Citywire for Financial Professionals
Stay connected:

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

12 comments so far. Why not have your say?

Jonathan

Jul 18, 2010 at 12:24

I think the lowest price should be taken so long as it is listed on Rightmove.

Google's property search is also a contender. If you go in to Google maps and search for 'property' and the location you are looking for e.g. Property CB1, it will show you on a map all the properties for sale and rent in that area with filtering options.

report this

david hatch

Jul 18, 2010 at 18:32

Selling your property is a major decision and it is important that you choose an Estate Agent in which you have confidence and trust.

The sales process can be a complex and time consuming matter and our aim is to look after your interests at all times and make selling your home as stress-free as reasonably possible.

Our commitment is to achieve the best possible price for your property, quickly and efficiently and you can always be assured that our highly experienced valuers will provide comparable evidence of similar properties to support any valuation placed on your home, having also considered all prevailing market conditions.

Once a sale on your property has been agreed and is in the hands of your appointed solicitor, our sales negotiators and progressors will ensure that communication between all parties is kept accurate and up to date to achieve a speedy transaction for you.

visit http://www.alexneil.co.uk now for full details - Alex Neil The London Estate Agent 0800 822 3449

Continued contact throughout your time with us will ensure that you recieve the best possible service from Alex Neil and we will endeavour to see your sale through to completion with the least amount of fuss.

report this

eMoov

Jul 18, 2010 at 19:06

There are thre ereasons why estate agents are so expensive.

1. They have expensive but now obsolete branch offices to maintain.

2. They are successful in selling approximately 1 in 5 of the properties that they market currently. That means that the successful sellers are paying for the wasted admin, advertising and time in respect of those that don't sell.

3. Agents like lots of profit. In teh good time smany made over 30% net profit on turnover. Not bad.

So, high fees have nothing to do with 'communication', 'trusted names', 'lists of contacts', 'local knowledge' and other such waffle.

The property portals do the agent's job for them and as for sales progression, most agents are hopeless at it, leaving buyer and seller to do the chasing themselves.

There is NO justification in paying £thousands in estate agency fees in the 21st Century. That is why eMoov.co.uk will sell yoru home for a listing fee from just £99!

As for iSold, they are too expensive. A £999 minimum fee is not incentive enough. Their marketing has yet to 'get' the online concept either.

Happy selling... ;-)

report this

PG

Jul 19, 2010 at 12:23

The question of the physical office being obsolete is moot, I for one am far happier as a customer/client at a desk than in a queing system or repeatedly checking my inbox for an emailed response, Agency off the High street is trying to evolve in two distinct ways, either " superoffices" located on trading estates with catchall EA/FS/Property management/Proffessional services all under one roof or the "Personal Agent" approach whereby individuals are allocated an area or postcode as sole territory by an existing player and they work from home or serviced premesis with support backup. I dont think either are preferable to your average seller even at discounted fees.

report this

eMoov

Jul 19, 2010 at 15:23

No queuing systems at eMoov. You'll get straight through to a real person. Just like if you called a High Street agent. Except cheaper. Desks in windows don't make for a better service....

report this

PG

Jul 19, 2010 at 16:56

True, but neither will a subscription based service as opposed to a no sale no fee offering, in fact on a subscription based service success is actually failure as it ( a sale ) kills the income stream ( the subsciption ) , just sayin.............

report this

Danny Williams

Jul 19, 2010 at 17:33

At present, the main if not only key to marketing is (as Jonathan rightly comments) listing on the 'main' property websites. Rightmove being the main one, Zoopla, Globrix and Prime Location also provide crucial 'buyer leads' at a significant level.

The negotiating aspect of the business is far easier when there are multiple buyers (not presently the case) for obvious reasons but the percentage system does little to incentivise agents as 2% difference on, say, £10,000 (around the amount a good 'negotiation' would provide on an averagely priced property) equates to £200... from a financial perspective the agent would rather 'tie the deal' and move on to the next. The real motivation is being able to use the price achieved for marketing purposes and add to their local reputation.

In London, the majority of properties are of a similar type and style and the price in higher density areas is far easier to establish, with the variance for condition, improvements and additional features and benefits of a particular property being relatively easy to ascertain ie they are worth what someone is prepared to pay for them, much the same as with the property itself.

It's not about offices, fees or a host of marketing mythology... It's all about the desire to get best price and deliver best service... over and above doing the basics ie quality marketing in the form of photography, floorplans and info and the all essential main website exposure.

report this

Paul Lance

Jul 20, 2010 at 15:50

I have been thinking of selling my home and was unsure whether to use an ‘high street’ or newer ‘call centre’ style agent. I was interested to see eMoov’s comments and had a little look at your presence on rightmove, only marketing 5 properties with none sold this would indicate that the masses would (correctly) prefer the ‘high street’ option?? Please enlighten me if I have the wrong end of the stick?

report this

eMoov

Jul 21, 2010 at 18:56

We only launched three weeks ago and so don't have huge stocks yet. Early days...

report this

eMoov

Jul 21, 2010 at 19:04

There's a real culture change needed in respect of home selling, that's for sure. It wont happen overnight. It will take a while for the new concept of cheaper flat fees to sink in because the estate agency model has been the same for decades.

I suppose I would have to say that just because an Easy Jet flight isnt full, it doesnt mean that it isn't good value or that it doesn't get the job done.

The point here is scale of saving. Even if we were HALF as good as a High Street agent (which is certainly not the case) we are still many many times cheaper.

eMoov does not just save a bit. It saves home sellers THOUSANDS.

Worth a punt perhaps even if people might feel held back because not everyone has realised the benefit of our offering yet?

But otherwise if people still want to pay £3K or more to be seen on Rightmove then that's fine ;-)

report this

Graham Williams

Sep 18, 2010 at 13:22

Can anybody help ? On Saturday of last week (11/09/10) a"For Sale" sign went up on a property.We immediately emailed the Agent to arrange a viewing,which occured the following Tuesday,impressed we asked if we could take a builder to estimate for works we considered necessary,this was fine with the Vendor.2 days later we arrived with the builder,I actually asked the Vendor in front of the Agent what price would secure a deal,if acceptable we would get the ball rolling the next day.However the Vendor said to deal with the Agent who was present anyway,but there you go?On speaking with the Agent outside the property after we expressed our desire to put in an offer as another lady had viewed just before we got there,the agent suggested waiting until the next day to see if the other lady showed any interest,and she would let us know in the morning.Nothing was heard until the afternooon when the Agent called to say an offer had been made and accepted and that was that !!! We had NOT even been given the opportunity to make an offer and had been prepared to meet the asking price and possibly more.This smacks of something untoward to say the least.Do we have ANY recourse on this matter.

report this

Andrew Potter

Mar 13, 2011 at 15:16

Estate agent fees are high, that's a fact. With iSold and online estate agents such as http://myonlineestateagent.com/ there are now cheaper options for the consumer. Clearly with the cheaper options the seller does have to do more work and this will not suit all sellers. One thing is certain though there is a lot of room for growth for online agents and while they may neve take control of the market there is no doubt there is a place for them.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Pound and FTSE rise as dovish Fed hopes hit dollar

by Daniel Grote on Sep 17, 2014 at 11:12

Sorry, this link is not
quite ready yet