Table of contents
Part 1: How do Hong Kong real estate agents make money?
Hong Kong is one of the cities with the most active real estate markets in the world. High property prices, dense population and limited land supply make the real estate agency industry a highly competitive but lucrative field. However, this industry has long been subject to controversy due to its complex operating mechanisms and improper behavior of some practitioners. This article will take an in-depth look at the profit model of Hong Kong real estate agents and expose common controversial practices and potential problems in the industry.
1. Commission income: the main source of profit
The core income of real estate agents comes from commissions on property transactions. According to the regulations of the Estate Agents Authority (EAA) of Hong Kong, there is no statutory upper limit on the commission rate, which is usually negotiated between the buyer and the seller. In general:
– Residential property: The commission is approximately 1% (paid by the buyer) to 2% (paid by the seller) of the transaction price. Some luxury homes or special properties may be higher.
– Commercial properties: The commission rate is relatively low, about 0.5%-1%, but due to the huge transaction amount, the total commission amount may be extremely high.
– Lease transactions: The commission is usually half a month to one month’s rent, which is shared equally between the landlord and the tenant.
For example, for a house worth HK$10 million, if the commission ratio is 1%, the agent can earn HK$100,000. If the agent represents both the buyer and the seller (known as "dual agency"), the income may be doubled.
2. "Eat the difference": gray area operation
Some agents will earn the difference by "buying low and selling high". For example, if the owner lists the property for sale at HK$8 million, and the agent sells it for HK$8.2 million and conceals the actual transaction price, the difference of HK$200,000 may go into the agent's pocket. Although this behavior violates the Estate Agents Ordinance, it still occurs due to regulatory loopholes.
3. Referral Fees and Cooperation Commissions
– Cross-regional cooperation: Agents who refer clients to peers in other regions can receive commissions (usually 20%-30% of commission).
– Financial services referral: Agents recommend clients to apply for mortgage loans from specific banks or finance companies and may receive kickbacks.
4. Developers’ new property sales: high bonuses
When an agent participates in the sale of a new property, the developer often offers a "performance bonus" in addition to the basic commission. For example, a commission of HK$50,000 can be earned for each unit sold. If 10 units are sold per month, the additional bonus can reach hundreds of thousands of Hong Kong dollars. This model encourages agents to prioritize the promotion of new properties and even ignore the needs of customers in the secondary market.
5. Additional service income
– Decoration and moving referrals: Agents recommend decoration companies or moving services and charge a referral fee.
– Overseas property sales: In recent years, it has become popular to promote overseas properties in Japan, the United Kingdom, etc., and the commission rate can reach 5%-10%.
Part II: Industry and Common Disputes
1. False statements and misleading sales
– Exaggerating the appreciation potential: Agents may attract buyers with words such as “the location is bound to appreciate” or “the government planning is favorable”, but the actual development may be delayed or cancelled.
– Concealing unfavorable factors: Some agents choose to avoid discussing haunted houses, structural problems with the property, noise from surrounding construction projects, etc.
Case: In 2021, a buyer purchased a unit in Sai Wan, only to find out that the building’s exterior wall was about to undergo major repairs and that he would have to share hundreds of thousands of Hong Kong dollars in costs, but the agent never informed him.
2. "Shadow Listings" and Fake Listings
In order to attract customers, some agents will post false property information online, such as marking "bargain properties" at prices below the market price, and then promote other properties when customers inquire. This move not only wastes customers' time, but is also likely to disrupt market price transparency.
3. Speculation and short-term resale
"Touching the goods" refers to reselling the property before it is officially sold, commonly known as "mocking the goods". Agents may work with investors to purchase new property units at low prices under the name of "internal subscription" and then resell them at a higher price within a short period of time, thereby pushing up property prices. Such operations are particularly common when the real estate market is hot.
4. “Hard sell” and high pressure sales tactics
– Create anxiety: For example, claiming that “another buyer has made a higher offer” or “the owner is about to make a counter-offer” to force the customer to make a hasty decision.
– Fatigue tactics: lobbying clients for a long time, even accompanying them until late at night, until the contract is signed.
This type of tactic is common in new property sales, where some agents are willing to sacrifice the interests of their clients in order to achieve performance targets.
5. Commission disputes and “flying orders”
- Skipping the agent and trading privately: To save commissions, buyers and sellers may trade on their own after the agent has introduced them (commonly known as "skipping commissions"), causing the agent's efforts to go to waste.
– Commission distribution disputes: If multiple agents are involved in the same transaction, conflicts may arise over the commission distribution ratio, and even go to court.
6. Good understanding with developers
Some agents may reach a "tacit understanding" with developers to obtain exclusive sales rights, such as:
– Prioritize the promotion of specific properties: Even if the project does not meet the customer’s needs, we will still strongly recommend it.
– Manipulating sales data: Creating the illusion of “hot sales”, such as claiming that “80% of units were sold on the first day”, when the actual sales rate may be less than 50%.
7. Unlicensed operation and illegal operation
According to EAA data, more than 200 complaints of unlicensed operations were received in 2022. Unlicensed agents often provide services under the name of "property consultants" but fail to protect the rights of their clients after collecting commissions.
Part III: Regulatory Mechanisms and Consumer Self-protection Strategies
1. Current regulatory system
– Estate Agents Authority (EAA): responsible for licensing and taking disciplinary action against agents who fail to comply with the regulations, such as revoking their licence or imposing fines.
– Estate Agents Ordinance: requires agents to disclose commission rates, property information and transaction risks.
2. Consumer self-protection advice
– Check agent license: You can verify agent qualifications on the EAA website.
– Read the terms carefully before signing the “property viewing document”: avoid agreeing to an exclusivity period that is too long.
– Verify property information yourself: such as checking Land Registry records and requesting a structural inspection report.
– Record or bring a third party witness: especially in important negotiations, keep evidence to prevent disputes.
Summarize
While the real estate agency industry in Hong Kong creates economic value, it also suffers from the damage to public trust caused by some bad apples. In recent years, regulators have stepped up efforts to crack down on irregularities, and some large agency banks have also introduced technological means (such as VR property viewing and blockchain contracts) to improve transparency. However, a thorough improvement in the industry's image still requires the joint efforts of practitioners' self-discipline, consumers' vigilance and institutional improvement. For ordinary citizens, understanding the profit model and potential risks of agents is the first step to avoid becoming "lambs".
