Above, from left, Alí Araúz, Kevin Sing and Kevin Singham
With all the hullabaloo these days concerning residential real estate sales in America, including buyer-agent commission worries, continual legal proceedings and more, what’s going on in other countries? Has their way of doing business come under similar scrutiny? Has there been any kind of outcry over who pays commission fees? Are their markets strong?
We spoke with real estate executives from Spain, Canada and Malaysia—all members of Leading Real Estate Companies of the World®—who answered these questions and more, providing a detailed look at the real estate process outside the U.S.
SPAIN
Alí Araúz
Senior Marketing Executive
Lucas Fox International Properties
Barcelona, Catalonia
Sotogrande, Málaga (Costa del Sol), Spain, $5,547,000.
How do real estate agents work in Spain?
Real estate agents in Spain typically work on a commission basis, which is usually a percentage of the final sale price of the property. We operate with an employment model where we hire individuals as payroll employees with contracts, rather than engaging freelancers. Employees are hired directly onto the company’s payroll system. This means they are considered formal employees and are entitled to benefits such as Social Security contributions, paid time off and other perks, such as nursery payment contributions. This approach is not common in the Spanish real estate sector, though. Additionally, they receive the above-mentioned commission for each property sold.
In the U.S., lawsuits have resulted in changes to how buyer commissions are specified. Have there been any legal issues of any kind regarding residential real estate in Spain?
Regarding legal issues, the announcement made by Isabel Díaz Ayuso, president of the Community of Madrid, on October 16, 2023, introduces favorable tax conditions for investment in the Madrid region. This initiative aims to attract new investors and taxpayers by offering a deduction of 20% in Personal Income Tax (IRPF) for those who have not resided in Spain in the last five years and wish to invest and settle in the region. The deduction applies to both financial and real estate assets and is designed to encourage long-term investment and residency in Madrid. This fiscal measure, while not directly addressing legal issues in residential real estate, reflects government efforts to stimulate investment and economic growth in the region.
How popular is the real estate agent profession?
The real estate agent profession in Spain remains highly popular, given the country’s vibrant property market, especially within the luxury segment, as evidenced by substantial growth in the luxury housing market throughout 2023. This trend is expected to continue this year and beyond, making it a lucrative market for many luxury real estate professionals. Lucas Fox has over 250 collaborators across its 33 offices, offering not only stability but also a comprehensive professional growth plan, including onboarding, continuous training and personalized mentorship with executives. Our commitment to nurturing our human resources is reflected in our low annual personnel turnover rate of 6%, a significantly positive figure compared to the industry average of around 30%.
How do you find leads, listings and clients?
Lucas Fox employs a multifaceted approach that includes leveraging innovative techniques, digital tools and industry recognition. Recently named the best real estate agency in Europe at the European Property Awards, we are committed to excellence and continuously strive to uphold our reputation for quality and service. Our advanced marketing strategies, supported by data-driven insights, enable us to attract potential clients effectively and provide them with exceptional experiences. Through our customized CRM system, we streamline processes and respond swiftly to market demands, ensuring agility and efficiency in our operations. Having digitized processes and innovative tools allows us to go much further than most traditional real estate agencies. We automate processes to focus on what matters most: personalized attention to our clients.
What is the current state of residential real estate?
- The Spanish property market slowed in 2023, marking a transition from the period of growth fueled by pent-up demand following the pandemic, to what we consider to be a long-term growth trajectory of sustainable growth that should continue for the coming years.
- There were close to 600,000 home sales in 2023, down 10% compared to the previous year, but 16% higher than 2019.
- The high interest rates in 2023 directly impacted the demand for the low- and mid-market segments, especially.
- In the luxury real estate market, fewer buyers are opting for mortgages, especially evident among international buyers.
CANADA
Kevin Sing
President
DFH Real Estate Ltd.
Victoria, British Columbia
Shore Way, Victoria, BC, Canada, $5,380,000.
How do real estate agents work in Canada? How are commission percentages decided?
Canada is a large and diverse country with real estate transactions generally managed similarly coast to coast but with significant small differences within each province, as each province has its own regulatory body. This is very important for sellers and buyers to understand, as the process in Toronto may be a different experience than Vancouver.
Like the U.S., Canadian REALTORS® are mostly independent contractors to their brokerage and are typically earning income via a contracted commission usually offered by the listing brokerage contract with the seller. The agent’s portion of either the listing commission and/or cooperating commission offered by the seller’s brokerage is subject to the REALTOR®’s contract with their brokerage.
There are a wide range of commission structures across Canada and even between different market areas within provinces, and different commission offers within market areas, as Canadians have seen many different business models over the years. In some parts of Canada, it is not uncommon for flat percentages similar to what U.S. homesellers see in their markets. However, in provinces like British Columbia, the listing commissions are generally lower. Sellers will be negotiating fees that can look like 5% or 6% or 7% on the first $100,000 and a much lower 2.5% or 3% on the balance. In many markets, flat 3%, 2% or even 1% is negotiated by the seller.
The costs of doing business will vary depending on whether a REALTOR® is contracted to a full-service brokerage or a limited-service brokerage. Therefore, one may expect that a limited-service brokerage might negotiate a smaller commission or fee to list a property.
Listing commissions are negotiable and are usually tied to the level of service offered in the contract with the seller. Many business models seen over the years require an upfront fee to cover base services with a smaller commission percentage of sale price. Usually, the cooperating fee for the buyer agent’s brokerage is 50% of the listing commission, but this can vary as well. Some business models only offer a small flat fee to the buyer agent. Disclosure of remuneration for the services provided by the buyer’s agent has been documented in most Canadian markets for several years as provincial regulators have worked to increase transparency in real estate transactions. Provinces like British Columbia no longer allow dual agency or limited dual agency transactions (“double-ending”) except in very limited circumstances. This means that buyers must have their own independent representation in any residential transaction. In some provinces like Alberta, buyer agency agreements are mandatory to ensure that buyers fully understand everything from the REALTOR®’s fiduciary duties to how their REALTOR® is compensated. Buyer agency agreements and/or contracts are becoming more commonplace in other provinces as well.
In the U.S., lawsuits have resulted in changes to how buyer commissions are specified. Have there been any legal issues of any kind regarding residential real estate in Canada?
Canadian brokerages, real estate boards and REALTORS® have become aware of the lawsuits which may change compensation arrangements in the U.S. A similar suit has been launched in Ontario that may or may not result in change. This suit could take years to result in any significant changes because of all the jurisdictional differences across the country.
How popular is the real estate agent profession?
The number of new licensees in most major markets in Canada would indicate that the real estate profession is still popular despite the increase in regulation and oversight. However, the realities of hard work, continuing education, licensing fees, long and strange hours, etc., still create a significant turnover. The challenge facing brokerages is that the costs of the increased regulation have not been articulated to the consumer very well and REALTORS® will also be facing their share of the regulatory burden, which may dampen the popularity of the profession.
How do you find leads, listings and clients?
REALTORS® in Canada, like in the U.S., generate business from a variety of sources. There are some that purchase leads, and some rely on mass advertising in print, billboards and bus benches, etc. However, technology, CRMs and the use of website traffic to support the efforts of REALTORS® to network, engage in their communities and manage relationships new and old to garner referral business is more the standard today. Effective use of technology to support network engagement keeps REALTORS® top of mind after delivering sound, professional advice that leads to a completed transaction. One happy client theoretically leads to another two or three or more.
What is the current state of residential real estate?
Housing, more specifically, the cost of housing, is a current hot topic in most Canadian markets which are still experiencing inventory shortages in the face of increasing demand. Many markets are thousands of housing units short of a balanced supply and will be for the foreseeable future. The Canadian government has increased the immigration targets to 500,000 per year to fulfill apparent shortages of certain skills in Canada, but did not implement a housing strategy to complement this policy, particularly in the major centers. The aging population are not moving as readily from traditional single-family homes to smaller, more efficient options that were anticipated for many reasons including additional taxes that erode their buying power, ironically making it more cost efficient to stay in their single-family homes longer and not freeing up inventory for next generations.
MALAYSIA
Kevin Singham
Owner
Interealtor
George Town, Penang
Double-story detached house, Tanjung Bungah, Penang, $1.02 million.
How do real estate agents work in Malaysia? How are commission percentages decided?
The real estate industry is under the governing body known as Board of Valuer, Appraiser, Estate Agents and Property Manager, and it is within the Ministry of Finance. We are allowed to collect up to a maximum of 3% of the sales price and 1.25 months of the rent for rental deals. We do not normally get paid a salary, just commission upon successful deals. In terms of marketing, depending on the type of property, mostly online, social media, open house and social events as well.
In the U.S., lawsuits have resulted in changes to how buyer commissions are specified. Have there been any legal issues of any kind regarding residential real estate in Malaysia?
At this point in time we do not have such issues. Our profession is well-regulated.
How popular is the real estate agent profession?
The real estate industry is doing well as Malaysians are getting more affluent and able to appreciate the usefulness of our services. This profession is considered one of the most lucrative ones. Looking at the number of agencies being set up and the number of agents registered with the Board, we can confidently say that this industry is growing fast, and no longer a job meant for retirees. We see many young and energetic agents join the industry.
How do you find leads, listings and clients?
Many different methods, depending on your target market, but ultimately, it is about putting yourself out in the market, networking and offering your services. Property portals and social media are commonly used, but referrals have always been the best way to get quality leads.
What is the current state of residential real estate?
Sixty-three percent of the total Malaysian properties transacted in 2023 were residential properties. The volume has also gone up compared to pre-COVID. We foresee that 2024 will be even higher, and prices will also stabilize despite construction costs going up. Several new developments are expected to be completed this year that would also lead to more activity in the sale and rental market.
