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Richard Rawlings Estate Agency Insight
TheLetters
Rawlings’ response Dear Editor
Further to Steve Clemo’s (Red Homes) response my comments defending higher agency commission percentages, I relish the opportunity to fight a duel over the issue.
Variable fees I’m not sure why Mr Clemo is challenging “variable” fees, his fee, 0.75 per cent is variable; higher for more expensive property than a cheaper one. I defend the traditional percentage-based fee structure on the basis that the value an agent brings is in direct proportion to the property’s value. If an agent is able to negotiate an 8 per cent increase in the sale price, his fee should reflect this. Such an increase is worth £8,000 on a £100,000 property, or £80,000 on a million pound sale so a percentage-based fee is equitable.
UK -v- global fee percentages I researched the relationship between fees and property values internationally and can find no link between them. Mr Clemo uses the example of a cheap French property; one could look at prices in New York or Sydney where prices are massively ahead of the UK, but with commissions of 2.5 – 4 per cent. You’d pay up to seven per cent to sell a million pound mansion in Cape Town. Although the systems of agency and
property transfer differ, the job of an estate agent is to help people move. Where the agent is, qualified/regulated or not, the effect is the same – people move house as a result of the agent’s involvement. Who can measure the value of this contribution? We are the cheapest in the world for no apparent reason other than tradition and a weakness to give in if a client challenges our fee.
The value of an estate agent The suggestion that agents seek to justify higher fees by persuading buyers to buy an unsuitable, overpriced or unaffordable property is nonsense. The most compelling reason for sellers to employ a regular estate agent is this; a good agent gets to know their buyers and is able to sell them a property they might not previously have considered. Mr Clemo says “we all use the same portals”.
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Portals are a way of sourcing buyers. If a portal enquiry usually led directly to a sale, everyone would sell privately! Most buyers do not buy the property about which they initially enquired, but end up pursuing avenues of compromise, to buy a better property. This is why private seller sites don’t deliver. Even in the US with average fees of four per cent, only 9.5 per cent of sales are private (source: NAR). Good agents help buyers make a good buying decision. This is how most sales happen. It takes training, skill, trustworthiness and commitment.
It has nothing to do with COST! Mr. Clemo argues that other agent’s fees are high because their costs are higher. This is simply wrong! Since when did the cost of anything have a greater bearing on price than demand for it? A bottle of wine costs under £1 to produce, yet prices ranges from £3.99 to many hundreds of pounds, not because of its cost, but of its desirability and scarcity. It is essential that agents focus on
“professional attractiveness” to become the preferred agent and deserve a higher fee. It’s not about cost, it’s about PROFIT. Any producer strives to improve it’s desirability to increase profits. In agency this includes hiring the best staff and training/paying them well, delivering exceptional customer service. If Red Homes does indeed offer most of the
advantages of a regular estate agency, but simply doesn’t have a high street office, the actual saving is pretty marginal.
Low fee model It is perfectly appropriate for Mr Clemo’s firm to charge less than other agents. That is his USP. But why begrudge other agents promoting USPs that relate more to the whole buying experience, the security of an established reputation, the reassurance of working with a known, recommended or trusted ally, with a supportive branch network, professional associations and proven sales excellence? If Red Homes has these things right (and I
have no reason to believe it doesn’t) then why does it use a low fee model? Would Waitrose charge Asda prices? Why should they? They have created desirable brands that despite cheaper alternatives, many people still prefer.
I can only assume that Mr Clemo uses low fees primarily to undermine the competition. If he only wants the best for his customer as opposed to his business, why does he tie sellers into a 12 week sole agency period? There are, no doubt, excellent low fee-
agents around. However, they rely on large volumes to survive, let alone deliver a great customer experience. In this market, the volumes are not there. According to Redhomes website, several “branches” have fewer than ten instructions. I’d struggle to be enthusiastic for my clients with that sort of financial pressure! I called RedHomes’ Maidenhead branch. The phone was answered by a lady with a crying baby in the background. I was told that the office had closed down. ‘nuff said?
Market share I know of nowhere in the world where a cheap agent has overwhelming market share. According to Rightmove, Redhomes’ market share in its most prominent branch, Bracknell, is 6.66 per cent, hardly taking the market by storm! It confirms that over 93 per cent of sellers prefer to sell through another agent. Of course there will be higher fee agents
who do not deliver but the market will ultimately reject them! Mr Clemo suggests that regular agents use tricks – overpricing, false claims, slander, lying etc. These agents are in the minority and are by no means limited to regular agency! Finally,
Mr.Clemo’s claim that home-based
agents have “scared me” into fighting the cause of estate agency fees; my job for 20 years has been to promote best practice, innovation, service excellence and professional sales skills so that my clients can justify a higher rate of commission than their competitors whilst improving market share. I maintain that anything less than 2 per cent is pathetic; in 1995 I was helping agents in Cape Town defend their seven per cent fee in the face of cheaper competition! I predict an industry that will feature a much wider variety of agency styles, each appealing to different sectors of the market. There is a place for the cheap agent and also for the extraordinarily expensive one. I know which one I’d back! l
TheNegotiator l April 2012 l 19
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