Property News: Why sellers tolerate fees
The start to the year has been very encouraging for the sales market in West Hampstead. It seems that the government Funding for Lending scheme, introduced six months ago, is starting to have an impact on the availability of loans while overall rates for borrowing are now at their lowest levels since the start of the recession.
It is hard to quantify exactly how much of an effect the scheme is having but there is no doubt that new applicant and viewing levels are up significantly from January 2012, and there’s an increased level of confidence in the market from agents and sellers alike.
Further good news for buyers is the government’s announcement that later this year it intends to allow empty office buildings to be converted into residential homes without the need for planning permission. This should relieve some of the upward pressure on sales and rental prices and is estimated to create an extra 100,000 homes across the UK.
This month I also wanted to raise the thorny subject of estate agents’ fees. According to the Guardian and Halifax Building Society, between 1959 and 2009 house prices have risen by 273% while real earnings rose 169%. Estate agent fees have not changed much in percentage terms over that time, so it would seem we are therefore earning more in real terms for the same job.
Is this what causes the ill feeling about estate agents? After all, in London we are talking about £40,000 (ex. vat) for selling a £2m property or even £10,000 (ex. vat) for selling a £500,000 flat (the price of an average 2-bed in NW6). On the face of it, not great value. Throw in the fact that ours is a largely unqualified profession governed by a mainly toothless Ombudsman scheme (although there are signs that it’s finding its bite) and even we can see why some of that negative sentiment arises. Fees for your estate agent far outstrip those for your conveyancing lawyer or RICS qualified surveyor. Hardly seems fair?
However, I suggest that there is a love/hate relationship between seller and agent and that although our fees seem high we can justify this and that secretly, sellers don’t really mind paying them.
This thought came to me while reading about Tesco’s failed venture into estate agency. Like many others, it invested into an online-only estate agency. The premise was that sellers, fed up with high fees, could advertise their properties online, take enquiries, conduct viewings and negotiate a sale all for a few hundred pounds. Other companies have tried various different versions of this model; some offering a negotiation and sales progression service and others a lower fixed percentage. None have yet succeeded.
It intrigued me that although sellers complain about estate agent fees when they were given the opportunity to pay less, they didn’t take it. I conducted some very basic market research: I emailed 25 of my friends and family and asked them to rank in preference what makes them decide who to appoint to sell their house: a) fees. b) local reputation c) recommendation d) personality/liked the agent or e) sold in my road.
Only one person replied that fees were the most important factor, and most placed it at the bottom of the list. It would seem that there is value in local knowledge and a track record, and that sellers do put trust in their agent to do the best job for them. I would argue this is because agents invest thousands in up front costs, creating a market place where property can be sold for the best possible price.
High street premises, newspaper advertising, expensive websites, numerous property search sites (whose prices go up exponentially each year), staff, sponsorship, marketing, petrol, cars etc.. are all up front costs designed to attract buyers for your property. This demand creates a market where you will be assured of achieving the market value of your property.
Another aspect of estate agents is that they have played a significant part (rightly or wrongly) in pushing up property prices over the last 50 years. Competition amongst agents and sellers’ desire to get the most money they can for their property means that every new instruction comes to the market at a slightly higher price than the last. This has contributed to huge amounts of personal wealth being made through the property boom of the last 50 years. Is part of the reason we accept the fees because the money we make is almost like Monopoly money that we have not seen and wouldn’t have made otherwise.
Property is usually a family’s single biggest asset and, naturally, when selling you want to be absolutely sure that you will be getting the best possible price. It seems that when it comes down to it, sellers do consider the agents the experts.
I would be interested to hear your views on this. Next month, we’ll look at the importance of development and consider whether homeowners and local authorities have too many rights to prevent it.
Benham & Reeves
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