London Property

Pay 1% more in fees to estate agents or drop your asking price by 10%?

A major $1.8 billion legal case in the U.S. has shaken the real estate industry, alleging fee price fixing among agents.
As the US faces cutting fees from 6% to 3% we should talk about the real cost of having the lowest paid agents in the western world.
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A major $1.8 billion legal case in the U.S. has shaken the real estate industry, alleging fee price-fixing among agents. The National Association of Realtors (NAR) and major brokers, including Keller Williams and Anywhere Real Estate (which operates Century 21 and Sotheby’s International Realty in the UK), have paid substantial settlements. eXp Realty is still litigating but has set aside $16 million for potential costs.

In the U.S., fees were 6%, with a multi-listing system enabling all licensed brokers to access and share listings. The system is efficient, the quality is good, and the consumer is making informed decisions. The fee was split between the buying agent and the selling agent, each taking 3%.

This is all about to change, and the impact and solutions that will emerge from this will offer valuable lessons for us on this side of the pond.

In the UK, the only fee-fixing we see is agents undercutting each other, working hard for a fraction of the fee charged in other countries, wasting much time and energy haggling over 0.25%, 0.5%, and so on. The inability to collaborate, coupled with rising costs of running an agency, means that a seller’s property is kept close to the agent’s chest, often for months or years. The focus, instead, should be on doing what’s best for the client and finding the one buyer who will pay the maximum price in the shortest possible time.

Sometimes, the inability to fully market a property results in price cuts of up to 10%. Now imagine this scenario: when a seller pays a proper fee of 3%, the property becomes immediately available to all agents, advisors, runners, and anyone who can introduce a capable buyer. All those deep-rooted relationships can get to work.

Most reputable agents have decades of experience and strong relationships with families and through generations. They are well-positioned to influence buyers, and if they had the whole market available to them, we would have a more efficient and liquid market.

As a property consultant and investor with over three decades of experience in the prime property market, the one constant I have seen is that the market is fragmented and continues to fragment despite changes that should facilitate collaboration. The UK agency market comprises some 15,000 agencies, fragmented from the root up. This pattern is hard to break and needs fixing.

We can start with governing bodies. A few years ago, we had to subscribe to several organizations, at some expense, to validate our legitimacy. There was a time, pre-internet and pre-Google search verification, when agents had to join ARLA, NAEA, NARLS, TDS, Ombudsman, MARLA, and RICS to show credibility, proving their innocence before being considered guilty.

At one point, there were 750 software programs for 15,000 agencies in the UK, none providing an A-Z solution and requiring further subscriptions for portal uploads, property accounts, property management, and so on.

Then came the portals with rules like “if you advertise with us, you cannot advertise on any other portal,” a counterintuitive way to embrace the internet!

Now we have corporates, independents, brokerage models, techpreneurs, marketeers, and still no proper collaboration, prevented by minimal fees.

The basics are also missing.

Agents need proper training, and we need some regulations around that before the market can be standardized. We advise consumers on making the biggest investment of their lives without the requirement for any formal training or previous knowledge to pass on to the consumer. Most people do not buy stocks and shares without a licensed broker, yet many make the biggest investment of their lives without a qualified professional.

A recent article in The Times announced the launch of an Estate Agency degree at the Royal Agricultural University, offering a two-year foundation course. The 190 comments against the article were almost all rude, not a good indication of job satisfaction for agents. That comes from being respected, having knowledge, doing well for clients, getting recommendations, and spreading positivity.

Many agents self-regulate and learn by attending courses. The big corporates offer apprenticeship programs and train their staff, giving customers assurance that they are in safe hands. Throughout my career, I have adjusted to “guilty until proven innocent” and walked into many appointments knowing my first job is to give reassurance that I can be trusted and I know how to do my job.

I have never understood why it is not mandatory to have some training before advising someone on how to invest vast sums of money. The one time I received an official answer, it was along the lines of “having no barriers to entry makes it cheaper for the consumer.” If you ask around, most consumers are stunned to learn that zero training is required to be an agent. Many have no idea. Surely consumers prefer to get the highest possible price for their properties and avoid making expensive mistakes when buying, rather than saving 1%.

Consumers may also be surprised to know that when they give their properties to an agent, the first thing the agent does is announce that they will not pay any fees to any other agent, even if the agent has the perfect buyer. This is mostly because they cannot pay fees out and cover their overheads, while earning a decent living.

This is when you start attracting the undesirables.

Valuations play a big part in what prices are paid for a property, but the right buyer is also willing to pay a higher price. Different buyers have different visions and derive different returns as a result.

Marketing to all advisors has better results; not all buyers are prepared to pay a buying fee so it’s in the seller’s best interest to pay good fees for best results.

As a property consultant, I would pay a fee anytime and gladly. Most property professionals do, and that’s how they get the better deals. Keeping agents on your side means they will bring you the best deals. Look after agents so they can look after you.

The market chatter is all about disrupting. Let’s hope that turns into collaborating, training the youngsters to provide a professional service with confidence because they have the knowledge.

I recently turned into a listening clinic about agents at the Department of Levelling Up and Housing. The talk was about licensing agents, and in the same conversation, they discussed letting agents, estate agents, and building managing agents. All these agents do different things, need different qualifications, and require different training!

Here is hoping that the only disruption that comes next is knowledge, collaboration, and valuable tools to facilitate both.

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