Introduction:
“The best way to find out if you can trust someone is to trust them.” – Ernest Hemingway
But what if trust could cost you tens of thousands of dollars?
In the world of real estate, hidden commissions can turn trust into a costly gamble. While buying a property should be an exciting step to be done, many find themselves caught off guard by the hidden layers of fees and commissions that inflate the final price.
Imagine this: what seems like a straightforward investment can quickly become a trap of fees, with each step adding more to your financial burden.
In this blog, we’ll clear up how these commission chains can mislead buyers and explore a smarter, more transparent path to homeownership.
I- The Concept of Commissions Across Services
Definition: Commissions are a fundamental aspect of many industries, acting as a performance-based compensation structure that lines intermediaries' interests with their outcomes.
Essentially, a commission is a fee paid based on the success of facilitating a transaction or sale, providing incentives for individuals to maximise their performance.
This practice is prevalent across various services, including real estate, where it plays a crucial role. In the real estate sector, agents or agencies are compensated with a percentage of the property's transaction value, ensuring their motivation to achieve the best possible terms for their clients and drive successful property deals.
In Turkey, real estate agencies typically charge commission rates ranging from 2% to 4% of the property's sale or rental price, a common practice though not legally regulated and here we have a lot to tell. Thus, the responsibility for paying this commission generally falls on the party that engages the agency, whether the buyer or the seller, depending on their agreement.
Understanding this commission structure is a door-unlock for anyone involved in real estate transactions in Turkey, as it impacts the overall cost and financial planning of the deal. Additionally, other costs such as title deed transfer fees, notary fees, and property taxes should also be taken into account.
II- The Chain of Commissions and Its Impact on Property Prices
You have been wondering why property prices are so much higher than anticipated?
The chain of commissions in Turkey’s real estate market is the key to answer this question.
This chain involves multiple stages of commission payments, each adding to the final cost of a property. Here we go with explaining more details and revealing much truth.
When a developer launches a new project, they typically contract a sales office, known as a “pazarlama,” to handle the marketing and sales of the properties. The sales office earns a commission that usually ranges from 5% to 10% of the property's sale price. This fee compensates the sales office for its role in promoting the project and securing buyers.
Subsequently, the sales office assigns the project to various real estate agencies to further market the properties and facilitate transactions. Real estate agencies receive a commission from the sales office, which generally ranges from 7% to 15%. This reflects the agencies' efforts in negotiating deals, marketing the properties, and managing client relationships.
In addition to these commissions, property transactions in Turkey are subject to government taxes ranging from 4% to 5% of the transaction value. These taxes are applied to the sale or transfer of the property and contribute to the overall cost.
When all these commissions and taxes are combined, they can account for up to 30% of the final property price, noting that the client has no idea about paying this commission in the included price of the property.
III- The Hidden Commission System: How It All Began?
Years ago in the early stages of Turkey’s real estate market, the commission chain appeared to address specific needs and market dynamics, with developers initially relying on specialised marketing and sales expertise to attract buyers in a market with limited international reach. This necessity led to the creation of the “pazarlama” or sales office, which played a crucial role in promoting new projects, managing client interactions, and facilitating transactions.
As the market grew and international investors became more interested in Turkish real estate, the complexity of the sales process increased, prompting the sales offices to expand their reach and enhance their capabilities to serve a broader and more global clientele.
To meet these evolving needs, real estate agencies were introduced into the commission chain, serving as intermediaries between sales offices and potential buyers, with a particular focus on international investors. These agencies added value through multilingual agents, global marketing campaigns, and localised expertise, and thus commanded higher commissions for their efforts in reaching a global audience and managing more complex transactions.
However, over time, this expanded commission chain, while initially effective, contributed to escalating property prices. The accumulation of multiple fees and hidden commissions, compounded by government taxes, led to a significant increase in the final property costs. This system, initially established to address specific market needs, gradually became a burden as inflation and market pressures intensified.
IV-The Shift in Market Dynamics
Today, with increased transparency and access to information, international investors are more aware of these complexities and hidden costs. As a result, there is a growing trend towards simplifying the transaction process. The traditional lengthy commission chain is increasingly seen as unnecessary and cumbersome. Investors and developers alike are now favouring more direct interactions, bypassing the extensive chain of intermediaries and concluding two chains in one.
This shift reflects a market evolution towards greater efficiency and transparency, where dealing directly with expert realtors who have direct connections with developers is becoming the preferred approach.
The current market trend highlights a reversal from the previously complex structure. Just as the market once created a multi-layered commission system to meet specific needs, it is now evolving to eliminate these layers in favour of more straightforward, transparent dealings.
This transition reinforces a mature market, where efficiency and directness are valued over traditional practices, ultimately benefiting both investors and developers by reducing costs and shortening transactions.
V- The Future of the Real Estate Market.
Direct Expertise, Right Home Leads the Way!
As the Turkish real estate market grows, a significant shift is occurring towards more simplified and transparent transactions. The future of real estate in Turkey is increasingly leaning towards working directly with professionals who possess deep knowledge and established relationships within the industry.
This approach is exemplified by our company Right Home, which brings over 12 years of expertise in navigating the local market and dealing directly with developers.
At Right Home we have distinguished ourselves by imposing upon our extensive network and long-standing relationships with developers to facilitate transactions without the need for multiple intermediaries.
This direct approach not only simplifies the buying process but also reduces costs associated with hidden commissions. Whereas traditional commission chains can inflate property prices by up to 30% through various fees and commissions, Right Home offers a more transparent and cost-effective solution. With an on-the-table commission rate of just 3%, clients benefit from comprehensive services, including expert negotiation and robust after-sales support.
By choosing to work with Right Home, buyers and investors can enjoy a more efficient and cost-effective real estate experience, free from the layers of hidden fees that have historically inflated property costs. This shift towards direct dealings with experienced professionals marks a significant advancement in the real estate market, promising greater transparency, reduced costs, and a more streamlined process.
+The Equation is the following:
When purchasing a property valued at around $100,000, you have two options:
-Option 1: Using X broker involves multiple layers of commissions and fees.
You would face a 10% hidden commission plus 2% VAT, totaling approximately $50,000 in additional costs. On top of this, you would pay a 6% commission to the sales office (pazarlama) and an additional 1.5% VAT. This results in a final property cost of about $150,000 as minimum.
-Option 2: Choosing Right Home, offers a more straightforward and cost-effective solution. We charge a transparent 3% commission, which includes comprehensive after-sales services. With our approach, you would pay a total of $103,000 for the property, significantly reducing your costs compared to the traditional route. This process benefits all parties: you save money, we ensure a smooth transaction, and the developer is pleased with the efficient process. It's a win-win scenario for everyone involved.
Conclusion:
In conclusion, while the real estate commission chain in Turkey once served a vital role in facilitating property transactions and expanding market reach, it is increasingly being challenged by new market dynamics. As international investors become more knowledgeable and market processes become more efficient, the need for an extensive commission chain diminishes. The future of the real estate market is leaning towards more direct, transparent, and efficient transaction models, reflecting the ongoing evolution of the industry.
“In the real estate world, clarity and efficiency are the keys to success.”
