Dubai Properties: All you need to know about Real Estate Agency Fee in the UAE
The United Arab Emirates is the epitome of the city of light with the latest technology, contemporary architecture, and a central cultural & modern hub. Therefore, the country's real estate industry has witnessed a significant growth yearly both by renters and investors. Renting or buying a property in the UAE is said to be less stressful as compared to other countries. One of the reasons for this is the existence of an efficient real estate agent. A renowned real estate agency can bring about an improvement in the property market. Therefore, the duties of an experienced estate agent include being in the front line of the renting or buying process of a home in the UAE.
Furthermore, they serve as the middleman between the tenant and the landlord ensuring the potential tenant is fully equipped with necessary information regarding the properties, areas for single-family and bachelors, the amenities of the fully air-conditioned building like swimming pool, kids play area, Jacuzzi and so on. providing unlimited access to tenants during the viewing stage and so on. Therefore, it is imperative that the agent gets remuneration for his service. Recently, what has been the topic of debate is the agency fee. So why has this become a common topic of discussion?
Before we go into that, it is essential to give credit to those agents who don't make their work about the fee alone. These agents are passionate, and driven with the dedication to find a buyer for the properties for sale, develop skills and undergo training that makes them qualified for their position. They know the market value of buildings for sale or villas for sale in Dubai and can advise the landlords adequately when necessary. Usually, it is easy to separate experienced and dedicated agents from those who are not knowledgeable about the agency field. As such, this is the first step to identify the agents who will place their prices high and refuse to negotiate the agency fee.
Based on research, some tenants in a bustling community in Dubai such as Dubai Hills, Dubai Marina, Palm Jumeirah, Arabian Ranches, Business Bay, experienced the services of a skillful agent who took his time to explain the amenities of each building and proximity to various places of interests. A particular tenant in a luxury villa was amazed at the time and effort the agent went through to get the rental fee reduced by the landlord. Though the agent charged 5% of the annual rent, she didn't refute the price. Not all agents are about the agency fee.
Based on research, most tenants hire an estate agent to help negotiate the rental fee from the landlord. However, the renters in the UAE then end up experiencing a negotiation process where the bone of contention shifts from the property fee to the agency fee as most agents' charges are becoming alarming. A few residents from Saudi Arabia in some properties for rent at Silicon Oasis experienced this issue when their estate agent demanded more than the usual 2-5% of the annual rent. His claim was the process of renting a property isn't as easy on his part, and the charges incurred were more than he charged. Another resident in a luxury villa in Dubai close to Dubai mall experienced the same issue. However, the tenant has happily settled into his Downtown Dubai apartment, but he says he will never forget the experience. So what exactly should an estate agent charge for the services?
The tenants and agents may have this kind of reoccurring issue due to several misunderstandings such as:
- Previous expectations: UAE hosts several nationalities with various ideas about the real estate market; therefore, moving to the UAE can create misconceptions. For instance, a renter who moves from a country where the landlord is solely responsible for the agency fee may find it unusual to pay the estate agent.
- Low property budget: renters choosing to live in affordable communities in Dubai may have to go beyond their budget to afford the unexpectedly expensive agency fee.
- Previous experience with an estate agent in Dubai: a tenant may be lucky to have an agent whose charges were not pricey.
- Hidden charges: tenants who are new to town or relocating to another emirate may consider this a hidden charge. Because they are not aware of an agency fee, but because they don’t know how the system work and when they have met a high agency fee, it will seem outrageous.
- Change in percentage: some tenants in a three-bedroom villa have had an experience where the agents changed their percentage due to unknown circumstances.
Unknown to many tenants, the Dubai Real Estate Regulatory Authority (RERA), a governing body of the real estate company in Dubai states -
'it is illegal for both the tenant and landlord to be charged by the same estate agent'. It is the tenants that are responsible for the payment of agency fees, unlike in other countries.
Therefore, investors and tenants need should be aware of the laws and their rights before buying or renting a property in the UAE. Usually, there is a common expectation that the tenants should pay an agency fee between 2-5% of the annual rent. Unfortunately, this isn't a legal requirement. In a few cases, the agent may agree to accept as low as either 500 or 1000 Dirhams. It depends on the emirate and the relationship between agent and tenant. This usually happens when the contract is a short-term lease. The agent should not make his agency fee based on the number of hours worked, type of property, or by accessing the tenant’s wealth.
Tenants in the UAE need to know their rights before completing the tenancy agreement. For instance, according to the UAE Law and Dubai Land Department, an agent is required to receive a fee upon completion of the tenancy contract. But the law doesn't have a clause stating there should be a continual payment of agency fee upon every renewal of the tenancy contract. There is also a law that the agents should have a contractual agreement about the agreed agency fee before signing the tenancy contract with the idea of these parties such as:
- A tenant renting an apartment.
- A landlord looking for tenants to occupy his unit.
- A buyer looking for a property to purchase.
- A property owner who is looking for buyers to sell the property.
The landlord, buyer or tenant should execute the contract in writing with a licensed brokerage firm in clear terms and language defining the percentage fee that both parties can understand.
However, in a case where the agents demand an agency fee for tenancy contract renewal without a prior agreement with the tenant, the tenant can file a complaint with RERA.
There are some laws regulating the real estate brokerage in different emirates which every resident should be aware of since it is unavoidable to change homes in the UAE. For instance, buildings for sale in Ajman, Umm Al Quwain, Ras Al Khaimah and so on. An example is the estate brokerage regulated by The Brokers’ Law, By-Law No. 85 of 2006 Regarding the Regulation of Real Estate Brokers' Register in the Emirate of Dubai. By following the provisions of Article (26) to Article (33) of the Broker's Law, the law states that:
The brokerage contract shall be in writing and shall state the names of the contracting parties, specifications of the real property and the brokerage conditions. The agent should register the contract in the real estate register.”
A broker's fee shall be determined by agreement. If there is no agreement, the agent and tenant should determine the fees according to the prevailing practice."
1. A Broker shall not be entitled to a fee for his Brokerage unless this Brokerage resulted in a contract to be entered between the two parties. The contract shall be considered as entered when the parties agree on all the conditions provided in the brokerage agreement.
2. A Broker shall be entitled to his fee upon signing the sale contract and registration of it in the Department unless the brokerage agreement stipulates otherwise.
3. If the sale contract is pending on a condition agreed on pursuant to the Brokerage contract, the Broker shall not be entitled to his fee unless this condition is met.”
If the Brokerage contract is revoked, the Broker may claim his fees pursuant to the agreement stipulated in the Brokerage contract, unless deception or a grave mistake was proved on his part.”
If a Broker's instructions or negotiations did not lead to signing a contract between the two parties, the Broker shall not be entitled, in consideration of his endeavor, to claim any compensation, expenses or costs he incurred unless the Brokerage contract provides otherwise.”
If more than one Broker participated in the mediation or negotiation for one party in order to reach an agreement and this led to the completion of the agreement, all of them will be entitled to the fees as if they were one Broker and the fee shall be divided between them as per the conditions of the contract entered between them.”
Subject to Article (30), if a party contracted with many Brokers independently and concerning one subject to mediate for him and negotiate on his behalf in an agreement and one of them succeeded in completing the transaction, he alone shall be entitled to the full compensation.”
A Broker shall be entitled to compensation only from the party to the transaction who authorizes him to mediate in the transaction. If the authorization was issued by both parties, each one shall be severally responsible towards the Broker for paying the fee due from him, even if they agreed that one of them shall pay the full fee to the Broker.”
But generally, Real Estate Agent's commission in Dubai is between 2 -5% of the annual rent fee except there is a prior agreement so feel free as a tenant to negotiate the agency fee.
In the city capital of the UAE, Abu Dhabi, the governing body is the Abu Dhabi Municipality Affairs and Transport under Article 138 – 2017 Fixed administration fees for developers and fixed commission for real estate brokers
“Article 1: Broker's Commission
• The commission of the real estate brokers will be now fixed to 2% for any selling and purchasing contract, with a maximum amount of AED 500,000.
• The commission should be discussed and agreed upon between both parties (brokers/tenants or owners) and also clearly mentioned in the contract. Failing to that, the commission taken by the real estate broker should not increase by 5% of the annual lease amount.
• Every real estate broker will have to follow an official Brokers Contract, issued by Abu Dhabi Municipal Affairs and Transport.”
The laws show that there is a fixed amount for failing to negotiate the price before signing the tenancy agreement. Agents who charge a renewal agency fee are therefore breaking the law, violating the rules and regulations, and will thereby make the agent subjected to prosecution.
Important tips to note when dealing with a real estate agent
1. The estate agent isn't required to demand an amount of agency fee if there was no tenancy agreement.
2. The best way to verify the credibility of a real estate agent is by asking them for their RERA ID card. Then you can verify through an app called 'Dubai Brokers'. It might be a bit uncomfortable to ask for this but remember you need to deal with a verified estate agent.
3. Ensure the agent is competent. Otherwise, you are not bound to use the agent.
4. Read through the agency contract thoroughly before signing in case there are hidden charges or ambiguous clauses.
5. Fully know your rights as a tenant of apartments or villas.
6. In the case where you urgently need an apartment, don't forget to negotiate the agency fee still and also ask the agent to ask for a price reduction of the rental fee.
7. You should be fully aware of how much real estate agents charge in that community so you won't feel cheated especially if you get in contact with the agent through a property finder online.
In conclusion, all the fuss about agency fees should begin with the tenants knowing their rights. Their law will give them the knowledge on what should be agreed upon with the agent and also avoid drafting an agency agreement.