Com­mis­sions for real es­tate agents

Financial Mirror (Cyprus) - - FRONT PAGE -

• 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.

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