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Choosing a realtor is a important step for a buyer. Each national market has its own set of real estate regulations.
In this post, we offer insight on the peculiarities of the real estate companies in the United Arab Emirates. We will take Dubai as an example. However, you should keep in mind that:
- The UAE is a federation of seven emirates, each of which has its own different legislation for the real estate market in general and real estate agencies in particular.
- The UAE is a single country, so all its emirates adopt neighboring practices and legislation is unified at a federal level.
Although Dubai can be used as an example, we recommend you study the real estate market when considering another emirate.
Content:
- Who participates in the UAE real estate market?
- How does the United Arab Emirates regulate realtors?
- Who pays the commission to the realtor and when?
- Can you refuse to pay for the services of a realtor?
- How many real estate experts can you work with simultaneously?
- Our experts will help you buy property in UAE
Who participates in the UAE real estate market?
First, we are going to talk about the main players in the market in order to understand which entity performs which function.
There are buyers and sellers and they can be both individuals and legal entities.
A buyer can either be an individual/group of individuals or a legal entity. Individuals can be divided into those who want to live in the property and investors who buy property in off-plan projects in Dubai.
Sellers can be any of the above options if they have a Title Deed. In the category of legal entities, there is a subcategory for developers.
The seller may not always have the Title Deed. For example, if the property is bonded, the lending bank holds the Title Deed until the loan is paid in full. This means that the bank will have the final say in this transaction.
It is also possible for a developer to hold the TD for a newly developed property.
There are two types of property ownership in the UAE: freehold and leasehold.
- Freehold is full and unconditional ownership of real estate.
- Leasehold is a lease of ownership, with restrictions that can last for up to 99 years.
When selling a leasehold property, the seller does not control the sale. This will need to go through the property owner who can be both a developer and an individual.
If the seller has a Title Deed, they will have to get the transaction approval from the developer from whom they purchased the property. If the property is purchased on the secondary market, the construction or management company associated with the developer is responsible for maintaining the property.
The regulatory authorities control all transactions within the real estate market. In Dubai, they are:
- The Dubai Land Department (DLD);
- The Real Estate Regulatory Agency (RERA), which is a division of the DLD.
These agencies formulate legislation, regulate the activities of market participants, control the security and transparency of transactions, ratify the buying and selling process, and establish registers of audited organizations (including mortgage banks).
All Dubai real estate agencies, including brokers, report to them.
The DLD and RERA approve licenses for agency activities. These bodies also regulate the financial obligations between agent and their clients. In this scheme, realtors act as mediators. They can work with buyers and sellers or both.
Real estate companies can be classical intermediaries that represent clients in transactions as well as consulting agencies.
Is a real estate agent (realtor) required to participate in a transaction?
The seller and the buyer are not obliged to use the services of realtors.
Nevertheless, from the brief description of the process of buying and selling real estate in Dubai, it is clear that for any transaction, you are required to do paperwork and negotiate with transaction participants and third parties. Considering that in real-life situations, you may face various issues, the advantages of using a real estate agency are obvious.
Their role is to remove the legal and documentation costs from clients and reduce transaction deadlines as much as possible.
How does the United Arab Emirates regulate realtors?
Each emirate regulates the real estate business in the UAE.
In Dubai, as already mentioned, these regulatory bodies are the DLD and RERA. Dubai leads this sector, therefore other emirates adopt its practices.
In Abu Dhabi, the regulation is handled by the Land Registration Department (LRD), in Ajman – the Ajman Land Department (ALD). However, in the latter, the decision of the emirate’s ruler plays a major role.
All brokers must obtain a license for their activities.
The following legislative acts describe brokers’ rights and obligations.
- In Dubai – Law no. 85 of 2006 "Regulating the Real Estate Brokers Register in the Emirate of Dubai."
- In Abu Dhabi – Law no. 3 of 2015 "Concerning the Regulation of the Real Estate Sector in the Emirate of Abu Dhabi."
Both UAE citizens and expats can become a real estate broker or open up a realtor business.
In Dubai, the DLD, RERA, or the Dubai Real Estate Institute (DREI) deal with issues such as training and certification. When it comes to obtaining a license and managing further business, other organisations may be involved, including the Dubai Economic Department.
Functions of a real estate agent in the United Arab Emirates
If we summarize the term "real estate agent" (or "broker") as defined in the laws of the different emirates, we can formulate the following: "A real estate agent is a person (I) who searches for another person (ii) to convince them to conclude a brokerage contract that allows the real estate agent (I) to become a representative of the client (ii) in negotiations and conclude a transaction for monetary compensation."
So, a broker is a person that is licensed (license numbers are publicly available or can be requested from a specialist) for the real estate activity..
A brokerage is a legal entity consisting of a broker and brokers’ employees who work on their behalf performing brokerage activities.
The broker negotiates and participates in the transaction between the buyer and seller. They submit proposals and counter-proposals and other requests. They maintain a record-keeping system and a strict record of everything related to the transaction such as expenses, arrangements, etc.
Brokers also provide consulting services to maximize the transparency of the transaction and the customer’s understanding of the buying and selling process.
They are also obliged to prevent transactions that violate the legislation in the real estate sector, and to provide all the transaction-related documents to the authorities.
The broker is responsible for the losses and damages suffered by the negotiating parties.
Who pays the commission to the realtor and when?
The broker receives monetary compensation from the commission. This is the primary clause in the contract between the broker and the client.
The buyer or seller pays the commission fee to the agent at some time during the real estate transaction (if each of them has an agent/broker).
If the broker works with both parties, the buyer usually pays the commission fee.
The Brokerage Agreement contains the remuneration amount. This agreement must be registered.
The realtor’s compensation is determined in two ways:
- It is based on the agreement between the broker and the client.
- If the amount of the comission fee is not agreed upon in advance, it is calculated according to the current general practice.
The RERA regulates the commission fee but the agency does not set a maximum or minimum commission fee.
If the Agreement does not specify the remuneration amount, it is generally accepted that the commission fee is 2% when buying and 5% when leasing real estate.
The fee is calculated based on the transaction amount. The larger the amount, the higher the commission.
In Dubai, in most cases, the commission fee is paid to the realtor once the transaction is comple. The broker's work is considered complete when the parties have agreed on the terms of the transaction and successfully signed it.
Only after that can the broker claim monetary compensation, i.e., the commission fee.
Can you refuse to pay for the services of a realtor?
If, for some reason, the broker fails to complete the transaction, comply with the terms of the contract or with the law, the customer can refuse to pay the commission fee to the realtor.
If the conflict between the client and the realtor is not the fault of the latter, the appropriate regulatory authority will consider the situation.
In Dubai, the RERA does this. Helping to resolve conflicts and disputes between transaction participants is its key responsibility.
This can relate to different situations. For example, if the client is confident that the broker secretly acted in the interests of the seller even though the contract was concluded with the buyer, i.e. there is a conflict of interest.
How many real estate experts can you work with simultaneously?
This is an interesting question. The Dubai Law no. 85 mentioned above has articles 24 and 25. They say that several brokers can work on one contract and several clients can use the services of one broker. However, the details of this process are not specified. The situation is similar to that of the commission fee.
Our experts will help you buy property in UAE
When buying property in the UAE we recommend you to contact real estate experts with an extensive experience in this sector to avoid any problems and to ensure a smooth and fast transaction. Emirates.Estate specialists will guide through the best offers and help you choose the one that matches all your goals.
We will help you buy real estate in Dubai and other emirates. Find you perfect apartment in the UAE with Emirates.Estate.
