Commissions for real estate agents
• Only registered estate agents are entitled to ask for the commission and there are various “tricks” used by several illegals in the market, eg. advertising, personal care used for finding customers, etc.
• The Income Tax or the Capital Gains does not recognise the term “commission” as a deductible expense from nonreal estate agents, even though as I mentioned before, there are various tricks around this obstacle.
• The rate of commission has prevailed to be 5% in all towns, with the sole exception of Nicosia where the prevailing rate is 3% (but, at present the trend is upward).
• Sometimes, this rate of commission can even surpass the level of 5% rising to 10%, while in the case of Chinese intermediaries it could even reach beyond 20%.
• This percentage is high but local real estate agents often use foreign real estate agents to promote their properties to the outside and they usually ask for 5%, plus the local real estate agent’s 3.5-5% and it is obvious where we can end up.
• The agreement for more than 3%, although not mentioned that it should be in writing, however, the income tax required this for purposes of deduction as an expense. This is a little absurd seeing that all are declared - costs / income are referred to all parties involved, thus the issue of commission creates further complications.
• It is assumed that real estate agents use third parties as a source for new business, such as a local taxi driver, barmen, doctors and others. Here there is a problem because it is well known that foreign buyers typically use third party services as part of their work, while in this weak period of demand, more and more frequently someone will come along as having a “friend” or willing to “help”.
The real estate agent’s relationship with the seller is even more difficult and outsiders often view estate agents with great suspicion. They may often be justified by the fact that some real estate agents agree with the seller at a price ‘A’ and when the sale goes through, another amount is added “to cover the extra cost of the real estate agent.”
Most developers have realised there is a major problem in finding new buyers themselves so they may offer 8-10% — mainly in Paphos – an amount that is certainly to be added to the selling price.
The biggest problem that remains is that of the Chinese middlemen who overcharge (± 20%) and the commission cannot be justified legally, as mentioned there are other ways to present these as ‘expenses’.
Included in the above problem is the dilemma of what price the owner-seller should advertise the property. Should the price include the 5%-8% commission or set a higher price to cover the various persons and costs involved, as most sellers are already advertising the selling price on websites, etc. In a recent case that has come to our office’s attention, a Chinese buyer may have paid, say, EUR 120,000 for an apartment and the (British) neighbour in the same development or even next door had only paid EUR 105,000.
For these and many other reasons it is recommended to use a reputable lawyer who is knowledgeable of property matters so as to avoid future complications and to clarify the issue from the start.
It is difficult to limit the commission rate and this may be the only profession which by law determines the commission, while everyone else, such as car dealers, medical professionals, plumbers, electricians, engineers and architects do not have such a restriction. But it is a matter that should be properly reviewed at a later stage.