Should you use an estate agent?

    15 May 2019

    Yes. But hang on, it’s not that simple is it? Everything and everyone is being disrupted by tech. There is no certainty that house prices will continue to rise and you need to have your wits about you. Fees can be expensive and you could avoid paying them by going online. But are these savings genuine? And are you just as likely to sell your house?

    I’ll declare my hand. Until recently I was on the UK Board of one of the largest firms of UK Property advisors. My firm bought a partnership that although commercially focussed has a very well-known brand of estate agency under its wing. In addition, back in 2006, along with a friend of mine I invested in a firm that set out to disrupt the market by offering a fixed fee selling model, not unlike the one used by Purple Bricks. It did not end well, and I learnt some important lessons.

    Here are four factors to consider when deciding to deploy or ditch the estate agent:

    1. Know your market

    Whilst it may not make sense that an agent charges a percentage commission rate as a fee, there is a difference between price and value. Price is what someone will agree to pay on the day. Value is a more generic number and one that can be generally proven by evidence. Evidence tends to be out of date and imperfect. You can only get the right price for a property if you know your market and can create competitive tension. That, ultimately, is what a good estate agent will do. And a good estate agent has a reputation, track record and bundles of primary data of deals they have done to push the market. And with a percentage fee is motivated to sell at the best price possible.

    2. The hidden agenda

    The relationship between you and an agent is curious. They are not impartial. If you are the vendor, you’ll be paying their fees and they ultimately answer to you. Should you engage with an estate agent to help you buy? If time is a premium, you may wish to pay a finder’s fee but for the most part this can be done for free. Always remember who they are acting for and the fact that they are the oldest form of search engine.

    Google is free. But every time you use it, you’re being rinsed. Your data is being packaged up and sold to prospective advertisers. Keen for you to buy whatever it is that’s on your mind. And it’s no different with an estate agent. A keen agent will spot who’s hot to trot, will forever be qualifying the data, gauging your response, working out your ability to pay, your financial position and therefore whether you’re a prospect, or simply a time waster.

    3. Compare the fees

    Which turns me to the vendor. Why would you fork out more than you have to? For most estate agents it’s no sale, no fee. Online agents have a fee regardless of success. They aren’t as motivated to sell. Then there’s the issue of getting the best price. If an agent isn’t motivated why would they push?

    The simple answer is that online vendors are unlikely to achieve as good a result as a top estate agent. In a fast moving market where everyone knows all of the deals going on there’s an argument for saving a few pounds. When markets get tricky? That’s when an agent earns their fees.

    If you have a property that’s worth a million, that sells for a million with a 1 per cent seller’s fee, that will be £10,000 plus VAT and expenses thank you. If you’d sold online, your fee would only be £1,399. Including VAT. So that’s a slam dunk saving of £10,601. Bingo! Err, Not quite. Let’s say, because of your agent, you sell for £1,020,000. Your sales fee is £10,200 plus Vat. Net, net you’d be £9,159 better off. It doesn’t take much of a difference between price and value for the equation to change. You might just think you should hike your asking price. But set the price incorrectly and your home may not sell.

    4. Honesty is the best policy

    The recent “sell” notes on Purple Bricks aren’t just because of the over expansion in the US and Australia. The model has gaping holes and the marketing budget is way too flamboyant. The departure of the firm’s founder and the drop in share price is just another indication that all is not well.

    A good estate agent will tell you things you may not want to hear. That some of your internal decor is tacky. That your home looks like a total mess and needs to be cleared up or that your taste in wall art is putting off buyers. Or that a market has fallen away. That personal touch is what you need. A good estate agent has real life data on who’s offering, who’s in the market and what kind of deal is going gangbusters.

    Prepare to work your agent hard. Don’t worry about the fee; think about what you could do with the extra profit when you sell well. A decent profit lasts far longer than bragging rights about how little you paid someone to get the job done… I know what I’d do, I suspect you do too.

    James Max presents the Business Breakfast on TalkRADIO every weekday morning from 5 – 6.30am and is a qualified chartered surveyor.