The rise of online agents is about innovation rather than disruption – and for real disruption, there needs to be a different approach to fees.
The point is made in a new blog by proptech experts Eddie Holmes and James Dearsley.
They say: “Traditionally, agents have sold properties for a percentage of the final selling price. No upfront fee, just a commission on success.
“That makes sense in broad strokes but the question has always lingered – is the agent truly incentivised to push for an even higher price on behalf of their vendor?”
The pair quote the example of a £200,000 property being sold for 1.3% commission.
If it goes for £190,000, then the fee is £2,470, and if it goes for £210,000, the fee is £2,730.
The difference of just £260 is hardly motivational for an agent.
Online agents are paid on listing, not on a sale. While their fee is lower than traditional agents, the consumer must then accept the fact that the agent is not necessarily incentivised to sell the property at all.
The pair offer a solution which they say aligns the seller’s interests with the agent’s.
We don’t think everyone will agree with it – not least because they suggest the asking price is set by the vendor.
Their solution is: a very low, or zero, listing fee; sales price set by the vendor; and a 50/50 split between agent and seller of anything over the asking price.
http://proptechconsult.com/2017/05/30/the-fundamental-flaw-at-the-heart-of-estate-agency/
Comments (22)
Robert I think you hit the nail etc and PeeBee continued. How many people in agency today do not know the legal position over the relationship between agent/principal and what is expected of an agent. Professionalism, honesty, integrity, etc
When the market is good in come the ex car sales people; the market changes and off they go. Here today gone tomorrow and with that attitude coupled with the lack of training from who they work for is it any wonder estate agents are about as popular as car sales people?
To know that your professional efforts have at the end of the day achieved a sale for your client ahead of expectations or negotiated around a problem that has arisen gives you that indulged glow and a ‘YES’ on the way home! Or it does for me!
Mr Turner
I actually hadn’t read Robert’s post when I submitted mine – caught up with it a couple of hours later when the red mist settled a bit – but was totally unsurprised that I mirrored his thoughts on the inexplicably thorny subject of compliance with basic Estate Agency practice!
You are absolutely right about the comings and goings of ‘fair-weather players’ in our industry – to the extent that I nearly nodded myself dizzy reading your comment!
I remember when Corporates invaded in the late 80s, and with them came the raft of ‘professional salespeople’ who failed to understand that we don’t actually “sell” homes. But they were obviously attracted by the misguided opinion that we have a glamorous job, and that the money’s chuffin’ fantastic(!)
We all know that when the sun shines of course there is some hay to be made – but only those who have been treading the boards for more than a decade (a far shorter qualifying period in many parts of the country) also know of the very real necessity for nuts to be stored for winter. Those that don’t, don’t work in the industry for any period long enough to gain anything other than the reputation they deserve.
Enough analogies.
Your last paragraph struck a mahoosive chord with me. I remember my first ‘sale’ like it was yesterday. it was, in fact, in the last quarter of 1978. I remember how male chicken-a-hoop (you’ll get the hang of the EYE smut-filter before too long…) I was with myself. In those days I really thought it was all down to me – how things change.
More than anything, I remember the feeling. Not a case of having a great memory – the opposite is in fact the case.
It was the same feeling I got yesterday, when I was involved in the process of another sale/purchase being agreed.
I’m now looking forward to the next time I feel it – the timescale for which I will do everything in my power to keep to a minimum.
Those that write articles and blogs like the subject of the article will probably never understand.
Sad, really…
It will be contract case law that catches those passive interemediary firms who are simply listing properties but giving the impression of full service, contracted, agency. My money is on a breach of the duty of care and skill; a local listing rep whacks a property on the books with no regard for what is best for their client, they will simply take the listing fee thinking their terms and conditions will exonerate them from their obligations.
With 50% of vendors not achieving a sale that is a fair exposure for any company to hold where fees have been taken in respect of possibly negligent advice. Imagine beiing exposed for 6 years to the threat of a class action where nearly half your listing fees have to be returned because amatuer, ill trained listers looked up valuation advice on the random number generation systems that so widely available and so wildly innaccurate. Doesn’t bear thinking about…….. errr wait a minute, yes it does, C.L.A.P!
“Their solution is: a very low, or zero, listing fee; sales price set by the vendor; and a 50/50 split between agent and seller of anything over the asking price.”
SO… using their already ridiculous “example £200,000 property” (assuming, that is, that the vendor actually sets the Asking Price at this figure – and of course that the Agent is prepared, having carried out a much-needed Risk Assessment, to accept an instruction on the stated terms:
Achieve £190,000 – Agent gets squat.
Achieve £200,000 – Agent gets squat.
Achieve £210,000 – Agent gets TEN GRAND.
OR… they could go with YoPurEasyeMove and risk wazzing a few hundred quid up against the wall for what I’ll politely term as ‘far call’… because some people think (as is clearly evidenced above) that ALL Estate Agents are the same.
Five Grand @ £210k …you are forgetting the 50/50 split.
Ahhhh, Blue – you spotted my rare(ish) mathematical Achilles heel!
And, of course, said agent would only actually earn 4166.67 out of that £5k – the resident Chancellor of the moment trousering the balance for his/her war-chest…
On the subject of charging;
Reading this article has made me realise that PB could transform their profits overnight if they charged buyers a fee in addition to the fee they get from sellers.
If Iamsold can get £6000 from a buyer, albeit in an online auction, I am fairly sure PB could get £500 to £1000 from a buyer in a standard residential sale.
They could justify the fee by saying we charge a low sellers fee so you have a greater choice of properties, we give you competitive legal and mortgage broker fees and you have access to a full online sales progression facility. Whilst this fee justification may be a bit of BS that’s not to say it wouldn’t work.
It also changes PB from a lister with no sales inentive to a home seller with an incentive.
Bottom line; I doubt many buyers would walk away from a house they want for £500 to £1000 and the impact on the sale price if they tried to factor in the fee would be minimal and often zero. Unlike the Iamsold fee.
A buyers fee could be the real game changet/disruptor in our industry.
Just a thought.
Just 10 sales a month (on the above example) would give your office another £31,200 a year. A decent enough incentive for an agent who sees the bigger picture.
Oh…and if we took a split of the amount achieved over the asking price we’d go bust pretty quickly right now. The vendor sets the price and then we have to either hope someone comes along who fancies offering more or we get two buyers battling it out. Sorry, just doesn’t happen. Silly idea.
Careful, FTH64 – you’ll get some of those nasty-pasty ‘Dislikes’ with a comment like this…
;o)
£260 for perhaps 2 or three phone calls… yes that’s enough of an incentive for most I’d say.
IndAgent
“£260 for perhaps 2 or three phone calls…”
Even nett of VAT (clearly Mr Holmes misunderstands Agency Fees these days…), £216.67 isn’t to be sniffed at.
Of course, two or three phone calls could turn out to be twenty… thirty or more. The whole point – the only point – is that it is what we do.
The financial side of it is just the icing on the cake – which is doing the best job for our paying client.
Non-Agents simply don’t understand… but then they clearly don’t need me to point that out for them.
I know, how about charging a loss leading, subsidised, pre or loan type commission and let the buyer negotiate their own deal because you get paid either way?
Let the vendors set the price?? Isn’t that one of the main reasons they consulted us in the first place?
Many simply haven’t a clue whilst others have pie in the sky hopes which are impossible to realise.
This would surely result in even more stagnation.
With such controversy raging over fees at present, the subject certainly merits discussion but can’t see this one working.
“The difference of just £260 is hardly motivational for an agent.”
Without any respect whatsoever – b0110cks.
Total ones, at that. Complete, unadulterated ********.
If an Agent doesn’t get motivated by a potential Fee increase of over 10% then they shouldn’t be in the job.
If an Agent looks at one Fee in isolation then they don’t understand what they are there to do 5+ days a week, 48+ weeks of the year.
That’s even ignoring the fact that an Agent has a legal duty to achieve the best price for their client (unless instructed otherwise, in writing – like that’s ever going to happen…
Mr Holmes clearly wasn’t the man for the job when he tried out Estate Agency… all those years ago…
Only one ‘Dislike’ for my and Robert May’s comments?
You would have thought that techheads would know how to clear their cache to score us up in the 50s by this point in the proceedings…
It’s been commonplace for many years for agents to use a sliding scale of fees based on achievable price, but to be fair I wouldn’t dismiss this suggestion out of hand.
In fact I have seen this work elsewhere, not every vendor will “get it” of course, so I would suggest it would have to be as part of a menu of payment options, but nonetheless I applaud the out of the box thinking.
I’ve been in this situation once, where the owner was trying to drive my fee down, but i was recommending putting the property on the market for more than they felt was realistic so we agreed a split of anything achieved their original idea of value. Wasnt quite 50/50 but everyone was definitely a winner
But as other people will no doubt elude to, i dont try to get the best price because our commission is effected by it, I do it because that is my job and it is always the right thing to do.
Right premise, wrong solution.
We have had a similar type of fee option for two years now. Some vendors love it, as they understand the harder we work and the more hours we put in, the higher the sale price they will generally receive. They are also reassured that when we advise we believe we have the highest price attainable, we are being genuine……..otherwise we are doing ourselves out of further money.
However our split above the agreed ‘target’ is a lot less than 50%.
“is the agent truly incentivised to push for an even higher price on behalf of their vendor?” good grief! I really can’t understand how this thinking and article has ignored the contractual duties of agency. The Duties to act, obey and exercise care and skill along with and agent’s fiduciary duties means that irrespective of the remuneration an agent is legally obliged to be incentivised to get the very best deal for their principal.
Perhaps it is misunderstanding of the fundamental contractual obligations of agency that allow passive intermediary internet listing firms to so readily disguise themselves as full service estate ‘agents’.
Agreed. And sorry to state the bleeding obvious, if you sell 100 houses in a year that’s £26,000 on your bottom line, 150 = £39,000 and so on. Thats where the incentive comes in. These proptech people are obviously not business people!
…….or estate agents