5% Letting agent fees

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

  • 5% Letting agent fees

    http://www.landlordtoday.co.uk/news_...-letting-agent

    Landlords don't need to spend a fortune on fees, says 5% letting agent

    After once paying 15% for an utterly incompetent agent and (still) paying 7% for a decent professional one, IMO you certainly don't get what you pay for in this industry.

    If 5% becomes the new norm I might be tempted to use letting agents more.

    If landlords could find a competent agent, would they be tempted at 5% for fully managed?

  • #2
    Originally posted by boletus View Post
    If landlords could find a competent agent, would they be tempted at 5% for fully managed?
    5% ? -thats only £ 25 per month, so that will ONLY cover ONE
    reply letter after investigation and phone call /per month.
    overheads etc, will run at £ 30 per hour.

    The total for the year is what makes it profitable, and some agents
    cant cope at 10% ! ! !

    To answer your question = no.

    Comment


    • #3
      Originally posted by boletus View Post
      http://www.landlordtoday.co.uk/news_...-letting-agent

      Landlords don't need to spend a fortune on fees, says 5% letting agent

      After once paying 15% for an utterly incompetent agent and (still) paying 7% for a decent professional one, IMO you certainly don't get what you pay for in this industry.

      If 5% becomes the new norm I might be tempted to use letting agents more.

      If landlords could find a competent agent, would they be tempted at 5% for fully managed?
      I'm playing devil's advocate here:

      A generic view like this is extremely capitalist in nature.

      Why does a landlord, who perhaps could get everything managed without lifting a finger (i.e. include organising maintenance works as part of the management as well), believe that the owner is entitled to so much compared to the agent?

      Some numbers:

      Rent: £500
      Letting agent fee @ 10%: £50
      Mortgage costs: £300
      Maintenance/other: £50
      Landlord profit: £100

      So, the landlord does nothing other than invest some capital and own a property with a secured mortgage whilst declaring income on his/her tax return. This provides them with £100 per month.

      The agent meanwhile does all of the leg work and receives £50. At a 5% fee this would be £25.

      If you had 100 properties managed for which you received £25 per property per month, you'd receive £25k per annum. Let's assume that is enough for a member of staff and associated overheads. I'll tell you now, 100:1 ratio is too high and a decent ratio, I would argue, needs to be at 50:1 as a maximum.

      So, is the charge of 5% really all of the costs?? No. But, if the answer is yes, then it can only be service that suffers.

      I'd suggest that the agent (in fact I just checked) charges additional fees - for each 'tenant find' it is £250, or in the case above an additional 3% per month on the average let (assume 16 month average let). Using the % fee can be misleading. Other agents might charge a high percentage but no tenant find fee - why might that be good? Because those agents, by their own income model, are encouraged to look for and place long term tenants.

      So our friend in the attached article charges 8% management fee for a 16 month let, it obviously gets cheaper as time goes on. But had the let only been 6 months, the landlord would have been charged 13.3%. I would also bet that the agent has other charges that they levy increasing the costs further.

      Is the cheap 5% agent really cheap? Does their business model encourage them to place long term tenants? The answer to both is probably 'no'. Does this help their marketing strategy and does it entice landlords? The answer is most likely 'yes'. Should the landlords answer most likely be 'yes', you decide...
      I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

      That also means I cannot share in any profits from any decisions made!

      Comment


      • #4
        Originally posted by Phlash View Post
        Why does a landlord, who perhaps could get everything managed without lifting a finger (i.e. include organising maintenance works as part of the management as well), believe that the owner is entitled to so much compared to the agent?
        Because they are the one taking on the risk.

        Comment


        • #5
          Originally posted by boletus View Post
          Because they are the one taking on the risk.
          but Letting agents need to charge for their services, and that
          has nothing to do with any risk a landlord takes, in borrowing
          money or running a business.

          Next thing we may hear is, i want people to work for me, but i
          wont pay them much to do their job, cos it's me taking the risk
          by starting a business, and borrowing money.
          Tell that to the employees / unions

          Comment


          • #6
            Originally posted by ram View Post
            but Letting agents need to charge for their services, and that
            has nothing to do with any risk a landlord takes, in borrowing
            money or running a business.

            Next thing we may hear is, i want people to work for me, but i
            wont pay them much to do their job, cos it's me taking the risk
            by starting a business, and borrowing money.
            Tell that to the employees / unions
            Heh! Heh! Heh! nice one RaM, but I was responding to Phlash's SociaCapitalist Worker point.


            Moving on to your point, I agree that on a straightforward basis it is not viable to run a business on those terms.

            But this is not straightforward.

            A couple of examples;

            A medium sized landlord with 100-200 properties, raking it in on the low interest rates, self managing anyway so taking on a few more at 5% makes little difference. Even a bit of a loss now in the short term is no hardship.

            Or the big estate agent chains, they are already paying the overheads. They'll try 15% for the mug punters but will happily go down to 7% (in the provinces). By a weird concatenation of circumstances, they could very well run it at a loss.

            And then there are the rare Diamonds who will do it for 7% knowing they've had 20+ grand off you in the last 10 years and will probably get it for another 10. All for very little work but just for being competent and honest when required.

            But we digress, 7% for full management (all in) is out there already, rightly or wrongly. 5% all in for a competent agent is a growing possibility the way things are going.

            My question is, at what point (in %, + or -) would landlords be prepared to give portfolios to competent letting agents?

            Comment


            • #7
              Originally posted by boletus View Post
              My question is, at what point (in %, + or -) would landlords be prepared to give portfolios to competent letting agents?
              I think they would have to pay me.
              'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

              Comment


              • #8
                Originally posted by mind the gap View Post
                I think they would have to pay me.
                I was sort of thinking this when I posted.

                A chain estate agent I've bought from in the past has started doing lettings. I had a talk with the 'lettings manager' and within 5 minutes it was apparent they were shockingly clueless about even the basics.

                From offering 15% initially they rapidly went down to 7%, probably lower if pushed. I contemplated asking for a years free management thrown in next time I buy from them but after speaking, I'd want them to pay me.

                I do think there are a small minority worth 7% though the vast majority are worth less (worthless?) than the proposed 5%. If they can't operate on those margins, it will be no great loss if they have to shut up shop.

                Comment


                • #9
                  Originally posted by boletus View Post
                  I do think there are a small minority worth 7% though the vast majority are worth less (worthless?) than the proposed 5%. If they can't operate on those margins, it will be no great loss if they have to shut up shop.
                  With no disrespect to Phlash, Wickerman or any of the other knowledgeable and conscientious agents who contribute here, I remain to be convinced that most letting agents are worth what they charge.

                  Some time ago on a thread which - annoyingly - I can no longer find, I broke down in great detail, task by task and hour by hour, the work involved in finding tenants for and managing my six bedroomed student rental property. Then I divided the average amount a Newcastle letting agent would charge me to do the work for a year, by the number of hours involved. Even allowing for a contribution to general overheads such as advertising, an office and a vehicle, the agents' hourly rate of pay turned out to be extortionately high(between £100-200 per hour) - even than most solicitors charge.

                  I challenged any letting agent who was able, to find fault with my time and motion study but none did. The agent I was debating with actually admitted that I had been accurate in that; he just disputed that agents typically earned as much as I claimed they did, because there were some periods when there was 'nothing to do' and some high-maintenance properties where he made proportionately less money. (At my expense,obviously!)

                  I also put it to him that to earn the same amount as he would do from my property for tenant-find alone (around £2,500 for some 15 hours' work, max.) I would, as a secondary school teacher, have to work considerably harder, for the best part of a month, and have spent four years qualifying in the first place.

                  The only response he could come up with was that he could charge what he wanted because landlords would pay it, therefore he must be worth it.

                  Oh, and (apparently), people didn't realise just how long agents had to spend on the phone 'sorting things out'.

                  I was led to the inescapable conclusion that going to work in a suit and having a cupboard full of keys does not make a letting agent worth more than a teacher (even though he clearly thought it did!) I am no longer a teacher but I am still of the same opinion...
                  'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

                  Comment


                  • #10
                    Hehe - I thought that might provoke some conversation!

                    I would be very interested to see MTGs breakdown as a piece of analysis, if you do find it MTG, let me see it.

                    I might just add in, being devil's advocate once again, that the lower the landlord's acceptable % is, the greater the risk to the agent. There is therefore a balancing act between the landlord's financing risk and the agent's financing, wage bill and fixed overhead risk.... Both are capitalists after all.

                    Most agents will work on the basis of what they can charge rather than what something is 'worth'. In exactly the same way the landlords and pretty much every other industry works.

                    In MTGs example, without questioning the workings, the agent appears to have earned £100 per hour. If we then turn to the landlord of an HMO, who has applied for insurance, passed details onto their accountant and is generally removed from the management of the HMO (assuming FULL full management) then their hourly rate is far far higher, maybe £500 per hour. Both have taken on risks and are committed to fixed monthly payments, yet the agent is still seen as the 'evil party' because of how much they charge yet the landlord is still by far earning at a far higher rate. Flipping boletus' point on it's head, should the tenants therefore also revolt to the extent that they pay what they think the house is worth? Is it fair therefore that the landlord should be the one to get the best deal at both ends of the bargain? Or is it the case that tenants pay a 'market rent' and landlords pay a 'market rate', whether the market is fair is an entirely socialist type question - yet we know that landlords are capitalist in nature, so why question the capitalist nature of the agent so disproportionately?
                    I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                    That also means I cannot share in any profits from any decisions made!

                    Comment


                    • #11
                      Originally posted by boletus View Post
                      Because they are the one taking on the risk.
                      Agreed, they take on the financial risk but also get all of the capital gain. That risk relates to the potential reward of huge capital gains, which the agent cannot participate in.

                      They are paying to hand on the time, hassle and knowledge risk. Whether that is paid at market rate or at what the time analysis suggests is fair is the query I have raised in post 10.

                      The general answer, that the landlord has taken on the risk, is a capitalist answer. Yet the query attacking the agent is a socialist one. Surely, in order for such a debate to be a fair one, the attacks and defences have to come from the same agreed stance on the balance of capitalism and socialism?
                      I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                      That also means I cannot share in any profits from any decisions made!

                      Comment


                      • #12
                        Hello Phlash,

                        You misjudge me a bit there, I'm not arguing for the fairness of fees. If a letting agent can find a mug that will pay 15%, good luck to them. To me personally I wouldn't pay more than 7 and even then they would have to be exceptional.

                        As I said earlier, we digress, 7% for competent full management (all in) is out there already, rightly or wrongly. 5% all in for a competent agent is a growing possibility the way things are going.

                        On my local high streets, it seems every Tom, Dick and Harriet are taking on lettings which is pushing down fees. Whether they can survive or not on that commission is immaterial to me.

                        I take your earlier point about 5% not being the true rate but the 15% scammers will also whack on another 3-5% hidden fees if they can get away with it. Caveat emptor.

                        Comment


                        • #13
                          Originally posted by Phlash View Post
                          Hehe - I thought that might provoke some conversation!

                          I would be very interested to see MTGs breakdown as a piece of analysis, if you do find it MTG, let me see it.
                          I think these might be the threads;
                          http://www.landlordzone.co.uk/forums...+agent+teacher

                          http://www.landlordzone.co.uk/forums...t=26843&page=2

                          Comment


                          • #14
                            Oh, well winkled out, boletus! I couldn't find 'em anywhere.

                            That Agent JJ didn't come back, did he...?!
                            'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

                            Comment


                            • #15
                              Originally posted by mind the gap View Post

                              That Agent JJ didn't come back, did he...?!
                              Highly skilled professionals like that can't afford to waste time bantering.

                              At those hourly rates you already had a grands 'worth' of valuable opinion.

                              Comment

                              Latest Activity

                              Collapse

                              Working...
                              X