October 30, 2020
④ Real Estate Brokers in Japan

<Real Estate Brokers in Japan>

Do you know how many convenience stores exist in Japan? It is actually said that there are about 57,000 stores in total. What drew people’s attention in the past was the fact that Japan’s large number of convenience stores contributes to the overwhelming level of convenience we enjoy every day. Then, what is your guess about the number of real estate brokers? The number for 2018 is said to be nearly 340,000, which is roughly 6 times of the number of convenience stores. Needless to say, we are included in the number. The last 20 years has seen an increasing trend in the number of real estate brokers. What kind of role and qualification are real estate agencies (including us) expected to have?

EN版

Source: Ministry of Finance “Ministry of Finance Statistics Monthly” ~ Annual Survey of Financial Statements Statistics of Corporation by Industry

★ Licensing System for Real Estate Agencies and Their Operations

Japan has a licensing system for real estate transaction business operators. Based on the provisions of the Real Estate Brokerage Act, only business operators who have received a license from the Minister of Land, Infrastructure, Transport and Tourism or a prefectural governor and are deemed to have enough capital strength and expertise to make proper real estate transactions are allowed to conduct real estate transaction operations, such as intermediation of selling and purchasing or leases of real estate properties. In addition, the Japanese system called REINS (Real Estate Information Network System), which is a system similar to the multiple listing services (MLSs) in the U.S., can only be accessed by brokers who have a license. Therefore, without the help of such brokers, general customers can only get access to information on an extremely limited number of properties, and moreover, it is almost impossible to carry out procedures for transactions of selling and purchasing or leases of real estate properties. (* Leases of their own real estate properties and subleases of properties they are renting can be done without a broker license, but realistically, it is more common and efficient to rely on such brokers (or registered real estate agents).)
Even though real estate transactions usually involve purchases of extremely expensive properties for an individual, the information held by individuals tends to be extremely limited compared with that held by brokers due to the nature of real estate transactions. To ensure the smooth processing of transactions without any troubles or damages, transactions are intermediated by real estate brokers who have met the provided standards and duly obtained a license.

Real estate agencies who have lawfully obtained a license to handle real estate transactions in Japan can be searched on the Internet through the Search System for Information on Building Constructors and Real Estate Brokers, disclosed by the Ministry of Land, Infrastructure, Transport and Tourism, but currently, information is only provided in Japanese.

Below, we would like to explain what kind of specific operations are made for each process.

―The operations made by real estate agencies are largely categorized as follows.―

  • Intermediation for those desiring to sell properties

  • Intermediation for those desiring to purchase properties

  • Intermediation for those desiring to rent properties

  • Intermediation for those desiring to lease properties

As a representative example, we will explain what agencies do for the intermediation for those desiring to purchase properties.

 

(1) After receiving inquiries from the parties about purchasing properties and until receiving an official request

■ Searching for properties that match the desires of the requesting party

A variety of factors are considered for desired conditions in purchasing a property. In which city or area should I buy a property? Should it be a condominium unit or a detached house? What about the total floor area? Should I stick to the building age? What was my purpose for buying a property, anyway? Some people come to us before reaching an answer to such questions. A good broker would understand the buyers’ needs with respect and also support the process to narrow down their desired conditions.

 

■ Data survey on surrounding market prices and previous transactions

Agencies conduct comparison surveys on the surrounding market prices and previous transactions to verify what kind of value the property has and whether it meets the buyer’s needs in terms of the price and other various viewpoints. Based on these verifications, candidate properties are introduced to buyers.

 

■ Hearing survey on commission real estate brokers (or sellers)

Brokers conduct prior hearing surveys of sellers and commission real estate agencies about the candidate properties. A good agency would conduct prior hearing surveys to collect all available information on whether the property is unfavorable to the buyer, or whether it has special terms and conditions.

 

■ Preview tour of the property

After informing the buyer of the prior hearing results, if the buyer wants to have a preview tour of the property, brokers will make appointments for the buyer to visit the property. During the tour, an ideal broker would give honest comments from the buyer’s standpoint, even referring to negative sides of the property and its surrounding environment.

 

(2) After receiving an intention to purchase

■ Confirmation of financial matters

Brokers can show their skills in calculating the approximate amount of purchase charges such as brokerage fees, making arrangements for housing loans if needed, coordinating schedules and negotiating with the seller. In particular for preliminary screening for housing loans, which requires a fair amount of time, brokers support their customers, in collaboration with financial institutions, to select financial institutions, submit documents required for the property, and handle hearings from loan officers.

 

■ Procedures for property purchase application

After visiting the property, when buyers make their decision to purchase the property, the next step is to submit a property purchase application. The application is prepared based on the buyer’s intention, while schedule coordination and hearing surveys are continued taking into account situations on the seller side (whether there are other candidate buyers, etc.). It is crucial to decide how to purchase the property at an early timing to promptly fill in the amount of earnest money and the financial plan section in the application form.

 

(3) Towards concluding an agreement

■ Explanation of important matters and preparation of sales and purchase agreement

When an agreement is reached with the seller side on the purchase details, after coordination of the date of explanation of important matters and sales and purchase agreement, as well as the transfer date, brokers prepare a sales and purchase agreement in compliance with the law. The agreement is prepared after it is confirmed, from a professional point of view, that the agreement is not disadvantageous to the buyer, information on the property is accurately provided, and inconsistency with details of the prior agreement does not exist. Agencies are also obliged to explain important matters included in the sales and purchase agreement to the contractor face-to-face. This procedure is called “the explanation of important matters”. When the buyer is a non-Japanese, since few agencies can make this explanation in the native language of the buyer, interpreters are hired or acquaintances of the buyer who can speak Japanese are asked to join the explanation meeting in some cases.

 

(4) Before and after the delivery date

■ Supporting the buyer to move in

(When the property is a condominium in particular,) brokers, as the contact person, offer not only information provided by the seller, such as the office hours of and the way to contact the management company, application documents to prepare before moving in, and communication of the condominium management rules, but also supporting services until the property is delivered.

 

■ Settlement and delivery

Once the payment of the property price, etc. by the buyer to the seller, delivery of the key, and ownership transfer registration are completed, the ownership of the real estate property is officially transferred to the buyer. This is when the new owner of the property is determined. Agencies will support a set of procedures to transfer the ownership by arranging the settlement date and method and judicial scrivener and indicating documents necessary for registration that the buyer should prepare. In many cases of non-Japanese buyers, affidavits and other documents for registration that differ from those required of Japanese buyers become necessary. Therefore, scheduling needs to take into account the period for preparing such documents, and accurate information needs to be provided to the buyer. In the case of agencies that have no experience of intermediating for non-Japanese buyers, troubles may occur. It is important to choose agencies that can give definite instructions on what, and by when, the buyer should prepare.

 

As mentioned above, in Japan, real estate agencies are licensed under clear rules. Every agency will provide the specific services corresponding to the procedures above, but the integrity, speed, and accuracy displayed in the services provided differ between each agency. Given that, it is best to find agencies you can trust at a good timing.

 

★A comparison of the position of and transactions made by real estate agencies in major countries

In the preceding, we have focused on real estate brokers handling real estate transactions in Japan. Other than the direct parties to a real estate transaction, is there any other person to play a new role? The whole picture of real estate transactions differs among major countries, and we would like to compare them below.

3国比較

■ The United States

(Example of transactions mainly in the west coast)

Real estate transactions are mediated by parties other than the seller and buyer, namely real estate brokers, escrows, home inspectors, and real estate appraisers. “Brokers” and “agents,” which are collectively called “real estate brokers” in Japan, are distinctly divided in the United States. “Agents,” who are individual sales persons, work for “brokers” that have their own offices, etc. Generally, agents conduct negotiations as a proxy of either the seller or the buyer.

Escrows are the coordinators to make sure that, after a sales and purchase agreement is formed and until a consensus is reached for the terms and conditions (right investigations, defect investigations, loan procedures, etc.), the deed of transfer from the seller and the earnest money and trading price from the buyer are deposited to a third party (escrow company, attorney, etc.), and the agreement is performed.

 

■ The United Kingdom

(* Both the seller and the buyer may have their own separate real estate agency.)

Parties other than the seller and buyer, namely real estate brokers, solicitors, and building surveyors, play their role in real estate transactions. Solicitors serve as proxy of the seller or buyer to mainly carry out legal proceedings. “Real estate agencies” in the United Kingdom are more similar to “agents” in the United States than real estate brokers in Japan. They serve as a “proxy for the seller” to carry out advertising activities for the property and intermediation services with the buyer. There not being any licensing system, it is optional to have real estate brokers.

 

■ Japan

(* Both the seller and the buyer may have their own separate real estate agency.)

It is typical in Japan that real estate brokers are the only parties other than the seller and buyer. Judicial scriveners are usually tied up with brokers, and the seller and buyer directly communicate only with the brokers. There is an option for being surveyed by “home inspectors,” who are equivalent to “home inspectors” and “building surveyors” in the United States and the United Kingdom. However, according to materials prepared by the Ministry of Land, Infrastructure, Transport and Tourism, properties are surveyed by home inspectors in only less than 10% of the second-hand property transactions in Japan. Considering that the rates of conducting procedures quite similar to such surveys in the United States and the United Kingdom are both around 80%, home inspectors do not play a large role in general real estate transactions in Japan.

 

 

While the roles of each party in real estate transactions are clearly separated in the United States and the United Kingdom, in Japan, real estate brokers carry out a wide range of procedures, including not only general intermediation services but also loan mediation, arrangement of registration and other legal procedures, and confirmation matters concerning the construction. In other words, most of the roles that are played by parties separate from real estate brokers in the United States and the United Kingdom are all played by real estate brokers in Japan.

As you can see, compared with other countries, in Japan, all the procedures in real estate transactions largely rely on “real estate agencies.” Of course, issues can be found in the necessities for a third-party point of view, but conversely, almost all of the complicated procedures can actually be handled by communicating with only one real estate agency. Now, do you still have questions about how large a role the real estate agency plays in Japan? Next, we would like to discuss the “commission fee” paid to real estate agencies in Japan with such a significant role.

 

★ Commission fee paid to real estate agencies

In Japan, when a real estate transaction is concluded, a brokerage fee needs to be paid to the broker. The unique point of this brokerage fee in Japan compared with 2countries above is the fact that the “buyers” are also required to pay the brokerage fee in every case.(*except new built real estate sold directly by developer) The upper limit of such brokerage fee is provided for in the Real Estate Brokerage Act, and real estate brokers can freely determine its amount within a range not exceeding the provided amount. From the buyer’ s side, the smaller amount of the fee, the better. However, when you run into a real estate agency that boasts its discount in brokerage fee, take utmost care of the possibility of “cheap is cheap.”

 

(1)Amount of commission fee

■ The upper limit of the brokerage fee to be paid in sales and purchase agreements is as follows.

Amount of fee to be received from a requesting party

 

Transaction price

Amount of fee (net of tax)

a

Up to \2,000,000

Within 5.0%

b

Over \2,000,000 and up to \4,000,000

Within 4.0%

c

Over \4,000,000

Within 3.0%

 

 

―Case study―

Q. What is the upper limit of the brokerage fee for a condominium with a transaction price of \10,000,000?

______________________
a) Portion up to \2,000,000
\2,000,000 × 5% = \100,000

b) Portion of over \2,000,000 and up to \4,000,000
\2,000,000 × 4% = \80,000

c) Portion of over \4,000,000
\6,000,000 × 3% = \180,000

A. \360,000 + Taxes

______________________

 

Given the market prices of real estate properties in Japan, most properties in the urban area should have a price range of the above c. In such cases, since the amount of the fee is frequently required to be calculated, the simplified calculation formula is usually used.

Simplified calculation formula = Trading price × 3.0% + \60,000 + Taxes

Calculation for the above case shall be as follows.

\10,000,000 × 3% + \60,000 + Taxes = \360,000 + Taxes

This amount matches the amount mentioned above.

The common practice is to pay half of the brokerage fee for the sales and purchase agreement at the time of conclusion of the agreement and pay the remaining half at the time of settlement and delivery.

 

■ Commission fee for lease agreements differs from that for sales and purchase agreements.

When a real estate agency intermediates transactions between the landlord and tenant, or when it offers intermediary services for either one of the landlord or tenant, the total amount of brokerage fee to be earned shall be the upper limit of the monthly rent amount (net of tax).

In cases of lease agreements, the brokerage fee is usually paid at the time of conclusion of agreements.

 

By property type

Amount of fee (net of tax)

Landlord

Tenant

Building (house)
for residence

Within rent for 0.5 month

Within rent for 0.5 month

With a consent from a requesting party, an amount within the rent for a month may be received from either one of the landlord or tenant. However, in such cases, the total amount of fee to be received from the landlord and tenant must be within the amount of rent for one month.

Other
properties

Within rent for one month
When the total amount of fee to be received from the landlord and tenant is within the amount of rent for one month, there is no special restriction on the amount of fee to be received from each of them.

 

You need to pay attention when the real estate agency demands payment of advertising expenses. If they are advertising expenses expected to be incurred for the intermediary services normally assumed to be offered, you don’t need to pay for them. However, if requesting parties exceptionally make special requests for advertising activities, they become obliged to pay for such activities.