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Estate Agent Or Private Sale?

By LayStar Magazine
6th September, 2009


Estate Agent or Private Sale?

For decades there have been grumblings amongst the masses that estate agents don't offer value for money. Which? (www.which.co.uk), suggests that 1 in 10 people believe that agents cannot usually be trusted. Yet, many people are unsure of the actual role of the estate agent and, despite the grumblings and uncertainty, many turn to an agent to sell their house.

 When speaking with an estate agent, they are of course very optimistic about selling property. They are, after all, salesmen. Ask, how much, and they quote their fees as a percentage. For many people, the quoted percentage is translated into a real cash value only when the house is finally sold; and that's when it really hurts.

 If an estate agent is contracted to market a property for 1.5% commission, the cost to the seller of an average £190,000 home will be £2,850, plus VAT, bringing the total to £3,349. Sellers will need to pay additionally for a Home Information Pack (if required), legal services, removal services, etc. regardless of whether selling with an agent or privately. There are also the cost of moving to a new home to consider.

 A large number of people are privately selling their properties, enticed by significant savings, which could be in the order of £2,500 - £3,000 for an average priced property. Many people are put off selling privately. Perhaps they believe that there are legal clauses preventing selling privately. Perhaps they simply don't feel confident.

 We take a close look at the estate agency business to understand the costs they incur to sell property. We then investigate the methods and costs of selling property privately.

First, Some Economics

This graph compares UK average salaries (National Statistics website) and average house prices for England and Wales (Land Registry website). It demonstrates that house prices have continually grown at a higher rate than average earnings. For example, in 2000, the average cost of a house would have been 3.7 times the average salary. In August 2007, just seven years, the average house cost is 5.9 times the average salary. 

 Despite the sharper incline of property prices, estate agents' commission rates have remained the same. 1.5% of the value of house sale today will hit our pockets harder than at any previous time, relative to average salary growth. Putting this into perspective, in 2000, a fee of 1.5% would have been £1,230 (excluding VAT) for an average house. If that figure grew in line with average salaries instead of house prices, it would cost £1626 today, or, in estate agents' quoted terms, just 0.89% of the average house cost. To arrive at a more appropriate commission rate, we should turn the clocks back to the early 1990s, to a time when the markets had stabilised following a major crash in the last decade.

What Do Estate Agents Do?

When signing up the estate agent's representative will visit the property to take photos and prepare marketing documents with details of the property and its surroundings. A £50 For Sale board outside of the property, also advertising the agent, completes the deal. The property is on the market.

 The larger the property, the more time and effort it will take to measure up, take photos and do the write-up. The documentation will contain more pages, and so photocopying costs will increase. For all other aspects of marketing property, size is not a cause of significant increased costs. For example, an agent's advert in the newspaper for a studio flat will cost the same as a similar sized advert for a 10-bedroom mansion.

 All those that have already registered their interest in the type of property will be informed. A few phone calls are made and mail-shots are sent out. They also need to get the salient details into the window of their agency offices. People are drawn to properties in estate agent's windows. It is great advertising, but at a huge cost, as we will see.

 Agents advertise in the local press, each paper having its property day. This could incur considerable costs, but it also sells papers, so there are likely to be attractive discounts for regular advertisers. A one-page spread delivers between 16 and 24 properties. Let's assume 20 properties per page as an average. Let's also assume that the newspaper will charge £200 per page. Each individual property advert will cost £10. Agents advertise in a few local papers and a single property could be listed in one of the papers each week. If a property takes 6 months to secure a buyer, that's £250. 

 The most important marketing media is the internet. Most agents are linked up with one or more property web sites. This form of advertising will reach the masses and provides information to any interested property seeker, who can be located anywhere in the world at any time of the day. In the UK, access to the internet is now in most homes and public libraries. Those who do not have the internet or cannot easily get to the library will probably know someone who has access.

 We don't know the cost of advertising with major property web sites. We do know that the cost of web space is relatively very low in comparison with newspaper advertising. The more efficient the web site firm, the less costs are incurred. Web site firms rely upon as much automation as possible. Let's conservatively budget for £10 per week per property, which will hopefully give us enough major property web coverage.

 The agent fields calls from property seekers and arranges viewings. Some agents insist on being at the viewing, while others don't. Many sellers say that their agent didn't attend any viewings.

  For an average property that takes 6 months to sell the agent will have amassed £500 for newspaper and internet advertising and £50 for the For Sale sign - £550 in total. If the property doesn't sell after 6 months, more costs are incurred.

  On top of this is each property's contribution to the cost of running the estate agency. A staff of three on average salaries amounts to about £100,000 per year. A high street commercial let adds a further £12,000. Insurance, business rates and all other associated costs could put the figure at about £150,000 per year. A realistic contribution to these running costs would be in the order of £1,500 per property. The agent would need to sell 100 average properties per year - 2 per week. Agents have other sources of income to contribute to their running costs, such as selling insurance, mortgages and Home Information Pack services. Our figures illustrate just the property marketing aspect of the business to demonstrate the proportion of agency costs to all other associated costs.

 This brings the total cost of selling an average property to a staggering £2,050. On top of this - yes, there is more - the estate agent would like to make a healthy profit. An average property selling with a commission of 1.5% amounts to £2,850, leaving the agent with £800 margin. Agents that charge higher commission rates may appear to generate a fatter profit margin, but it depends on their location and running costs, amongst other factors.

 At 1.5%, the agent appears to be offering a wholesome service for their fee. Estate agents also take on a risk when they sign up new clients, who can back out at any time prior to a sale. The agent could spend a great deal advertising the property, but the seller can back out, leaving the agent with no fee. Agents try to limit the risk by signing up new clients with a 'sole agency' contract. It means that the agent has exclusive rights, amongst other agents, to market the property and reap the fee within the timescales of the contract - normally three months. Another type of contract, 'sole selling rights', is used by very few agents today and means that only the agent has the right to sell the property - this rules out private sales as well.

What Does a Private Sale Entail?

The internet has made it more feasible than at any other time to mount a private property marketing campaign. Before the boom in internet property services, some people tried advertising in their local paper, and planting a For Sale sign outside of their house for passers-by to see. The methods were not nearly as effective as with an estate agent. The internet has dramatically changed the playing field for the private seller.

 It is possible to create a cheap and cheerful website to convey the details of a property, but it is unlikely to be effective. It often takes many months for web search engines, like Google, to find such websites so that they become visible to those searching for property. If time is not important, this could be a valid option, but still hit or miss. Major property websites, as used by estate agents, do not welcome private sales. They are owned by newspaper conglomerates and the biggest names in estate agency.

 There is a plethora of websites offering a range of services to the private seller. There is the basic service of advertising property by way of text and images. At the other extreme, there is the on-line estate agent. Costs may range from free to several hundred pounds, or even a commission based percentage. Here are some examples:

 LayStar provides an advertising service. The cost is under £50, and the advert remains on the site for as long as the seller wishes. Property seekers request more information or a viewing via an automated LayStar email sent to the seller. The seller is in complete control of the proceedings, with no influence from LayStar affecting the asking price, property details or photos, or any introductions of potential buyers.

 Housenetwork.co.uk is an on-line estate agent that dispenses with the cost of high street shops. It offers two tariffs: fixed fees of £199 to advertise and £199 upon selling; free to advertise and 0.75% if sold via Housenetwork.co.uk. The service is akin to an estate agent and comprises a comprehensive service, providing floor plans and 3D virtual tours.. Oddly, the For Sale sign is an add-on cost.

 In the middle of these two extremes, there are well over 200 property advertising web sites offering property services on a similar theme to LayStar and Housenetwork.co.uk. With many of these firms, it s difficult to determine if they are an advertising firm or some sort of estate agent.

 The fees for this middle band of firms vary quite significantly and many offer a number of price options. Some offer virtual tours and floor plans, while others offer basic photo and text uploads. A large number list properties on at least one of the big names in property web sites, which, as we have already discussed, welcome only estate agents.

 Before signing up, sellers need to do their homework and determine a marketable sale price for their property. Many unbiased web sites can help with this. The information of past sales is in the public domain via organisations like the Land Registry.

Once signed up with the internet firm, the rest is down to the seller. The property details, measurements and photos are uploaded to the internet firm's site. The collation of this information will take longer than for a trained estate agent, so it may be worthwhile starting early in the process. The seller also conducts any viewings.

 Sellers should erect a For Sale sign in a prominent place, such as at the front of the property or in a window. It is possible to buy a custom sign for about £50, possibly less, or a sign can be made for approximately half the price. A For Sale sign, estate agents suggest, really does work. A buyer who is actively seeking property in an area is just as likely to physically search the area as virtually searching the area on the web.

On the one hand, we can go with an estate agent, who will do most of the work and will provide the best marketing coverage. Even though we have substantiated most of their costs, it is a very high fee. On the other hand, we can use the services of an internet-based property advertiser and manage a private sale ourselves at significantly lower costs. 

 Whether we go with an agent or do it ourselves, there is a whole lot more to do beforehand - getting the property into a saleable state to make the right impression when viewers call. It can cost a great deal to get a property into tip-top marketable condition. 

 With the recent change in the law, properties put on the open market may require a Home Information Pack (HIP). It can be arranged via an estate agent, but be warned: this may have the effect of tying the seller in with the agent. For example, if the agent appears to be under-performing, the seller may not be able to change agents without paying the fee for the HIP, which may be inflated relative to other HIP sources. The alternative is to purchase a HIP from an independent source, such as HIPS Direct (www.hipsdirect.com). There are a number of payment options and the seller isn't tied to any agent or advertiser.

©LayStar.co.uk 2007.

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