<h3>Malicious poaching would run rampant</h3>
The Ministry of Land, Infrastructure, Transport, and Tourism revised the Enforcement Regulations of the Building Lots and Buildings Transaction Business Law in January 2025 to introduce regulations aimed at preventing enclosure by real estate brokers.
What is enclosure by real estate brokers?
In the sale and purchase of used homes, both the seller and the buyer pay a brokerage fee to the real estate broker.
Enclosure refers to when Broker A, who receives the seller&#8217;s request, obstructs the transaction from being completed by not providing accurate information, even when Broker B, representing the buyer, makes an inquiry about purchasing the property. This is done so that Broker A can earn a commission not only from the seller but also from the buyer. This kind of &#8220;enclosure&#8221; by brokers is rampant in the used home market.
For example, if the seller&#8217;s desired sale price is 100 million yen (brokerage fee of 3.06 million yen), even if Broker B offers to purchase at the same price, Broker A may find a buyer at a lower price, such as 90 million yen, in order to earn a double commission (276,000 yen x 2).
The seller loses out, as the transaction takes longer and the sale price decreases.
Although there is no accurate survey of the situation, Naoya Yamamoto, Vice President of Rakurada Real Estate (Shibuya-ku, Tokyo), says, &#8220;We feel that about 50% of used property transactions in Tokyo involve this practice.&#8221;
<figure id="attachment_410763" class="wp-caption alignnone" style="width: 640px;" aria-describedby="caption-attachment-410763"><a href="#" data-ident_hash="946b969e"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2025/01/cf8502be3399e7e75b9ed71c63d001e9.jpg" alt=""></a><figcaption id="caption-attachment-410763" class="wp-caption-text">What is enclosure by real estate brokers?</figcaption></figure>
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<h3>The Sophistication of Enclosure</h3>
Mr. Yamamoto mentioned, &#8220;In the past, if you called the seller&#8217;s brokerage to inquire about a property, they would often say, &#8216;It&#8217;s under negotiation,&#8217; which was a clear case of enclosure,&#8217; but recently, it has become much more sophisticated.&#8221;
He shared an example of a case where he suspected enclosure in a transaction.
In the sale of used properties, it is common for potential buyers to view the property in person, known as a showing. When a request for a showing is made by the buyer&#8217;s broker B to the seller&#8217;s broker A, A often provides reasons to prevent the showing and uses the time to find a buyer themselves.
To delay the showing, reasons such as &#8220;The seller&#8217;s schedule is not available,&#8221; or &#8220;The agent is absent&#8221; are often given. In cases where the agent is absent, even if a callback is requested, it can take a long time to get a response.
Mr. Yamamoto recalled, &#8220;I have experienced cases where I was waiting for a showing, and by the time I realized it, the property had already been sold. Waiting for about a month is not uncommon, and sometimes it took as long as two months. Moreover, it was difficult to confirm if it was indeed an enclosure.&#8221;
<h3>What do you mean by no one to enforce the law?</h3>
Such enclosure harms the interests of the seller, which is why the government has taken action with the aforementioned regulations. However, voices within the industry are questioning the effectiveness of these regulations. The reason for this is the issue of who will enforce the law.
What exactly is the new enclosure regulation introduced by the government?
In used property sales, the real estate agent who receives the sales request registers the property information in a network system called &#8220;REINS&#8221; (Real Estate Information Network System), which is accessible to the buyer’s agent.
This time, the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) has amended the enforcement regulations of the Building Lots and Buildings Transaction Business Law, making the registration of this property information mandatory. The aim is to prevent brokers from registering false information and to correct the issue of enclosure.
Officials from MLIT and the real estate industry related departments said, &#8220;If the registration of transaction details is found to be false, it will be subject to administrative guidance.&#8221; The local government, which is the licensing authority, will instruct the brokers to correct any violations, and if they do not comply, further guidance will be given.
<h3>&#8220;Neither the seller nor the local government officials can view the registration information!?”</h3>
However, the issue lies in who will identify and take action against the violations. Reins can only be accessed by real estate agents, and consumers cannot view it.
A Reins official said, &#8220;Even local government officials cannot view it directly,&#8221; and the authorities cannot check each individual transaction status one by one.
<div data-friday-nextpage-lead="The solution to prevent &quot;enclosure&quot; is..."></div>
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Even if enclosure is regulated, the only way to address it is for the seller to personally notice something is wrong and file a complaint with the authorities. However, this is difficult unless the consumer is very familiar with real estate transactions. Moreover, they cannot even view the REINS registration information of the property they are selling.
One example of enclosure that Mr. Yamamoto experienced is as follows:
After a potential buyer viewed a property and considered purchasing it, they requested documents such as the land registry certificate, property tax records, and for a condominium, the management regulations from the seller&#8217;s real estate agent. However, these documents were not forthcoming.
Mr. Yamamoto said, &#8220;The land registry can be viewed at the Legal Affairs Bureau, but property tax information can only be accessed by the seller&#8217;s agent. Additionally, if information like the condominium&#8217;s repair plan is not available, it becomes difficult to make a purchase decision.&#8221;
Even though registering property information is now mandatory under the regulations, it is not specified how much information must be included, nor is the content of the registration scrutinized.
Mr. Yamamoto believes that the new regulations will, in fact, make the methods of enclosure more sophisticated and advanced. Despite the cases he has described, even a professional like Mr. Yamamoto says, &#8220;I can&#8217;t be certain whether it&#8217;s enclosure or not.&#8221; For consumers, identifying such issues is an extremely difficult task.
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<figure id="attachment_410764" class="wp-caption alignnone" style="width: 640px;" aria-describedby="caption-attachment-410764"><a href="#" data-ident_hash="3698d1bf"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2025/01/e7efcaa2801697c4f18e514860c0793e.jpg" alt=""></a><figcaption id="caption-attachment-410764" class="wp-caption-text">Could the liberalization of brokerage fees help solve the vacant house problem?</figcaption></figure>
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<h3>Is the solution to prevent the liberalization of brokerage fees?</h3>
Osamu Nagashima, chairman of the real estate consulting firm Sakura Office (Shibuya-ku, Tokyo), argues that the solution to prevent the enclosure problem is to liberalize brokerage commissions by eliminating the cap on commissions.
Liberalization of commissions would encourage competition, bring commissions down to a reasonable level, render the enclosure of properties meaningless, revitalize the used home market, and improve the recent vacant house problem, according to Mr. Nagashima.
Incidentally, brokerage commissions are generally capped at 3% of the transaction value plus 60,000 yen (excluding consumption tax) at present. This is the case when the transaction value exceeds 8 million yen, and the upper limit is 300,000 yen (excluding consumption tax) for transactions of 8 million yen or less.
<h3>The information-sharing system MLS in the U.S., where mutual monitoring functions work among agents.</h3>
In the U.S., real estate brokerage fees are deregulated. Nagashima-san explains, &#8220;Because there is competition between agents, the standards generally become established.&#8221; The U.S. also has a real estate property information-sharing system called MLS, but this system was developed through industry collaboration, and violations lead to penalties such as expulsion.
Regarding the differences between Japan&#8217;s government-led REINS and the U.S.&#8217;s MLS, Professor Masayuki Nakagawa from the Faculty of Economics at Nihon University says the following.
&#8220;The Japanese REINS was started with the government&#8217;s initiative, but the U.S. MLS is operated and regulated by the industry itself. In the case of the U.S., there are many eyes from agents, and with so many people monitoring, dishonest agents are unable to function and will become fatal.&#8221;
<h3>Could the deregulation of brokerage fees help solve the vacant house problem?</h3>
In addition to the problem of enclosure, Mr. Nagashima, who advocates liberalization of brokerage commissions, points out that the current rules make brokerage commissions low for low-priced properties such as vacant houses in rural areas, and the brokers do not make any money.
&#8220;With low-priced properties, it&#8217;s common for brokers to buy them, renovate them, and then sell them for a profit. However, since brokers face risks in purchasing, they need to buy at a very low price, which means the seller does not benefit. For low-priced property transactions, the direction should be to pay higher brokerage fees,&#8221; said Nagashima.
For sellers who want to dispose of dormant assets such as vacant homes, for example, if the property price is 1 million yen, they may accept a 100% brokerage fee of 1 million yen. Regarding this fee, Nagashima said, &#8220;1 million yen is a reassuring cost.&#8221;
To make this possible, Nagashima believes that liberalizing brokerage fees is a good idea. He believes that this will stimulate transactions in the used housing market and further drive transactions, including vacant homes. With a declining population and a stagnant market for new properties, the movement of used homes could be positive news.
Even if the market for new properties is stagnating, Professor Nakagawa of Nihon University also believes that increasing the circulation speed of used homes can help maintain the real estate market.
To resolve the enclosure issue, liberalizing fees might be a potential solution. With competition, the fees will reach a reasonable level like in the United States, revitalizing the used housing market, addressing the enclosure and vacant home issues, and creating a positive cycle for society as a whole.

 Hideki Asai

 The "enclosure" by real estate brokers in the sale and purchase of used houses is said to be rampant. Therefore, the Ministry of Land, Infrastructure, Transport and Tourism began regulating it in January. What is "enclosure" by real estate brokers?

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