View the article online at http://citywire.co.uk/money/article/a414501
Estate agents: barter with them, but beware the pitfalls
House sellers have been advised to negotiate their fees down. But if your estate agent is too much of a pushover, is he really the negotiator you want on your side?
It was going to be the undoing of estate agents nationwide. Tesco, their financial might and their giant brand recognition would take estate agency, colour it blue and red, slap an “Every Little Helps” sticker on it and own it forever. Some agents were scared. The rest were angry.
In the end, after a false-start in which their original low-cost listings service, The Tesco Property Market, turned out to be uneconomical given a long list of onerous industry obligations, Tesco eventually joined forces with a giant conventional estate agency group (Spicerhaart: oddly enough, their biggest critics) in a bold, mutual demonstration of the “if you can’t beat’em…” principle.
Sticking with estate agents
The result is iSold, a fixed-fee (£999) online estate agency with real agents on the ground and at the end of a phone line. Given the hoo-ha when iSold was little more than a rumour, the radio silence since its launch is something of a surprise. iSold is operating in Bristol, Reading and York. It’s – apparently – targeting homes with current for sale boards with a leafleting campaign. Has it caused a revolution? Not really; and some may be surprised by how little Tesco appears to be associated with it… a tiny bit of branding at the bottom of the home page isn’t exactly a flexing of the supermarket’s muscles. The message appears to be that far from gagging for a non-estate agent method of flogging a property, vendors are much more comfortable with a trusted, experienced company of old-fashioned key-janglers, even over one of the most trusted, experienced names on the high street.
A recent Office of Fair Trading report appeared to confirm this. Satisfaction with traditional estate agents was (perhaps surprisingly) high. However, the report also expressed frustration with the commission system (although it couldn’t find any actual evidence of price-fixing) and overtly encouraged the kind of light industry regulation in which low-cost alternatives – such as iSold, such as for-sale-by-owner sites – could thrive. Given that the main thing stopping them, at the moment, appears to be conservative and cautious vendors, it also encouraged people to drive a harder bargain when agreeing to estate agency fees. Currently, only 30% either shop around among agents or attempt to knock down fees. There was, according to the OFT report, around £800 (or 0.4%) of wiggle room on the commission when selling a £200,000 property. That £800 wiggle room is almost the entire commission on a property sold via Spicerhaart/Tesco. Why would anyone choose to pay 1.5% (£3,000 on that same property), instead?
A local face
One answer might lie in that OFT report. Dissatisfaction with agents had been higher during the stronger market, when agents needed to do much less. An agent represents the vendor, but – on a practical level – serves each potential buyer. In the current economic climate, perhaps vendors feel more comfortable with a local “face”, in a local office, who’ll meet a potential buyer on a rainy Saturday afternoon and – if that’s what it takes – throw his coat over the puddle outside the doorstep to get the buyer inside and admiring the Jacuzzi.
So what about negotiating on those commissions?
Before the ascendancy of Rightmove and Primelocation, sole agency agreements were unpopular for the danger of limited publicity. Now – assuming the sole agent is the right agent – there seems little to be gained by having your property appear twice, three times on a Rightmove search. (Indeed, one could argue it makes the property look as if it’s been “hanging around” a little.) So the 1.6% to 2% likely to be quoted for a sole agency agreement should be the starting point.
Incentive to sell
Negotiating the fee down to 1.4% appears to be the advice of the OFT report, and it makes sense. But remember, the lower the rate of the commission, the lower incentive the agent has for achieving a higher sale price. The difference between a sale at £200,000 and one at £220,000 is significant for the vendor; for an agent on 1.4% it’s only £280, and if they don’t make a sale at all they don’t get paid, so there’s little reason for them to risk a deal by pushing hard on the figure.
A more sensible approach might be to try to incentivise the agent with a sliding scale of commission that rewards him for either achieving a higher sale price or selling within a certain time, depending on the vendor’s circumstances. Starting from as low a position as possible, so as to present the deal as a reward rather than a penalty, one might offer, say, a further 15% of anything above asking price; or a straight 2% deal if asking price is achieved, 1.4% if not. Either system will incentivise the agent to prioritise the property.
Don't lose out on a good deal
Deciding on a fair asking price and a reasonable contract length upfront is key. With house prices currently “on the turn”, it’s important not to end up in a position in which the agent can use the market as an excuse to fix the asking price to suit the deal.
Finally, it’s tempting to assume that in a market climate like the current one agents will agree to pretty much anything for business. But taking on another property when stock is rising, deals falling, isn’t a particularly compelling prospect. Estate agents know they have to work harder to make a sale right now, and (understandably) may baulk at the prospect of being paid less. A seller’s market, when prices are rising and deals are doing themselves, is an easier time to talk terms.
Negotiating with an agent is never going to be easy. It’s their job, after all, and they’re the very skills one’s paying for. If the agent’s too much of a pushover, perhaps it’s time to ask whether he’s the negotiator you want on your side.
Linton Chiswick is the proprietor of the Rat and Mouse, (www.theratandmouse.co.uk), Britain’s leading blog about residential property
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In association with Aberdeen Asset Management
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by Gavin Lumsden on Mar 07, 2014 at 18:53