, including negotiating discounts and cases where it is free, so please use this as a reference.
What are rental agency fees?
Rental agency fees are fees paid by the landlord and tenant to the real estate company that mediates the rental contract.
When renting a property, you not only need to find the property but also go through various procedures.
The fee paid to the real estate company that provides full support in these procedures is the brokerage fee.
The specific support is as follows:
- Property Search
- Arrange a viewing
- Negotiating contract terms
- Important information
- Preparation and execution of contract conclusion
In this way, the brokerage fee is paid as compensation for the various support provided as an intermediary between the tenant and the landlord until the contract is concluded.
However, rental agency fees are charged only when the contract is concluded, so if the contract is not concluded, no fees will be charged.
So, what is the general average price for brokerage fees for rental properties? We will explain in detail.
Maximum rental agency fees
The Real Estate Transaction Business Act stipulates that the maximum amount of agency fees for rental property is one month's rent plus consumption tax for the property being contracted.
In addition, the Real Estate Transaction Business Act stipulates that the brokerage fee that a real estate company can receive from a tenant is 50% of one month's rent, and the other half is received from the landlord.
In other words, the brokerage fee paid by the tenant should be 0.5 months' rent .
However, because the broker's fee is "one month's rent can be received from either the tenant or the landlord with the client's approval," you may be forced to sign a contract for one month's rent without this being explained to you.
Please be aware that the above cases are quite common and we will show you how to deal with them later.
In addition, while the consumption tax rate was raised to 10% in October 2019, the consumption tax on brokerage fees does not fall under the reduced tax rate which remains at 8%.
Therefore, please be aware that the consumption tax on brokerage fees is calculated at 10%.
Rental agent fees are negotiable
There is no minimum limit on rental agent fees and they can be negotiated down.
Approximately 92% of rental properties nationwide can be handled by any real estate company, so the properties you get will be the same no matter which real estate agency you choose.
Therefore, it is best to avoid real estate companies that charge high brokerage fees.
Also, by getting and comparing quotes from multiple agents, you can reduce the brokerage fee, so be sure to visit multiple real estate companies.
However, there is a risk that another applicant will sign the contract while you are negotiating the price.
Therefore, if you want to negotiate a discount on your brokerage fees, keep the following three things in mind:
- Choose an unpopular property that won't fill up quickly
- Move during the off-season (April-August)
- Negotiate politely
If you negotiate at a time and with an attitude that suggests you would like to find a tenant quickly, even if it means a slight reduction in profits, the chances of them agreeing will increase.
Also, if you're someone who doesn't want to negotiate too much on rental agency fees but still wants to keep initial costs down, it's a good idea to look for a property that has no agency fees from the start.
Two reasons why rental agency fees are free
There are real estate companies that advertise free brokerage fees and properties that offer free brokerage fees.
Some people may be concerned that this means that the real estate company that provided intermediary support, such as viewings and procedures, will be working for free.
Next, we will introduce you to a system that allows you to avoid brokerage fees.
There's a reason why some properties are rented with no brokerage fees.
- The landlord pays the full amount
- Real estate company owned properties
- Receives advertising fees from landlords
I will explain them in order.
1. The landlord pays the full amount
As mentioned above, the maximum rental agency fee is one month's rent, but it should actually be split between the landlord and tenant.
Therefore, if the landlord (lessor) pays the entire brokerage fee, the tenant will not have to pay any brokerage fees.
In situations where a property remains vacant for a long period of time, the landlord may pay the agency fee themselves and make adjustments to the tenancy conditions so that a tenant can be found as quickly as possible.
Properties with no brokerage fees also have the advantage for landlords as they can earn monthly income by getting tenants to move in quickly rather than leaving the property vacant.
2. Properties owned by real estate companies
In the case of properties owned by a real estate company, there are cases where the rental agency fee is waived.
Since most rental properties are owned by individual landlords, the intermediary company acts in a support role and is charged an intermediary fee in return.
However, in the case of properties owned by a real estate company, no intermediary services are required and no fee is charged.
Also, since the real estate company will be in the position of the landlord, just like in the landlord case mentioned above, it will be more beneficial for them to receive rent as a monthly income rather than leaving the property vacant.
3. They receive advertising fees from landlords
When a landlord (lessor) has a real estate agency place special advertising for the property and a lease agreement is concluded, the landlord pays the real estate agency an advertising fee in addition to the agency commission.
Therefore, by receiving compensation in addition to the brokerage fee, the brokerage company can waive the brokerage fee.
The standard advertising fee is said to be one month's rent, but since there is no upper limit, it can be "1.5 to 3 months' rent."
Disadvantages of no brokerage fees
So far, we have explained the maximum brokerage fee, how to negotiate a lower fee, and why it can be free.
If the brokerage fee can be waived, it may be a good idea to negotiate, but there are also disadvantages.
Next, we will explain the disadvantages of having no agent fees for rental properties.
There are two main disadvantages to having no agent fees for rental properties:
- Rent and maintenance fees may be high
- Real estate companies' services may be lacking
I will explain them in order.
1. Rent and common charges may be set too high
If there is no brokerage fee, rent and common charges may be set higher than the market rate.
One of the reasons for setting rental agency fees free may be that it is difficult to find tenants, but the reason for this may be that ``the rent is higher than the market rate'' or ``the deposit/key money is higher than the market rate.''
In the above case, even if the initial costs are kept low, the longer you live in the same room, the more you will pay.
To avoid this situation, be sure to check the market prices in your area beforehand.
2. Real estate companies may be lacking in services
There are cases where real estate companies end up offering less comprehensive services simply because they have waived brokerage fees.
Brokerage fees are the compensation for support services. If there were no brokerage fee, the real estate company would make less revenue.
In other words, contracts that involve paying an agency fee are more likely to provide you with more comprehensive service.
Also, be aware that even if there is no brokerage fee, you may be charged additional fees under different names, such as document preparation fees.
Is it possible to get a discount on the rent instead of the brokerage fee?
I hope you now understand how rental agency fees are free.
So, many people may be wondering if it is possible to get a discount on the rent itself, rather than the brokerage fee.
Ultimately, it will be difficult to get your rent reduced.
The brokerage fee is an amount received by the real estate company (brokerage company) and is therefore easy to negotiate, but the rent is an amount received by the landlord and is therefore more difficult to negotiate.
In addition, in apartment complexes and condominiums, there are many properties with the same floor plan, and the rent varies depending on the tenant, which can cause problems.
Certainly, paying lower monthly rent than paying free rental agency fees will not only keep initial costs lower, but will also significantly reduce total costs in the long run.
However, as a landlord, your income will be significantly reduced and the asset value of the rental property itself will decrease.
Therefore, please understand that it will be difficult to negotiate a lower rent in exchange for paying the agent's fee.
When to pay brokerage fees
If I choose a property that requires me to pay a brokerage fee, when do I pay the fee?
The timing for paying the rental agency fee is generally when the rental contract is concluded. Strictly speaking, it is paid together with the advance rent before the contract is concluded.
The brokerage fee is not a fee for introducing the property, but a reward for supporting the transaction between the landlord and tenant.
Therefore, since the fee is basically accrued based on delivery, payment is made when the delivery is deemed to have been completed.
In other words, the earliest is "after the reading of the important information document has been completed" and the latest is "the day before you move (start moving in)", and the payment is to be made within that period.
The brokerage fee is basically charged as an initial cost when signing a rental contract along with the deposit and key money, so you will not pay the brokerage fee alone.
How to reduce initial costs other than brokerage fees
One way to reduce initial costs is to reduce brokerage fees, but there are other ways to reduce initial costs as well.
When renting a property, there are various initial costs involved.
To keep costs down, look beyond just brokerage fees and also at the following costs:
- Properties with no deposit or key money
- Free rent property
I will explain them in order.
Properties with no deposit or key money
The initial costs for many rental properties include a deposit, but there are also some properties that do not require a deposit.
The standard deposit is one to two months' rent, so the higher the rent, the higher the deposit will be.
Since the maximum brokerage fee is one month's rent, properties that do not require a deposit or key money, which account for a large proportion of initial costs, can lead to significant cost savings.
However, please note that the deposit is required for costs such as house cleaning fees when you move out, so you may need to pay it as a cost to restore the property to its original state when you move out.
If you would like to know more about properties with no deposit or key money, please also refer to the following article.
Free rent property
Looking for rent-free properties is also an option for reducing initial costs.
A free rent property is one in which the rent is free for a certain period of time after occupancy.
Generally, the first month is free in many cases, and in some cases it can be three to six months free.
Therefore, there is no deposit or key money that is usually required, making it possible to significantly reduce initial costs.
However, there is a reason for free rent, so be sure to check the following items with the real estate company before signing a contract.
- Contract cannot be terminated in a short time
- The rent is set too high
- No tenants for a long time
- Old building
In addition to properties with no deposit or key money or free rent, there are many other ways to reduce initial costs.
The following article explains this in detail, so please refer to it.
This alone will save you money! Average moving costs for single people and tips to keep them low
[Finally] Always get competitive bids when signing a rental contract
This time, we explained about brokerage fees for rental properties.
The maximum brokerage fee is set by law at 0.5 months' rent plus consumption tax .
In addition, brokerage fees are now negotiable, and there are an increasing number of brokerage companies that offer free fees from the start.
Since all real estate agencies handle pretty much the same properties, be sure to get comparative quotes from multiple companies even after viewing the rental property.
However, be aware that a low brokerage fee does not necessarily mean it is a good deal, and popular properties may be booked up quickly.
