Are British estate agency fees too low?

In response to Sean Newman

Great question Sean – and as you might expect, as one who has been passionate about raising agency commission levels for over 20 years, this is my favourite topic as an estate agency trainer!

There is no question that British agents should charge more. I know you Sean always charge 2.5%+vat and marketing expenses, but many agents who have not been specifically trained in how to defend their commission levels typically charge a rather pathetic 1% - 1.5%. But rather than going into how they can increase this, I’ll answer the question as to why British agents should charge more, in relation to their overseas counterparts.

Firstly, it has nothing to do with the cost of providing the service. A bottle of wine costs about £1 to produce, yet can sell for hundreds if it is desirable enough. Internet-only agency claims of passing non-high street “savings” on to the client is nonsense and the public has already seen through this ,as evidenced by the fall from 7% online-only agency market share to around 4%. People always pay more for the product or service they prefer!

The problem in this country is that, unlike the new world countries, agency as we know it can trace its roots back to when an estate manager, or agent, who would usually be retained to manage the estate, would be instructed to sell one of the estate’s properties as part of his/her work. It was not a sales role so the additional cost was relatively small.

However, in most other countries, especially the US (where 6% is the norm), South Africa (7%) and Australia (3%) and colonial countries, brokering the sale of properties is fully regarded as a sales role. Most sales roles attract sales commissions of 10% - 20%. This is because it is recognised that a good sales broker should be able to not only source, but qualify, negotiate and process a successful outcome which is better than had the seller attempted to handle it themselves.

Some use the argument that British agents are not “qualified”, whereas agents elsewhere in the world usually are. So what! Do you really think that the British would pay US agency rates simply because they hold a qualification? No way. I am by no means disregarding the value of qualifications, but that is not really what the client is paying for. They are paying for the ability to move house, hopefully smoothly. So the job we do in the UK is virtually identical to that done by agents elsewhere. We help people move. In fact, it could be argued that we do MORE than other agents, due to the archaic and complex nature of holding a deal together, often for months, and liaising with numerous third parties. Deals are relatively pre-scribed in other countries, with a sales becoming legally binding on formal acceptance, usually on a standard document.

I recall a time when I was an agent in Cape Town. I listed a property in the morning, found a buyer in the afternoon and agreed terms in the evening. Kerrrrching! Job done. 7% thank you very much and no further involvement required on my part. Certainly the 6% agents in the US have a stranglehold over sellers as they remind sellers that half of their commission goes to the sub-agent who actually introduces the buyer, and that these agents would not even bother showing the property unless they were getting their usual share. Low-fee models have consistently failed in the US, primarily for this reason. It is unlikely to change, especially as the real estate lobby is the largest lobby in Washington after the gun lobby!

One thing that a professional qualification does do however, is impart a sense of self-worth on the agent -“because I’m worth it!”. Additionally, in other parts of the world, most agents are paid commission only so every sales counts. Our salary (indeed low salary) model in the UK has IMHO has led to a degree of complacency that has suppressed UK service levels (as it has in the restaurant industry too). This has exacerbated the problem of low-accountability caused by a focus on the “agency” rather than the “agent”. We know that a seller will probably instruct the agent they prefer based on the individual they met, rather than the agency’s brand (although the brand might have got them through the door initially). Agents elsewhere are self-employed under a brand umbrella (although they frequently jump brands chasing higher personal commissions of up to 95% of the agency’s fee for the top agents). A self-employed agent builds their own brand within a brand and with that comes personal reputation and value. They defend their position, and their value, rigorously, with top agents earning very good money from delighted clients, leaving their weaker competitors with only a few crumbs.

Additionally, as agents elsewhere tend to use multi-listing services, this means that if you look after a buyer, then they can choose to buy any property on the market through you, even if it is listed with another agent. So service levels to buyers tend to be superb, meaning that the public’s perception of agents in these countries is better than in the UK where buyers are almost disregarded. And that attitude rolls over onto those buyers who become sellers.

One issue is that agents compare themselves to their low-fee competitors rather than their higher fee competitors and seldom consider the value of their service to their clients in global terms. This parochial mindset can seriously thwart progress!

So average to poor feel levels yield average to poor agency standards, leading to an average to poor reputation for our industry and average to poor earnings for our hard-working agents.

If you’d like an insight into how to sort the problem and instantly secure higher fees then you might want to attend my forthcoming roadshow for progressive listing agents and senior negotiators. See RawlingsRoadshow.co.uk - 17 UK venues in Sept, Oct and Nov, 2019. First ticket £99, thereafter £69.