The Real Cost and Hidden Risks of Advance Commission in Malaysian Real Estate

Why Agencies and RENs Must Stop Carrying Developers' Cashflow Problems

Advance commission has become such a normal part of Malaysian real estate that most agents believe it is a "benefit" provided by agencies.

In reality, it is one of the most dangerous, high-risk, structurally unfair practices in the entire industry — and nearly every participant misunderstands where the money comes from, who carries the risk, and who truly benefits.

This article reveals the real mechanics behind advance commission, the cost it imposes on everyone except the developer, and the only realistic solution the industry should adopt.

1. The Misconception: "Agency Is Rich, So They Advance Money to RENs"

This is false. Most agencies are not advancing their own money. Here is what actually happens behind the scenes:

How Agencies Really Fund Advance Commission

Agencies borrow from financial institutions, P2P lenders, private credit companies, or factoring firms. These lenders require:

A copy of the SPA
Proof of agency entitlement
Proof that the REN is due a commission

The lender releases money to the agency, not to the developer. Then the agency disburses the advance to the REN.

The lender charges 8% to 20% interest, depending on:

Project risk
Developer reputation
Past payment behavior
Duration of delay

The agency often takes an additional "admin fee" on top of the lender's interest.

All of this interest is deducted from the REN's commission upon completion.

So the REN pays the cost. Not the developer. Not the lender. And not the agency.

2. The Hidden Danger: Agencies Carry 100% of the Default Risk

This is the part RENs rarely understand. There are two models in Malaysia:

Model A — Agency Is the Guarantor (99% of cases)

Developer pays nothing upfront
Agency borrows money
Agency advances money to REN
If developer delays or defaults: Agency bears 100% of the loss

Model B — Developer Is the Guarantor (almost never)

Developer signs as guarantor
If they delay payment, lender chases developer
Agency carries zero default risk

Most developers refuse Model B because:

Their balance sheet becomes exposed
Their banker sees it as contingent liability
It signals weak cashflow
It increases the perception of project risk

So what do they do? They push agencies into Model A, quietly transferring their financial problem to the sales ecosystem.

3. Why Developers Push This Practice

Developers offer high commissions (5%–10%) because they are struggling to sell. If they were financially strong:

They would not delay commissions
They would not ask agencies to "wait"
They would not need agents to offer advances
They certainly would not need agencies to be their lender

Advance commission exists because:

Developers are using agencies as their cashflow buffer.
And agencies tolerate it because:
They fear RENs will leave for a competitor who offers advance commission.

This is a race to the bottom — and developers know it.

4. The Real Cost to RENs: Your Commission Shrinks Before You Even Earn It

When a REN accepts advance commission, here is what actually happens:

Example

Commission entitlement: RM10,000
Advance taken: RM5,000
Interest charged by lender: 8–20%
Agency admin fee: RM100–RM300
Actual amount REN receives on completion: RM7,800–RM8,500

So in exchange for getting RM5,000 early, the REN loses up to RM2,000. This is not a "benefit." This is an expensive personal loan disguised as an agency service.

5. The Real Cost to Agencies: One Default Can Kill a Company

Most agencies run on thin margins. Commission-sharing structure:

REN: 70–90%
Team leader: 5–15%
Agency: 5–20%

After salaries, rentals, systems, marketing, support staff, and compliance… Agencies have very little buffer. So when a developer delays payment — or worse, defaults — this happens:

Agency Loss Example

Agency advances RM5 million across one year. Developer defaults on 2%.
Loss = RM100,000 immediately.
To earn back RM100,000 of pure profit, the agency must close:
RM2 million of commission
Or RM40 million of property sales

All because one developer refused to pay on time. A single bad developer can erase profit from 10 successful projects.

6. The Risk Nobody Talks About: Developer Insolvency

Malaysia has seen:

Project delays
Abandoned projects
Developer financial distress
Developer restructuring
Auction of developer-owned units
Court-appointed receivers

If a developer collapses:

The REN keeps the advance (practically unavoidable, even if legally reclaimable)
The agency absorbs the loss.
The lender may still chase the agency for repayment.

This is an unfair, structurally broken system where:

Developers carry zero risk
RENs pay interest
Agencies risk bankruptcy
Lenders profit regardless

7. Why This Broken System Continues

Because everyone thinks they are solving a REN problem. But in reality:

RENs are unknowingly carrying the developer's cashflow problem.
Agencies are underwriting the developer's financial weakness.
Lenders profit while doing nothing to move the market.

Advance commission is not an agent benefit. It is a developer privilege.

8. The Only Real Solution: Stop Selling for Developers Who Cannot Pay on Time

Here is the truth nobody wants to say:

Agencies and RENs have more power than developers.

Without agents, developers cannot sell. So the solution is simple:

Agencies should stop selling for developers who delay payment.
If developers want sales, they must fix their cashflow — not outsource it to agencies.
RENs should refuse commissions that are reduced by 10–20% interest.
No REN wants RM10,000 turning into RM8,000 because the developer cannot pay.
Demand full and fast commission payment from developers.
Agencies can use this as leverage:
"If you want our salesforce, you must pay quickly. Otherwise, nobody will sell your stock."
Just do not sell for these developers collectively.

Nothing changes until agencies stop absorbing developer risk.

This is the only solution that protects: