The Importance of Maintaining Your Fee Level

5th February 2019

Since the beginning of 2019 the property market has been much slower across London and the South of England, with many agencies fighting for stock and being tempted to reduce their sales fees, in order to compete with online agencies.

At the end of 2018 research by property portal Okaylah showed estate agency fees at £7,000 in parts of England, despite the slower market conditions created by Brexit uncertainty. The English average sellers fee is £3,425, although it stands at £6,804 in London and £4,585 in the South East. With fewer transactions completing in the Capital, the South East has paid the highest amount in estate agent fees. With 142,007 properties sold, the region is home to the highest total property value, which collectively stood at £45.8bn and this equates to the highest in total fees paid at £651m, an average of £4,585 per property.

According to stats from Lloyds Bank published last month, the average price of a house in a UK city in 2018 stood at £248,233, up from £180,548 in 2013. London has an average house price of 481,200, Oxford £460,184, Cambridge £408,000, Manchester £168,000 and Birmingham £163,400 (Zoopla Jan 2018).

So why would a traditional agency compete with an online model, when the service is completely different?  

For an upfront fee of somewhere in the region of £1,000 an online agent will list your property on a website and portal, possibly put a board up (or this may be an extra) and leave you to it.  How can that be compared with the work a traditional estate agency does?

Our view is that it can’t.  

A traditional estate agency needs to be able to justify to a seller the work that is actually required to sell a home.  That service cannot or should not be available for £3,425 when a typical sale takes 165 days from the commencement of marketing to completion, meaning you get paid just over £20 a day.  That’s for being a valuer, marketeer, home dresser, legal advisor, location guru, social worker, psychologist, life coach, piggy-in-the-middle, administrator, negotiator, chaser and best mate or worst enemy (depending on the day)…

The moment agencies start to devalue themselves and the hard work they do, it puts the entire industry into jeopardy.  It is a tragedy when agencies become more worried about competing over their fee than concentrating on showcasing their amazing service to their potential clients, some being so willing to drop the fee, they barely even explain what they do for it.

Fee madness:

If you are an agent selling 50 homes a year and (for the sake of easy calculation) each of those properties sells for £300,000 and you usually charge 1.25% fee.  Your annual income = £187,500.

So, you drop the fee to 1% and now you sell 60 houses, instead of 50.  Annual Income = £180,000 but for more work.

Alternatively, you increase your fee to 1.5%, house prices stay the same but now you only sell 40 properties. Annual Income = £180,000 but for less work.

So why not concentrate on giving a truly remarkable service and being able to defend your fee structure with passion and evidence of the amazing work you do.  In a survey carried out between May and July 2018 by Gavin Brazg, founder of “The Advisory” who provides independent expert advice for house sellers, with 137 property sellers (England & Wales) who have had to pay estate agents over 6,000 times in the last 8 years:

– Agents charging less than 1%+VAT make sellers deeply suspicious.

– Agents charging more than 2%+VAT for sole agency need to be able to demonstrate something exceptional.

– Agent charging anywhere between 1%-2%+VAT for sole agency (as long as they’re the best agent for the job) are actually pretty decent value for money.

– Sellers should never pay fees upfront to any estate agent.

– Sellers firmly believe ‘no sale no fee’ is the way to go.

Other industry surveys also concur, the fee is rarely the instruction getter, usually it is a strong rapport with the valuer and trust in them.  Estate agents are urged to value their service and be far better at negotiating their fee for the work that you do. It is also worth remembering to do this for the entire estate agency industry.  We took a look around the globe and discovered that the UK is the absolute cheapest place to sell your biggest asset, your home, and there is no reason at all to devalue the hard work everyone does.

Estate agents around the world:

In the US property portal Zillow.com tells us that you will pay around 6% realtor fees for closing a house sale.  In 2019, average U.S. home values are expected to rise 3.8 percent from 2018, Zillow said in a December report, citing a survey of economists conducted by Pulsenomics LLC.  In October, the U.S. median home price was $221,500 (£169,755), up 7.7% from the same month a year earlier, Zillow said.

Across Australia the average agency fee is around 2% to 2.5% of the sale price, or from $10,000 (£5,543.50) to $12,500 (£6,930.00) when selling a $500,000 (£277,297.50) house. Marketing costs usually come on top of this, and can also vary a lot – from around $500 into the thousands – depending on how diverse they need the advertising to be.  Australian house prices are falling but recent stats show the median house price in Sydney is $900,000 (£500,000) and Melbourne’s average price is $740,000 (£411,000).

In New Zealand, estate agent fees are usually paid by the seller, but not always. Their rate is negotiable but usually ranges from 3.5-4% of purchase price + 15% Goods & Service Tax. The average house price in Auckland is 835,000 New Zealand Dollars (£441,336.75).

In France ‘estate agent’ fees are typically 5 to 10% of the selling price and may be paid by the seller or the purchaser depending on the custom in the area and what is negotiated between the seller, agent and purchaser. To buy a character stone property in France will cost you between €150,000 – 300,000 (£130,000 -£ 260,000). Property prices have fallen by around 10% in the last five years (according to the Notaires de France) and even in the most expensive parts, the average is around €150,000, although they are nearer €68,000 (£60,000) in the cheaper northeast.

In Germany, the buyer usually pays the estate agent fees:  Real estate transfer tax 3.5-6.5%, Notary fees 1.2-1.5%, Registration fees 0.8-1.2% and Makler’s (Broker’s) fees 1.5-3%. Average prices in Berlin increased by 14.9% in the year to March 2018, outperforming London.  In Munich you should be prepared to fork out €500,000 (£438,148) for a 40m2 studio, and twice that for an 87m2 apartment.

In China, A typical home in Beijing now sells for between 6 to 10 million yuan (£42,000 to £70,000), and agents charge between 2.5 and 2.1% fee.

 

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