In this country house sales are usually conducted by people (firms/companies) called estate agents. (I know that in Scotland the work tends to be done by lawyers, but for the purposes of the general argument of this post we needn’t worry about the distinction.)
Estates agents are not liked. Only yesterday I read an article in which the good people of various towns were protesting about the number of estate agencies springing up to deal with our housing bubble – spreading like herpes, one person commented. Isn’t that a great way for a business to be thought of?
Anyway, leaving aside such reputational issues, the point that has always struck me as odd, especially having bought and sold in the last couple of years, is the way that it has generally been accepted that estate agents charge a fee that is a simple percentage of the cost of the house. Around here the going rate has been 1% for a good while, although when we bought our current house the sellers paid just 0.5%: the agents boasted (not unreasonably) that 1% was rather a lot, and that they could generate more business with a lower fee.
Yes, but they still automatically assumed that the way to work out a fee was to use a percentage charge. Why? It seems to me that if you are selling a grand house in a desirable setting, then as the purchase price is driven up by eager clients the estate agent is getting extra money for doing very little. Indeed, the true test of excellence might be getting rid of a lousy house in a poor area of town – much harder work, probably.
In London last week I was amazed to see that the going rate in the agents I noticed was 2%. Wow! One firm justified its fees, in an advertising article, by explaining how they had obtained an extra (yes, extra!) half a million quid after the sellers had said they were happy with the earlier £3.2 million. Now, given that we are dealing in telephone numbers anyway, and that my house is worth less than half a million, let alone the extra bit, I still found myself perplexed by this. Ok, so they no doubt showed some skill in getting the extra money, but was that really worth £10,000 extra? In an over-heated market? In London? Where house prices in some districts increased (figures from the same magazine) by almost 20% last year in relation to 2012? Come off it!
And yet we accept this method of charging. Is it because (in a very British way) we don’t want to talk actual money? When I last sold, I was told that (as a special offer) the firm would reduce its fee from 1% to 0.8%. Ok, I said, well how about 0.75%? Oh no, couldn’t do that! But nobody ever got round to talking in terms of pounds and pence.
So it was heartening to see, in that article which appeared yesterday (quite coincidentally just as I was thinking about writing this note) that there is now at least one firm which is starting to do business on the basis of a set fee – something like £400, if I remember, but certainly a small fraction of the amount charged by big firms on percentage rates. I hope their chances of success are more than 50%…