Can the fee of an estate agent be justified?

It often makes me choke when I learn how much the estate agent is to be paid in commission on the sale of a property.   Often fifteen times more than my fee and for much less effort.   On top of this the agent may also be receiving a referral fee of around £200 to £300 from the solicitor he or she has recommended. Yes, you could accuse me of jealously, and yes, perhaps I should seriously think of a career change. 

It is also I suppose a sad indictment of my profession when one looks at how the Law Society has allowed such a situation to arise.   Solicitors were at one time paid according to a national fee scale, so depending how much a property was worth their fee would be calculated accordingly.   Unfortunately an inept professional body combined with outside competition has led to many solicitors undertaking property transactions for less that the cost of a family ticket to gain entry to Alton Towers.

So how can an estate agent justify such a large fee?  It is true that the cost of advertising and employing staff is high.  It is equally fair to concede that difficult to sell property can often create a long running financial burden for the agent.  However there can be no justification for an agent calculating a fee based on a percentage of the value of the property.  This is outdated and has no relationship with effort or ‘value for money’ considerations.

I would perhaps be less harsh in my view if I could be convinced that most agents deliver a high and efficient service for the home seller and buyer.   My experience suggests the opposite.    There are a large number of agents who consider their role is nothing other than to advertise property, to introduce a potential buyer to a seller, and to then look to the solicitor acting for the seller to collect their fee at the end of the transaction for immediate banking.    These agents are not keen to assist during the sale transaction and spend most of their time playing one solicitor off against another.

I am sorry but I expect an agent to be more pro-active and to do everything possible to assist the seller and the selling solicitor in making sure the seller’s experience in selling their home is pleasant and stress free.

There are a number of administrative tasks during a transaction that an agent could undertake. They could help with the delivery and signing of documents such as the contract and transfer.  They could play a larger role in collecting replies to inquiries and also helping to coordinate exchange and completion dates.   On the whole there are plenty of ways the agent could in collaboration with your solicitor help to speed up the process and to put it bluntly do more to justify the high fee charged.

At present our experience is that many agents actually contribute to delay through constantly calling the office for pointless updates as well as giving home sellers unrealistic expectations about how long the process will take to complete.

I did have an attempt to stand up to local agents.   About six months ago I said I would only collect the agent’s fee from the client and meet the extra work and cost of passing this money onto the agent if the agent paid me £50.     I did add that if the agent referred a couple of clients to me each month I would waive the fee.  What reaction did I receive?   Well it was if World War 3 had broken out.  ‘What right do you have to demand payment?’  ‘You are not allowed to do that!’ ‘We will report you”.    It was as if I had committed a crime.    The agents just did not get it.  For a fee of around 1% of their fee (or some referrals) I was offering to continue to collect their fee from the client (even no there is no obligation on me to do so) to preserve their cash flow and to minimize their bad debt.    They could not see that given how my fee structure had been squeezed the extra cost to me of collecting and accounting to them was beginning to impact on my bottom line.

All but one agent refused to pay and I now tell clients that they must pay the agent direct.  It’s a shame more solicitors do not recognize that this custom of collecting and paying the agent’s fee is no longer financially sustainable.  In a climate where the likes of Ryan Air  are looking to cover the cost of any extra administrative task however small  surely its time to break away from outdated and unnecessary conventions?

At the end of each transaction we send out a client feedback questionnaire and on this we ask the client to give a rating on their agent.   We always send the completed form to the agent and invite comment.  Not one agent has come back to us.  It seems the majority of agents just do not care.

Will anything change?  This is unlikely to happen as long as homeowners continue to pay scale related commission.    As long as the agent continues to receive such high fees why would the agent wish to change anything?  

How do I find a good estate agent?

There are good and there are bad Estate Agents.  There are Estate Agents that are helpful and there are other Agents who inadvertently cause delay. Finding a good Estate Agent is therefore not an easy task.  In this article I provide some tips which I hope will help you find an Agent who will provide you with a good service and one commensurate with the fee that they charge. 

The Estate Agent will charge a fee according to the value of the property to be sold and this varies from 1% up to 3%.  This is different from how Solicitors charge as most will quote a fixed fee for the work which more often than not is tied in with the value of the property.  The fee of the Solicitor often therefore represents a very small proportion of the fee that you will be required to pay the Agent for marketing your property.

The tips I have are as follows:

Shop around as there is quite a variance in the rates charged by Agents and there are a number of online Agents who now offer their services for a fixed fee.

Don’t be tempted to place your instructions with the Agent who is offering the lowest fee.  There may be a number of reasons why the Agent is not charging a fee in line with other Agents and one of which may be that the Agent will not advertise your property as much as one that is charging a greater fee. 

Indeed it is important to find out at the beginning how often the Agent guarantees that your property will appear in the local paper and also whether or not it will be listed on Right Move’s website or other similar portals. It is important to get some form of commitment from the Agent as to the extent and length of the exposure your property will receive.

Most Agents keep details of the properties they have sold each month and it may help if you ask for these details to be made available to you before you make your decision.

Does the Agent offer any online access to their service so that you can check on progress outside normal working hours?

The Agent may be open to agreeing a split commission arrangement with you which enables you to pay more if contracts are exchanged within the specified period and less if it takes longer to find a buyer. 

If the Agent refers you to a Solicitor it is important to ask whether there is any arrangement that exists between that Agent and the Solicitor whereby the Agent receives a referral fee.  The reason for this is that if a referral fee is paid then the solicitor to whom you are referred will need to disclose this and it is important to know because sometimes the Solicitor may look to add this referral fee onto the fee you are charged.

It is important that you always get an agreement from the Agent in writing and to check all the terms and conditions before the agreement is signed.  It may be advisable only to agree to a short period of time for marketing because if the Agent doesn’t perform then you will be safe to instruct another Agent.

If you do instruct another Agent it is important to read the small print because some agents even after you have left them still reserve the right to charge a fee if it can be subsequently shown that it was as a result of that Agents promotion that a buyer was found.  My advice therefore is that if you move Agents you get a letter from the other Agent to confirm that there is no longer a right to raise a fee.

On the whole Agents can be very helpful during the course of the conveyancing transaction.  However, they can create unnecessary delay because of constant requests for updates from the Solicitor you instruct.  At the end of the day you are instructing the Solicitor not the Agent and therefore it is important that you tell the Agent that they should not contact your Solicitor without first seeking your prior consent.

The Agent will be expected to be paid by the Solicitor once your house is sold. If for any reason you do not wish for the Agent to be paid or you would rather pay the Agent yourself it is important to tell both the Agent and your Solicitor in advance of completion. 

Once the sale particulars have been prepared and sent to you for approval it is important for you to read through these carefully as mistakes can often occur. The statements contained in those sales particulars are often relied on by the purchaser and if there is anything therefore that is not correct it is important for this to be pointed out straight away.

Feel free to consult with a Solicitor before you market your property because local Solicitors often know who the good Agents and may be able to help you find an Agent through recommendation.

At the end of the day you are paying quite a substantial sum for the service and it is for this reason that you should always do your homework and shop around and perhaps also seek recommendations from friends, family and work colleagues before making your decision. 

If you would like to find out how we recommend within the Norfolk area feel free to email me as I am more than happy to assist.

 David Pett.  Solicitor and Partner davidpett@m-j-p.co.uk