I’m the Managing Director and a solicitor at a rapidly-expanding firm of solicitors and estate agents with its Head Office in Edinburgh. We sell properties in Edinburgh and the Lothians, Glasgow and the Scottish Borders and have an innovative feeing model that puts the focus on transparency and value for money. I’ve long thought that the way that most estate agents charge their clients is completely unfair and that it does not represent good value for money.
So, do you want to get back at these greedy estate agents and save yourself thousands of pounds? Well, at the risk of making myself very unpopular with some colleagues, here are my Top 10 Insider Money Saving Secrets about how estate agents make money, hide fees and basically charge you more than you really should be paying.
1. Why are you paying a percentage fee? Negotiate hard, especially if you have a more expensive property.
Most estate agents charge a fee that is a percentage of the selling price. This varies hugely but in Edinburgh it’s usually between 0.7% and 1.5% and in Glasgow it’s usually more like 1% to 2% (there are exceptions, of course, lower and higher). A 1% fee on a £100,000 property is therefore £1,000 and on a £500,000 property it is £5,000. Bear in mind that the level of work involved in selling a £500,000 property is not necessarily more than in selling a £100,000 property. Estate agents will often stress that they can’t budge from their standard percentage fee. Remember though, it’s not the average percentage fee but rather the total amount of fees throughout the year that matters to the business. Even 0.6% of £500,000 is £3,000 and that goes a long way in the current financial climate. Therefore, negotiate hard, especially if you have a more expensive property. Look at the total amount of the fee rather than getting fixated on percentages. And, indeed, ask yourself why you are being charged a percentage fee in the first place: push for a flat fee! Percentage fees do not, contrary to popular perception, give an agent more incentive to sell your property for a higher price. That extra £1,000 on the selling price makes a large difference to you. However, it translates to an extra £10 on the estate agent’s fee. Are they really going to jeopardise the chance of getting their £££ commission for the sake of an extra £7?
2. Beware of fees quoted without VAT included
Most estate agents quote their fee level without including the VAT. Even though we don’t get to keep the VAT element, you still have to pay it and, unless you’re a VAT registered company, you can’t claim it back. So just beware that when the agent quotes you a fee of 1% of the £300,000 sale price, you will actually pay 1% of the sale price PLUS 0.175% of the sale price in VAT. So you are effectively paying the agent 1.175% and not 1%. As of 1 January 2011 when VAT rises to 20% this figure will be 1.2%. In real terms on a £300,000 property with a 1% fee this means that you will pay £3,600 and not £3,000.
3. What is actually included in the ‘estate agency’ service?
What exactly does ‘estate agency’ mean? If you ask ten different people what they expect from their estate agent, you will get ten different answers. Some of the things you pay an estate agent for are for advertising and marketing materials, much of which comes from 3rd party companies e.g. For Sale Board, property particulars/schedules, newspaper advertising. However, what do you get for your estate agency fee? There are several agents who cannot really answer this question because, beyond preparing the marketing/advertising materials, once the property is on the market, that agent doesn’t do a huge amount. Providing Rightmove, Zoopla, Primelocation advertising, following-up on viewings for feedback and cross-selling your property to potential buyers takes time and therefore costs the agent money. However, if they don’t do these things, you have to question what the agent is actually doing. You may be happy with that level of service, but be sure you’re not paying thousands of pounds to someone who really only takes some photos and pops your property in the newspaper and a website!
4. Watch out for ‘extras’ that should be included as standard in your estate agency fee
Some agents charge for photographs, floor plans, design and layout of property schedules/sales particulars and the like. Many other agents class these things as part of the estate agency service and don’t charge separately for them. If you are being charged separately for certain items that some other estate agents include in their standard estate agency fee then ensure that (a) you are getting something of a decent standard (e.g. photographs that are better than you could have taken yourself) and (b) that the estate agency fee is sufficiently reduced to take account of you having been charged for things that other firms would include in their standard estate agency fee. I am aware of one agent in Edinburgh who charges hundreds of pounds for photography and schedule design, even if you are not having any schedules printed and they still charge one of the highest fees anywhere on in the marketplace.
5. Beware of being sold extra advertising that you don’t need
In spite of the predominance of property websites, print media is still an effective way of raising awareness of your property amongst property buyers. Beware, however, of estate agents who have bought an entire page in a newspaper and who are trying to re-sell parts of that page to you. Some agents charge several hundreds of pounds for a newspaper advert that only runs for one week! Many are highly incentivised to sell this to you right at the beginning of the process because their firm has already committed to paying for a full page in that newspaper and they have to sell that space come hell or high water. I’d usually suggest giving the basic advertising package a couple of weeks to work before rushing into spending several hundreds of pounds on a newspaper advert. And beware that you can buy a LOT of ‘Featured Property’ add-ons on the big property websites for the cost of just one newspaper advert!
6. What is this up-front Marketing Fee and what is this ‘Termination’ or ‘Exit’ fee?
You’re already paying for an estate agency fee. And you are often paying several hundreds of pounds for photographs, schedules, Home Reports and the like. So what is this additional ‘Marketing Fee’? And what is that ‘Termination Fee’ in the small print? If you put your property on the market with this agent, hate them and want to move to another agent, you will already have paid several hundreds, even thousands, of pounds and they didn’t even sell your property. If your agent is charging you a substantial percentage fee anyway then push them hard to reduce or remove these fees from the contract. Most will accept if it’s the difference between winning and losing that business and you will save yourself hundreds of pounds.
7. Beware of empty claims of estate agents having buyers on their books
One of the most common claims of estate agents is that they have buyers on their books who are looking for a property just like yours. Check this claim and ask for proof. I know of so many people, friends and family, who have been told this same story by every single agent who they have tried to sell a property with. None of them have ever actually asked to see any proof of who these buyers are. And none of the agents ever came through with any of these (probably mythical) buyers. So ask for proof. And if an estate agent DOESN’T have a database of buyers, question what on earth you are actually paying an estate agency fee for and how proactive that agent really is.
8. Be suspicious of estate agents’ valuations of your property
One of the most common techniques for getting your business is to claim that your property is worth more than it really is. Flattery, in some cases, gets the agent everywhere. So few property owners ask estate agents to show them supporting evidence for their valuation. You don’t need any qualifications in Scotland to be an estate agent. And there’s no magic to valuing a property: it’s based on what comparable properties in the area have sold for. Estate agents do perhaps know more about property and the property market than you do, but don’t make the mistake of treating them as experts on the same level as doctors or quantum physicists! Question them and make them justify their claims. Remember: if your property is over-valued it will sit on the market for a long time and, if you then decide to change agent, you might have to pay a Termination Fee and you might already have paid for photographs and schedules and a Marketing Fee (though not if you follow the advice above!).
9. Look out for expensive conveyancing fees and fee ‘estimates’ rather than quotes
Beware, particularly when the estate agent is also a solicitor’s firm, that a very cheap estate agency fee might be offset by a very expensive conveyancing fee. Ultimately, the firm is owned by the same people so if one part of the fee is low to attract business and the other part of the fee is higher to offset that, they won’t care: it’s the total fee that matters. Beware also of solicitor firms providing you with an ‘estimate’ of fees rather than a quote. Many firms will quote a certain amount of conveyancing on the proviso (usually in the small print) that it goes totally smoothly. If the transaction isn’t ‘regular’ then they’ll charge more. I’ve seen a solicitor firm completing the transaction THEN raising a big invoice at the end of the transaction when it was too late for the client to move to another solicitor or negotiate the new fee. Make sure to ask the solicitor, prior to them doing the work, in what circumstances they will charge an elevated fee and ensure that it is discussed with you before they go ahead and do that work.
10. Don’t choose an estate agent solely on the number of properties the agent has on the market
One of the most common ways of choosing an agent is to pick one who seems to have a lot of For Sale Boards up in your area. And a lot of agents market themselves to potential property sellers on the basis of market share. However, big market share can mean one of two things. On the one hand, they are amazing and everyone in the area loves them. On the other hand, they are not very good at selling properties so they just keep piling up. My firm is now well beyond the point of being one of the smaller agents and is fast becoming one of the largest so I’m not saying this because I have any axe to grind about big firms: quite the opposite, we aim to be the largest around by offering the most sensational value for money in the marketplace. I’m just saying that, in this context, big isn’t always beautiful.
I hope that some of the secrets and tips in here help you to save a lot of money. None of this really is rocket science. However, there can be a tendency to look upon professionals (and I include estate agents in that category) as ‘experts’ and just to swallow everything that they say. I hope that perhaps some of these ideas give you the confidence to ask the questions that need to be asked and to know why you are asking them. If you do have any other questions though, please don’t hesitate to get in touch with me.
p.s. until the end of 2010 my firm, MOV8 Real Estate, is offering FREE estate agency. It’s not too good to be true, honestly. Please go and check it out on our website at www.mov8realestate.com.