Chapter 23: Why Vendors Choose Bad Estate Agents

This is an extract from the ebook How to Really Buy a Property.

What's covered in this chapter
  • The way most vendors choose agents;
  • Why buyers think some agents have 'more expensive properties';
  • How the agent's fee affects the sale price;
  • Spotting agents who pay their staff the wrong way;
  • Why sales fail more at some agents than others;
  • Big agents, small agents and the right agents;
  • The different types of commission a vendor pays;
  • What a property on the market with a number of agents tells you about the property;
  • Why vendors change agents;

Whether you are viewing properties or in the middle of a transaction it will become obvious to you (very quickly) who the competent agents are and who is sadly lacking. Unfortunately the majority are sadly lacking and as you leave your tenth message you might wonder why a vendor would choose such a ridiculous company to represent them in their sale.

To understand this it is worth winding back the clock a little and putting yourself in the shoes of a vendor. You are just about to sell your property and a multitude of choices confront you. The easiest, and worst, way to differentiate them is to make one or more of the following three mistakes
  • Base your decision on the fee the agent will charge
  • Be blinded by large agents with ten, fifteen or even twenty negotiators working out of one office
  • Believe lots of sold signs in the area from one agent must be good news
The basic principle when selling anything; a house, a car, a kettle is that: The more people who know about the product (the property), the better the price you will achieve and the faster it will sell.

Many buyers bemoan this fact and often say, "I bought through Agent X because I really loved the property even though I know they over price". The truth is the slicker agents do not overprice, they simply achieve "a true market value" because the property is bought to the attention of more buyers. They do this through more aggressive staff who call everyone who could possibly be interested and advertise extensively both traditionally and electronically. The unhappy buyer quoted above would be far more unhappy had they never known about their dream pad.

The poor quality agent, in the meantime, has not the means to market affectively either in the media or on the internet and their poorly motivated staff ensure fewer people are aware of the property's existence. There could be twenty buyers who want to compete but only one or two are told that it is there. The result is a lower price for the vendor.

On reflection, the buyer may also feel better that although he has paid more for your property than if he had been lucky enough to find it through a poor quality agent, the transaction moves more smoothly because the person they are dealing with is professional and competent.

There are plenty of clues to understand how well things will come together if you know a little about how an agent works, and this is covered here. For the purposes of this chapter stay inside a potential vendor's shoes and you will see that it is actually remarkably easy to choose a bad agent unless you know better.

The Fee and its' Impact on the Sale Price

The fee that you, the vendor, pay will affect three things:
  • The price achieved for your property
  • The quality of the staff you deal with (and so the likelihood of exchange)
  • The quality of marketing

The Fee and the Price

The fee paid to a high street agent is a percentage of the final figure that your property is sold for, with a small handful of exceptions who charge flat fees. The fee is usually payable when the sale completes.

The key is not always how much you are going to pay the agent, but to find out if that money will be well spent.

Types of Commission

The first step is to be sure that the staff are motivated to sell. For this reason avoid agents that operate a "pooled commission". In this situation the fee goes into a central pot and then a percentage of that is shared between every negotiator who works there, whether or not they were involved in that particular transaction. The result is that the moment one negotiator has interest in your property the other negotiators lay off, knowing they will get a percentage of the deal. To them this is a simpler option than coming out at eight in the evening with an alternative buyer even if they might offer you an extra five or ten thousand pounds. That alternative buyer may be desperate to buy your property and more financially sound but they will never be told about it.

Always look for an agent where the individual negotiator gets paid part of the fee if they themselves find you a buyer and get paid nothing if they don't. In this way the negotiator will be at your door at eight in the evening in order to get that extra ten thousand for you and steal the deal from their colleague. It's brutal but you benefit.

On the same note ensure that whoever values your property will get part of the fee if it sells. In this way you know they will give you a realistic valuation because if they are simply paid a flat fee for every instruction they will be tempted to overvalue and the negotiators who are supposed to sell it will become demotivated. You may be surprised how many managers or valuers are just targeted on getting the instruction and so simply over value and over promise in order to get your property onto their books and hit their individual targets.

The commission paid to a negotiator not on pooled commission is usually between ten and twenty percent of the fee the agent is charging. As such negotiating a low fee is not always as clever as you might think. If you feel very pleased with yourself for having bargained with a dozen agents and finally found one you could twist down to 1% consider this:
  • The fee on a £250,000 flat at 1% would be £2,500 of which a negotiator on 10% commission would get £250. If you pay 2% the negotiator gets £500. Which property do you think the negotiators will work harder on, not only to sell, but to ensure the agreed sale progresses to exchange?
  • If you managed to negotiate the fee down either the person who came to see you (the valuer) or the agent is weak and lacks confidence. If they cannot justify their fee to you, how well will they justify the price of your property to buyers?
If you instruct a weak agent that lacks confidence they are likely to get you a lower price. Say its 3% lower than the stronger more confident agent. On a £250,000 flat you have saved yourself £2,500 but it cost you £7,500. You are £5,000 worse off, clever you!

The Fee and the Staff

Here is a contradiction. You should attempt to negotiate the fee and see how low you can get it. This will give you an idea of what most of the vendors who are using that agent are paying. From this you will get a clear idea of how much the staff are generally being paid. If they do negotiate low fees their staff will be earning less than an agent who sticks to his guns. By definition this means the staff he can recruit are less experienced and, once they have become experienced, they will move to an agency that pays better which by definition means one that charges a higher fee.

Agencies that charge a higher fee and refuse to negotiate on it generally have more experienced, better motivated staff, and a lower staff turnover

There is a long way to go between agreeing a sale price and an exchange. The solicitors must be chased and managed, the buyer must be educated, the surveyor must be kept happy, the lender must be pursued and the process must be bought to a speedy conclusion. None of these things will happen if:
  • The negotiator does not understand the process himself due to lack of experience
  • The negotiator is not motivated because financially your deal is worth very little to him
  • The negotiator leaves the agent halfway through to get a better paid job elsewhere

Any competent negotiator should know everything in this book, as a minimum. To get an idea of the myriad of events that can cause a transaction to fail simply read through the true stories in each chapter.

An agent that is prepared to negotiate to a low fee is likely to achieve a worse price for your property and that deal is more likely to fall through before reaching exchange

The Fee and the Advertising

Advertising and market presence are crucial but they should not be confused with advertising your property. Buyers will start studying the property papers weeks before they actively begin their search. The agents they will call first are the ones where the brand names have been burnt into their minds week after week. They agents they continue to call during their search will be chosen on the same principle.