Let's talk about the often talked about B-word in real estate. Brokerage is often seen as an unnecessary and extra expense by landlords,tenants, buyers and sellers alike, to the point that many real estate companies and agents appeal to potential clients by offering zero brokerage fees. In this article we will explore exactly what brokerage fees are, how exactly it is collected and who it is collected from.
What's the difference between a real estate agent and a broker?
While they essentially do the same thing, there are subtle differences between how they operate. Brokers are licensed commercial and residential real estate experts who identify leads, close deals, manage bureaucracy and handle the big picture scenarios. The primary source of income for brokers are brokerage fees which are a portion of the commission generated by their affiliated agents. Brokers often start out as agents and may also engage in transactions of their own in order to earn commission.
Agents on the other hand are licensed professionals as well who do most of the grunt work. They manage the inventory on-hand, participate in property showcasing, client visits and represent the broker to a buyer or a seller. They are generally the face of real estate transactions and earn through commission from sales, referral fees and through ancillary services that involve property management and staging.
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What are brokerage fees?
While navigating the landscape of commercial real estate, it could be difficult to find your perfect commercial space if you set out on the journey on your own. Hence, new investors often employ the help of middle men who have the expertise and industry knowledge to find the ideal space for you. These middle men are known as brokers. And since they provide an essential service in a real estate transaction, they are paid a fee for this service known as brokerage. For example, imagine a company that manufactures headphones. The factory assembles it and packages it. The company itself might not have the resources to market the product or have retail locations. So the company lists its products on a retail website or a third party retail location in exchange for a fee. This offers the company's product a visible spot on a largely public platform.
Brokerage works in a similar way. A real estate broker catalogues property listings made by sellers and landlords and in turn showcases them to potential buyers and tenants. The brokerage fee is a charge for this cataloguing and assistance in finding the right fit for both parties involved in a real estate transaction.
How are Brokerage Fees Charged?
Typically, when a sale is made, brokers charge 1-2% of the total value of the transaction. This charge is collected from both parties. Whereas, in a rental transaction, after a lease is signed, the agreed upon brokerage fee is generally the rental value of 1-2 months. However, if the parties agree upon a loyalty with the broker for any current and future transactions, this value is negotiable and can be agreed upon by everyone involved in the transaction.
How to Become a Real Estate Broker?
Since the introduction of the Real Estate (Regulation and Development Act), 2016 (RERA), the process of registering as a broker or an agent has become much more regulated. This act mandates that agents and brokers must have a RERA registration number in the form of a licence. Here are the steps to register as a licenced broker:
- Visit the official RERA website of the state you want to operate in. Applicants can either register as an individual for their solo practice if they want to freelance, or as an agency.
- Fill out the application form with the requisite information and pay the required fee. This fee varies from state to state and depends on whether the applicant is registering as an individual or as an agency. For example, in Maharashtra, the fee for obtaining a real estate licence as an individual is Rs. 10,000 and in case of real estate brokerage firms, the fee is Rs. 1 lakh.
- Several documents identifying the applicant and their business are to be submitted.
- Finally, the applicant must apply for a Professional Tax Registration. This certification requires annual renewal and varies between Rs. 2500-Rs. 7000, depending on the state.
Once this process is complete, the local RERA chapter will send you your licence and registration number. Broker licences typically need to be renewed every 5 years by paying a small fee.
RERA guidelines for Real Estate Brokers
The RERA Act, 2016 requires licensed brokers and agents to adhere to a set of guides and rules, under threat of penalty. These include:
- Not facilitating the purchase/sale of any unregistered property
- Obeying the rules stated in the Act
- Not indulging in any unfair trade practices such as committing (orally or in writing) features, information, that is false and misleading or that will most likely not be offered
- Facilitating the possession and scrutiny of all the documents and information that the homebuyer is entitled to at the time he/she books any apartment, plot, or building.
Conclusion
There you have it—the intricate dance of brokerage fees in Indian commercial real estate. As you embark on your real estate journey, armed with the knowledge gained here, remember that transparency is your ally. Don't shy away from asking questions, negotiating, and ensuring that all costs, including potential hidden ones, are laid out on the table.
Unmasking the mystery of brokerage fees in Indian commercial real estate requires a combination of market awareness, negotiation finesse, and a dash of intuition. So, go ahead, venture into the bustling landscape of Indian commercial real estate, and may the fees be ever in your favour! Unmask the mystery and make your real estate dreams a reality.
