Tuesday 9 October 2012

Estate Agents commission monopoly under attack


In my last blog I discussed the increasing gulf between the fee of the solicitor and the commission charged by the estate agent, and posed the question whether at a time when the property market remains in turmoil this could be justified.  

At about the same time news broke of an announcement by the Department for Business, Innovations and Skills (BIS) of proposed amendments to the Estate Agents Act relating to web-based 'intermediaries'.  The changes if implemented will mean  the intermediary will no longer be  treated in the same way as an agent and will  make it easier for  sellers to advertise their home online direct to buyers.

The intermediaries, such as Tepilo, run by TV property guru Sarah Beeny,Sellmyhome.co.uk and HouseSimple allow property sellers to advertise their homes online for a fixed fee far below the commission charged by estate agents. The providers of these services do not perform any other role during the sales process yet the Estate Agents Act treats them as agents and requires them to perform the same checks on properties as agents. This has made it difficult for them to compete with the likes of Rightmove through which the majority of estate agents advertise property.

If the restrictions on these businesses are relaxed it is clear that the consumer will be presented with a wider choice and fees charged by agents may begin to tumble as competition increases.  The typical fee charged by an intermediary is around £450 ( Tepilo is free).  Compare this to the commission charged by agents where commission can run to many thousands of pounds. A recent Which? report found estate agent fees range from 0.75 per cent to 2.5 per cent, with 1.8 per cent the average fee. Selling a £300,000 property on this basis would cost £5,400.

It is fair to say Estate agents clearly provide a more comprehensive service than intermediaries, including offering complaint processes and redress if needed. However any change that will help to put pressure on agents to charge a fee  that is more proportionate to their input will be welcomed.


Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Thursday 4 October 2012

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?  

Wednesday 19 September 2012

Buy to Let tips

There are several reasons for looking at property to purchase for the purpose of letting.   

Property prices are still falling and providers of mortgage products for buy to let are offering competitive rates.   Added to this we are experiencing a rise in rents due to a shortage of good rental property.  The shortage of mortgages with a high LTV (loan to value) has led to an increase in interest in rented property.  In line with our friends on the Continent the focus is now beginning to move away from home ownership towards rental.

So what do you need to look out for if you are looking to enter this market?  To begin with the property is likely to be in the lower price bracket and will therefore need to be chosen carefully.  

Start with speaking to the selling agent and find out what rental income it is likely to generate, whether there are comparable properties that can considered and more importantly whether there is a high demand for rentals in that area.   Check that the selling agent has experience in the rental market.  This is an important exercise because your mortgage company will be looking at the rental value when it comes to valuing the property for security purposes. 

Make sure you always invest in a full survey.   This is likely to cost around £400 and will be worth every penny.  You need to make sure there are no hidden surprises such as the need for a new roof or other  major works that could upset your financial calculations and turn a profitable investment into a drain on your resources.  Don't do what a large number of purchasers do and rely on the mortgage valuation.   This is dangerous because the lender's surveyor is only only interested in making sure the property offers adequate security for the loan. 

A survey may also help you secure a reduction in the selling price.   I act for a number of investors in property and in my experience you can normally with a full survey look to save around £2000 on the agreed price.

Many of the investment properties on the market are flats or leasehold properties.  Approach these properties with extra care.  They are often cheap because the unexpired term of the lease has fallen under 80 years.   The reason for this is that once a lease falls below this threshold the cost of extending the term can prove prohibitive.  

Leasehold property can also come with hidden cost which again if not checked can turn a potential investment into a loss.   Most properties require the owner to pay a service charge and ground rent.   Typically this will be around £1200 per annum and needs to be factored in when looking at the expected return.

You should always ensure extra funds are set aside to cover any major work that might have to be undertaken to the property.   Redecoration to the common areas of the building and replacement of lifts can often cause the service charge to increase significantly.  A new lift can cost around £100,000!

There may be a reserve fund set aside for major works of this type.   If there is not I personally would not purchase unless I knew what work was likely to take place within the next 10 years. 

Being a landlord is not just about collecting the rent.  There are a raft of legal obligations to meet relating to  deposit holding gas electricity just to mention a few.  Make sure the surveyor is told you intend to let so that he can check out the gas and electricity installations.  I recently  had  a client complain because on completing the purchase of a buy to let property she found the gas fire in the lounge was not working.  I politely reminder her that she was advised to arrange a full survey before committing to the transaction.   Cutting corners to save money can often prove to be  a costly mistake. 

The last and most important piece of advise is to always choose the right solicitor to act for you.  Choose someone like me who has experience in this field and who knows what to look for particularly when it comes to purchasing a leasehold property.  This is a specialist area and requires expertise.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Friday 10 August 2012

Is October 2012 the right time to introduce new building regulations?

Though there is little written on the subject it seems that by October of this year we will all be paying more for home extensions and improvements.   

It is expected that those undertaking home extensions, loft conversions or integral garage conversions will be required, and not given any choice, to undertake ‘consequential’ energy efficiency improvements in other parts of their property.

Upon implementation this may mean having to find the money to implement measures such as fitting a new boiler or solid wall insulation, up to a limit of, or even beyond, a value of 10% of the cost of the extension or conversion works.

If you are thinking of only replacing a boiler or (some or all) windows this likely to trigger  a mandatory  requirement to install one, some or all of loft insulation, cavity wall insulation, hot water cylinder insulation and draught proofing.

The impact of these requirements could be significant when you consider with information supplied by the DCGL that every year there are around 200,000 domestic extensions, loft conversions and integral garage conversions, one million homes have windows replaced and 1.4 million boilers are replaced.

If you are thinking of making changes now is to the time or you could find making and paying for changes beyond the scope of their planned building works.

The aim is admirable - implementing cost effective changes will help reduce carbon emissions and save on energy bills.  However at a time when the economy is running on empty is the timing of this right?   Are we ready for more red tape, extra costs and will not in fact put off people from carrying out home extensions and how will this impact on the building and other related industries.  Time will only tell.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Tuesday 17 July 2012

What is the Green Deal?

What is the Green Deal?

This is scheduled for introduction in autumn of this year, and will enable accredited retailers such as Tesco and B&Q to supply, without no upfront cost, quality assured services to homeowners and businesses looking to improve the energy efficiency of their property.

The full cost of the measures will be recovered through instalments on the energy bill over several years, and because the Green Deal is not a personal loan or an advance payment scheme, there is no obligation to continue paying the instalments when the owner moves home.

Qualification for the scheme depends on a simple calculation, known as the “golden rule”– whereby the predicted savings from the energy efficiency improvements to the property must equal or exceed the cost of installation.


How will it work?

Those wishing to participate in the Green Deal will require a full property assessment carried out by an independent and fully accredited advisor.  This initial consultation will provide householders and business owners with an opportunity to learn about the current energy performance of their properties and the specific measures which they would have access to under the Green Deal to improve this performance.

If it assessed that the homeowner or business owner qualifies (see above) then a comprehensive quote, clearly breaking down the total cost of energy efficiency installations for your property, the size of repayment instalments attached to utility bills, and the estimated length of the repayment period will be issued. 

This will be supervised by the accredited advisor who carried out the survey and the work will only be financed if it is carried out by approved Green Deal installers.

How will it be financed?

The finance will be through an instalment plan attached to the utility bill and which will be attached to the property rather than the individual.

Although a Green Deal finance plan requested by a homeowner or small business is not a personal loan, it is likely to be considered a fixed term credit arrangement and customers will therefore be protected under the Consumer Credit Act.


How will installation work?

Once a Green Deal finance plan has been approved, installation will be arranged and carried out by certified Green Deal providers. 

Will the Green Deal help to save money in the long term?

Only time and a track record will tell!

The current language used by the Government suggests they are also not sure of the probable outcome of the measures.   Upon being pushed by a commentator on this subject the Department of Energy and Climate Change stated: "[People] should still save money compared to what it would have cost to heat their home in that way without a Green Deal."

How will the Homeowner and Business Owner be able to monitor and track progress once the initial application of interest is registered?

We are currently working on a tracking system which can be used by the home owner and business owner to record and track key stages within the process and to create at the end of the procedure a property log book for transferring the records and information to the next owner.

For further information on the Green Deal feel free to email me

David Pett

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Monday 2 July 2012

Sewage pipes - The importance of ownership

The Water Act 2003 which came into effect in October 2010 has left certain home owners worse off and continues to pass under the radar of may lawyers who act for those buying homes.

Up until the introduction of this new law, financial responsibility for the maintenance and repair of   the drainage pipes which connects your home to the mains sewer rested squarely with you.  If anything went wrong with the drains you and the others who share the use of the pipes would be required to meet the costs of repair.   Often this meant having to find several thousand of pounds.

The good news is that since October this responsibility has not passed to the local water authority meaning that if your house does not connect directly to the mains sewer but is part of a network connecting more than one house then there is longer any liability resting with you.   If any thing goes wrong the water authority must sort it.

Beware however as any stretch of pipe through which sewage from only your property flows will remain your sole responsibility.  You need to ask your solicitor to check this and to make sure you have a right to make use of the pipe and that if it passes through adjoining land that you have a right to access that land to carry our repairs etc.  Certain water and sewage authorities offer insurance to address and issues and this can cost as little as £5 per annum.

The downside of this is that we will all be paying more for our sewerage charges even if our drains are not automatically adopted because we connect direct to the mains.    There may also be problems if we are looking to build over a drain, for example the building of a conservatory or an extension.  If we have lost ownership then we will need to obtain the consent of the water authority.   If there is already a building situated over a pipe which is now owned by the water authority and the water authority has to gain access to carry our repairs you will if you can show that the pipe was owned by you before October claim compensation for the damage caused.

So the message is ask your solicitor if the property is connected through a network of pipes or connects direct to the mains sewer. If  it connects direct you will be responsible for the cost of repair and maintenance and you need to make sure  you find out the route of the drain and that you have a legal right of access to it.  

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

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