[Real Estate A to Z] Exclusive Brokerage That Sells Responsibly... How Is It Different from General Brokerage?

One Licensed Realtor Handles Exclusive Contracts
Commission Only Charged to Sellers and Lessors Like in the US

[Asia Economy Reporter Ryu Tae-min] Recently, the Korea Association of Realtors (KAR) announced plans to expand the exclusive brokerage system if it becomes a statutory organization. In particular, there is growing market interest as they intend to adopt the U.S. method, which charges brokerage fees only to sellers and lessors, unlike the existing system. However, concerns have also been raised that the exclusive brokerage system might lead to higher maximum brokerage fee rates.

Exclusive brokerage refers to a contract in which a client who wants to conduct a real estate transaction entrusts only one specific licensed realtor. Unlike the general verbal contract method where multiple brokerage offices are requested, an exclusive brokerage contract means that only the designated realtor can handle the property.

Exclusive brokerage is known for high consumer satisfaction because the broker is responsible and obligated to conclude the contract within a set period. For example, if the seller agrees to sell their house within three months but fails to do so, the broker promises to provide a certain level of compensation. This responsibility encourages brokers to actively work towards concluding the contract, increasing the likelihood of a quick transaction.

From the broker's perspective, it reduces the risk of verbal contracts being canceled. In the general verbal contract method, even if a broker is entrusted with a listing, if another brokerage office closes the deal, the first broker’s efforts often go to waste.

Conflicts between consumers and brokers over brokerage fees can also be reduced. When an exclusive contract is signed, the brokerage fee rate must be specified in advance. Currently, the Enforcement Rules of the Licensed Real Estate Agents Act set maximum brokerage fee rates based on transaction value, but in practice, conflicts between consumers and brokers are frequent. Often, the fee rate is agreed upon only after the sale or lease contract is concluded, with both parties insisting on their preferred rates.

In particular, the U.S.-style exclusive contract that KAR aims to introduce charges brokerage fees only to sellers and lessors. Additionally, brokers cooperate with various specialized institutions such as financial institutions and home inspection companies to provide comprehensive services. This includes real estate consulting, document contracts, financial mediation, and legal services. They also handle inspections and repairs if there are defects in the house.

On the other hand, there are concerns that the introduction of the exclusive contract system might lead to higher brokerage fees. If the exclusive contract system becomes widespread, the contracted realtor must focus solely on the property sale, which could increase the fee rate. Looking at foreign cases where the exclusive brokerage system has been introduced, brokerage fee rates are significantly higher. In the U.S., brokerage fees range from 3.5% to 6%. In the U.K., they generally range from 2% to 5% of the home sale price, and in Japan, fees are typically set up to 5%. In Korea, the current brokerage fee rate for sales is 0.4% to 0.7%.

Meanwhile, it has been pointed out that although exclusive brokerage services can already be utilized under current domestic real estate brokerage laws, they are rarely used in practice. Awareness of the exclusive contract system is low, and both sellers and buyers tend to believe that going through multiple brokerage offices will enable faster transactions. Since it is impossible to mandate the brokerage method as an exclusive contract system domestically, there are also criticisms that its effectiveness will be limited.

This content was produced with the assistance of AI translation services.