What is Real Estate Commission in Kenya?
Real estate commission is the fee that real
estate agents and brokers get paid as their compensation for the work they put in
to help complete a transaction.
As RIS Media
explores, real estate agents help clients with a variety of tasks
throughout the buying and selling process, and compensation for this assistance
comes in the form of a commission. The real estate commission also represents
all the years of experience and training that the agent has cultivated to help
the client get the best possible price for the home they want to buy or sell.
This training and experience help them become critical experts in real estate
transactions so that their clients have a strong representation at the
negotiating table.
What Does an Agent Do to Earn Real Estate
Commission? Real estate agents can help clients with a variety
of different tasks that make it easier for them to buy or sell land or a home. A real estate agent will help
clients with tasks such as:
1. Letting
and management agent- A real estate agent may be involved in letting and
management of rental or leased properties.
2. Helping a
client negotiate a mortgage.
3. Daily research on homes - Real estate agents stay on top of the local
listings so they know if a potential house a client is interested in shows
up on the market.
4. The real estate agent will also
help the client set up showings so that the potential buyer can see homes
that will potentially appeal to them the most. This saves the client time and they can attend
to other things.
5. If the real estate agent is
helping a seller, the agent will help them analyze the market so they know
how to set a fair price.
6. The real estate agent helps sellers market the property so they
attract the attention of the best potential buyers.
7. The real estate agent may help write offers for the properties listed for
sale that clients want to buy or sell.
When a client finds a home that fits them well, the agent will help them
determine the best price to offer, negotiate with the sellers, and write
up the offer to submit. There will often be negotiations with the home
seller before an offer is accepted, and the real estate agent can help
buyers understand and navigate the process; the client will have someone
representing their interests. The real estate agent can also help sellers
negotiate, ensuring that the client gets the best possible price for their
property.
8. Help with due diligence -Due diligence is
a critical part of the home buying process, as it will help new homeowners
avoid large unforeseen costs and problems with the purchase. The real
estate agent can help buyers set up and then work through this process.
In Kenya,
real estate agents either work in a real estate agency or can be solo agents.
When working in an agency and an agent is formally employed, then they earn a
salary that is determined by the contract of employment.
Most real
estate agents in Kenya earn a commission from sales. The commission is set by
the Estate Agents
Act (Cap 533). The commission to real estate agents in Kenya are
payable in 5 scales as:
1.
SCHEDULE
Scale 1 Sale:
This is paid on a graduated scale
(a) On the first Ksh. 100,000 10%
(b) On the next Ksh. 900,000 6%
(c) On the residue 3%
Thus, if you are a real
estate agent and help a buyer sell their property, above is the amount set in
law.
2.
SCALE 1A
Purchases:
This is also paid on a graduated scale
(a) On the first KSH. 100,000 5%
(b) On the next Ksh. 900,000 3%
(c) On the residue 1.5%
Thus, if you are a real
estate agent and help a buyer buy a property, above is the amount set in law.
3.
SCALE 1B On
Sales of Plant and Machinery:
Ten per cent of the total
value realized.
(a) SCALE 1C Sale and Purchases Effected by a Transfer
of shares:
(b) Scales 1 and 1A shall apply undiminished by
any loan or other charges upon the property or the Company’s assets.
4.
SCALE 2
LETTINGS
Residential:
(a) Lease up to one year 7.5% of annual gross
rent.
(b) Lease of over one year One months rent
Commercial:
(a) Sole agency 7.5% of annual gross rent
(b) General agency 10% of annual gross rent.
Fees by negotiation if
management services involved but not less than half scale.
5.
SCALE 3
(a) For seeking and negotiating the tenancy or
lease of a property to suit a clients requirements: The fees payable as per the
appropriate letting scale and by arrangement if negotiations abort.
6.
SCALE 4
MANAGEMENT
Residential:
a) 10 per cent of the gross rents or less
according to the circumstances but not less than 5 per cent.
b) Commercial:
c) 7.5% per cent of the gross rents or by
arrangement but not less than 2.5% per cent
7.
SCALE 5
Mortgages:
For negotiating the terms
of mortgages or charges as an intermediary between or on behalf of either of
the principals:
a) In case of a successful deal, the agent is
entitled to a negotiated commission but no fees.
b) Where agent is instructed to fund and
negotiate a mortgage without handling the sale: Fees to be not more than 0.25%
per cent of the capital value of the mortgage.
If the above
rates drive you to get into real estate, you can start by registering to list your property for free. Also
remember to get your letter of authority to sell as described so that you do not miss
your commission.
As you continue
engaging in real estate, remember to register with the Estate Agents
Registration Board(EARB). This way, you have legal
protection in case the seller does not meet their obligations. We have had
cases of real estate agents getting low commission than what the law mandates
since they were not registered as real estate agents in Kenya. If you are not
registered, you risk losing your hard-earned commission and lack good legal
support. You may also face legal penalties.
Learn more about the benefits and how to register
as a real estate agent in Kenya.
Section 18 of
the Estates Agents Act Cap 533, Laws of Kenya provides as follows: -
1.
After the expiration of six
months from the commencement of this Act or such further period as the Minister
may, by notice in the Gazette, allow either generally or in respect of any
particular person or class of person: -
·
No individual shall
practice as an estate agent unless he is a registered estate agent;
·
No partnership shall
practice as estate agents unless all the partners whose activities include the
doing of acts by way of such practice are registered estate agents;
·
(c)
2.
Any person who contravenes
subsection (1) shall be guilty of an offence and liable to fine not exceeding
twenty thousand shillings or to imprisonment for a term not exceeding two years
or to both.
While the
above is developed for a general understanding, it is not meant to be legal
advice. Do not hesitate to contact your advocate for legal help. If you need
one, you can real out to us on 0726982982 or on email [email protected].
Do I have to pay KRA any withholding tax for my commissions?
Yes, management or professional fees attract a withholding tax of 5%. You will also be required to declare your income(s) and the withholding tax details when filing your annual tax returns and to pay any tax balance due.
