Transaction Costs in Japan

Example Acquisition Scenario (estimated):

Property Price: 52,000,000 JPY

Fixed asset tax settlement amount: 316,400 JPY

Ownership transfer registration fee: 551,100 JPY

Contract affixing stamp fee: 30,000 JPY

Brokerage fee (including consumption tax): 1,782,000 JPY (Smart Property Japan's consulting fees are free over 17,000,000 JPY)

Real estate acquisition tax: 916,900 JPY

Total amount approximately: 55,596,000 JPY

(see https://smartpropertyjapan.com/our-services for details on our commission structure)

Example Acquisition Scenario (estimated):

Property Price: 1,000,000 JPY

Fixed asset tax settlement amount: 4,000 JPY

Ownership transfer registration fee: 55,000 JPY

Contract affixing stamp fee: 1,000 JPY

Brokerage fee (including consumption tax): 570,000 JPY* (this includes Smart Property Japan's consulting fees on properties below 17,000,000 JPY)

Real estate acquisition tax: 30,000 JPY

Total amount approximately: 1,660,000 JPY

*The structure of our fees can vary for very low-price point real estate in Japan. In some transactions, we may act solely as consultants. Please contact us for details, as this will depend on the specific property.

(see https://smartpropertyjapan.com/our-services for details on our commission structure)

Example Sale Scenario (estimated):

Property Price: 52,000,000 JPY

Agent Commission: 1,716,000 JPY

Prorated Fixed Asset Tax: 150,000 JPY (depending on the sale date)

Judicial Scrivener Fee: 50,000 JPY

Mortgage Prepayment Fee (if applicable): 50,000 JPY

Total cost (without capital gains tax): 1,966,000 JPY

(see https://smartpropertyjapan.com/our-services for details on our commission structure)

Introduction

In Japan, real estate transactions often involve paying agent commissions. While some may question the necessity of these fees, understanding their purpose and how they are determined can clarify their importance. Agent commissions are essential for securing the best property and ensuring smooth transaction processes. Given the significant nature of real estate transactions, it is advisable to carefully consider the value of the services provided by real estate agents to ensure a satisfactory outcome. This article explains what agent commissions are, how their amounts are calculated, and their role in buying, selling, and leasing real estate in Japan.

What is an Agent Commission?

An agent commission is a fee paid to a real estate company for its intermediary services when a sales contract or lease contract is concluded. The real estate company facilitates the process by posting property information online, creating promotional materials, guiding clients to properties, researching property details, negotiating contract terms, preparing contract documents, and explaining important matters at the contract's conclusion.

This commission is essentially a payment for the extensive services provided by the real estate company to ensure a successful transaction. Importantly, since it is a contingency fee, you only pay it if the contract is successfully concluded.

How is the Commission Amount Determined?

Smart Property Japan charges the same standard realtor fee structure that you will find at most real estate agencies across Japan on properties over 17,000,000 JPY:

• Over 4 million JPY = Sales Price x 3% + 60,000 JPY

• Between 2 million JPY and 4 million JPY = Sales Price x 4% + 20,000 JPY

• Less than 2 million JPY = Sales Price x 5%

Every transaction is different, and our fees may change depending on your transaction. Please contact us for more information. Commissions below 17,000,000 JPY require a consultation fee (this means the lowest fee will be 570,000 JPY). This includes full agency service and consultation. Consultation is free over 17,000,000 JPY. Here are some possible calculations examples (these calculations do not include applicable taxes):

1) 1 million JPY:

- Commission: 1,000,000 x 0.05 = 50,000 JPY (+ consult fee = 570,000 JPY)

2) 2 million JPY:

- Commission: 2,000,000 x 0.05 = 100,000 JPY (+ consult fee = 570,000 JPY)

3) 3 million JPY:

- Commission: 3,000,000 x 0.04 + 20,000 = 140,000 JPY (+ consult fee = 570,000 JPY)

4) 4 million JPY:

- Commission: 4,000,000 x 0.04 + 20,000 = 180,000 JPY (+ consult fee = 570,000 JPY)

5) 5 million JPY:

- Commission: 5,000,000 x 0.03 + 60,000 = 210,000 JPY (+ consult fee = 570,000 JPY)

6) 6 million JPY:

- Commission: 6,000,000 x 0.03 + 60,000 = 240,000 JPY (+ consult fee = 570,000 JPY)

7) 7 million JPY:

- Commission: 7,000,000 x 0.03 + 60,000 = 270,000 JPY (+ consult fee = 570,000 JPY)

8) 8 million JPY:

- Commission: 8,000,000 x 0.03 + 60,000 = 300,000 JPY (+ consult fee = 570,000 JPY)

9) 9 million JPY:

- Commission: 9,000,000 x 0.03 + 60,000 = 330,000 JPY (+ consult fee = 570,000 JPY)

10) 10 million JPY:

- Commission: 10,000,000 x 0.03 + 60,000 = 360,000 JPY (+ consult fee = 570,000 JPY)

11) 15 million JPY:

- Commission: 15,000,000 x 0.03 + 60,000 = 510,000 JPY (+ consult fee = 570,000 JPY)

12) 17 million JPY:

- Commission: 17,000,000 x 0.03 + 60,000 = 570,000 JPY

13) 20 million JPY:

- Commission: 20,000,000 x 0.03 + 60,000 = 660,000 JPY

14) 30 million JPY:

- Commission: 30,000,000 x 0.03 + 60,000 = 960,000 JPY

15) 50 million JPY:

- Commission: 50,000,000 x 0.03 + 60,000 = 1,560,000 JPY

16) 100 million JPY:

- Commission: 100,000,000 x 0.03 + 60,000 = 3,060,000 JPY

Before any purchase offer is made, we will take a 100,000 JPY deposit from our clients.

Many foreign buyer transactions will require additional services such as proxy representation and remote viewings. Please contact us for pricing.

Prices subject to change without notice.

*Our agency commission does not include transaction costs such as taxes, property inspection, advertising, travel costs, or legal fees. Please contact us for more information, or click here to see our article on transaction costs in Japan.

Lease Contract

For lease contracts, the agent commission is stipulated to be no more than one month’s rent. The rent amount used for this calculation excludes consumption tax. Residential property rents are tax-exempt, while office property rents include tax. Thus, the commission should be calculated based on the pre-tax rent.

Down Payment

When purchasing property in Japan, down payment requirements for mortgages typically range from 10% to 20% of the property price, with 20% being the most common. However, Smart Property Japan requires a 200,000 yen deposit before making any offer on behalf of clients for any property in Japan. For cash buyers, it’s important to have a 10% down payment as well as the remaining purchase costs prepared in advance before making an offer. This ensures a smooth transaction process, whether financing with a loan or buying outright.

Is Consumption Tax Imposed on Agent Commissions?

Yes, consumption tax is imposed on agent commissions for both sales and rental contracts because they are payments for services rendered by real estate agents.

Is it Possible to Reduce or Eliminate Agent Commissions?

While some real estate companies may advertise "no agent fee" or "half off agent fee" services, agent commissions are crucial for the comprehensive services provided by agents. These contingency fees are the primary income source for real estate companies, covering the costs of advertising, property showings, and negotiations, even if no contract is concluded.

Companies offering reduced commissions might compensate by charging other fees, such as "property disinfection" or "document preparation" fees, potentially costing clients more in the end. Reduced fees might also be applied only to properties that sellers or lessors urgently want to lease or sell, limiting property options and potentially leading to less satisfactory choices.

Additional Costs in Japanese Real Estate Transactions

Investing in Japanese real estate can significantly increase your wealth and disposable income, often providing greater returns than bonds. However, it is essential to consider all associated costs before proceeding.

Transaction Costs

Transaction costs can add approximately 6-10% to the purchase price (this will be significantly higher if the property is below 10,000,000 JPY), covering fees paid to the real estate agent, judicial scrivener (司法書士, shihōshoshi), and the government via taxes.

Brokerage Fees

In Japan, you cannot represent yourself in a real estate transaction; a licensed real estate broker must handle it. Brokers manage the entire transaction, including contract negotiations, legal explanations, and administrative tasks. (See above for our brokerage calculations.)

Judicial Scrivener Fees

A judicial scrivener registers your real estate purchase in the national real estate ownership register (登記簿, tōkibo). They charge a flat fee, usually not exceeding 200,000 JPY, for this service.

Insurance

Fire and Earthquake Insurance: While not legally required, many investors purchase fire and earthquake insurance. These policies are typically affordable and bundled together, covering several years.

Real Estate Registration Tax

This tax is based on the fixed asset value of the property, which is often lower than the purchase price. The tax rate is 1.5% for land and 2% for buildings. Additionally, a 0.4% tax is applied to the mortgage amount.

Stamp Tax

Stamp tax in Japan varies based on the property value, ranging from ¥200 for properties under ¥0.5 million to ¥60,000 for properties between ¥100 and ¥500 million. The amount depends on the property price and the specifics of the transaction:

• For properties up to 10 million yen: 5,000 yen

• For properties between 10 million and 50 million yen: 10,000 yen

• For properties between 50 million and 100 million yen: 30,000 yen

• For properties between 100 million and 500 million yen: 60,000 yen

• For properties above 500 million yen: 100,000 yen

Conclusion

Agent commissions are essential for securing the best property and ensuring smooth transaction processes. Given the significant nature of real estate transactions, it is advisable to carefully consider the value of the services provided by real estate agents to ensure a satisfactory outcome. Additionally, understanding and planning for all associated costs, including transaction and ownership expenses, is crucial for successful real estate investment in Japan.

Selling a property in Japan

The average transaction cost for selling real estate in Japan generally ranges from 3% to 7% of the property sale price, depending on various factors such as agent fees, taxes, and other potential costs. Here's a breakdown of the main components:

1. Real Estate Agent Commission (最大3% + 60,000円 + 税):

Up to 3% of the sale price, plus 60,000 JPY and 10% consumption tax (plus Smart Property Japan consulting fees on properties below 17,000,000 JPY).

This is the largest part of the seller’s costs.

For example, on a property sold for 52,000,000 JPY, the commission would be about 1,716,000 JPY.

2. Fixed Asset Tax Settlement (固定資産税の精算):

A prorated amount depending on when the property is sold within the tax year.

Typically, this cost is minor, about 0.3% or less of the sale price, but it varies.

3. Judicial Scrivener Fee (司法書士費用):

For removing the seller’s name from the property registration, typically around 50,000 JPY.

This is usually 0.1% or less of the sale price.

4. Mortgage Prepayment Fee (if applicable):

If the seller has a mortgage, there could be a prepayment fee ranging from 10,000 to 100,000 JPY.

This could be negligible in terms of percentage.

5. Capital Gains Tax (譲渡所得税) (if applicable):

The tax rate depends on how long the property was held:

Short-term (under 5 years): 39.63%.

Long-term (over 5 years): 20.315%.

This can significantly impact costs, but it depends on individual circumstances, so it's not always included in average closing cost calculations.