This is the third in a series of three articles warning home buyers and sellers of the main tricks estate agents use to get hold of your money. The aim of these articles is to help you avoid being fleeced by your estate agent.
Commission makes the world go round
We can thank the estate agency profession for giving us quite a wide variety of very effective and profitable (for the agencies) sales tricks such as the overvalue, the phantom buyer, the block, the phone-a-friend, the price-slash, the sealed-bid scam, the spider’s web and the slash-and-grab, to name just a few. At first sight, the position of estate agents seems clear. They are employed by the seller to get the best price for the seller’s property within the time required by the seller. This means that estate agents are paid by the seller and should theoretically always act in the seller’s best interests. However, in real life things are seldom so simple.
Agents are usually under huge financial pressure to shift properties. Most individual estate agents get a fairly modest basic salary. This might be as low as £1,000 a month (£12,000 a year). But an agent can easily double or triple this from commission if they hit or exceed their sales targets. In addition, an agent can pocket thousands of pounds more from favours, kickbacks and bungs from a wide net of people such as property developers, lawyers, surveyors, mortgage salespeople, financial advisors, friends and even family members for pushing lucrative business their way. Similarly an agency branch manager might have quite a low basic pay of around £1,660 a month (£20,000 a year). But they can boost this to over £50,000 a year from achieving a decent level of sales and further enhance their earnings up to £70,000 or £80,000 from the gratitude of their appreciative business contacts in return for providing them with a stream of money-making opportunities, usually at the expense of homebuyers and sellers.
Agents are also under intense psychological pressure from their mangers to sell. Many agencies operate a ‘burn and churn’ policy for their employees – they get trainees in, often straight from college, and push them to hit ambitious sales targets with 11-hour days and 6-day weeks not being uncommon. Those who reach their sales targets, without getting burned out keep their jobs; those who repeatedly miss them get replaced – churned. Many agencies will have monthly or even weekly ‘come to Jesus meetings’ where they gather all their staff together and each agent has to justify their results – how many properties they have brought onto the agency’s books, how many phone calls they have made to potential buyers, how many viewings they have arranged, how many sales they have closed and how much business they have generated for the agency’s business and personal associates. Those who hit targets are praised and may get immediate cash bonuses and other prizes; those who miss them are publicly humiliated.
Most of us will only move home once every ten to fifteen years or even less frequently. Moreover, our home will be the most expensive thing we will ever buy. So it is in our interest to take our time and make the right choice – for sellers this means getting the best price, for buyers finding the right home. For us, buying or selling a property will be one of the most important decisions we will make. However, the pressure on agents to hit their sales targets makes shifting properties onto and then off their books a ‘numbers game’. An agent will maximise their earnings and their job prospects by getting as many sellers as possible to sign up with their agency, by pushing the maximum number of buyers into viewings, by convincing buyers to take the properties the agent has available rather than the properties the buyers may actually be looking for and by extracting as much money as possible from sellers and buyers. This numbers game frequently puts the interests of the agent into conflict with the interests of sellers and buyers. Then once you take account of the fact that most sellers and buyers have extremely limited experience of the property market because we may only buy or sell three or four times in our lives, this leaves us extraordinarily vulnerable to possibly unscrupulous agents. Agents’ selling techniques range from slick sales patter through deliberate lies to blatant fraud. In far too many cases, the financial and emotional consequences for ordinary people are not pretty.
In the first two articles, I explain the main tricks estate agents use to fleece sellers and buyers. Here I’ll focus on how to avoid being fleeced.
Avoiding a fleecing
The most basic advice to any buyers or sellers is to be aware of two things. Firstly, everyone involved in a property deal – estate agents, lawyers, surveyors, mortgage advisors – is acting in their own interests, not in yours even if it’s you who are paying the bills. Secondly, if you are a buyer or seller who only moves home once every seven to ten years, then all the other players in the property game will have a lot more experience than you and will know a vast number of tricks and traps for getting their hands on your money. Although normally most people keep a close watch on their spending, when buying or selling a home for hundreds of thousands of pounds, the few thousand pounds being leeched off by self-serving agents, lawyers, surveyors and others may seem small in comparison to the overall sums involved. This makes sellers and buyers easy victims.
If you are selling a home, you should get several valuations and insist on a short-term contract (four to six weeks) with the agent so you can get rid of them if they’re not performing. Ideally you should agree a sliding scale of fees with your agent, so they get say 1.5% if they achieve the asking price, 1% if they sell at £20,000 below and 0.75% if they’re more than £20,000 below the asking price. And if your agent tries to get you to sign with them by saying that they have several buyers eagerly looking for a property just like yours, you should call their bluff by smiling sweetly and saying something like, “that’s wonderful, I’m really pleased because, if you already have a buyer, you won’t need to do any marketing or much other work, so let’s agree a three-week contract and a 0.5% fee”.
If you’re a buyer, you need to accept that the agent is paid to make you part with as much money as possible. So you should keep a wary eye on all the techniques used by the agent to push you towards particular properties that they are worryingly keen to sell and all the stories they employ to pump up the price. You should also treat all the other services like mortgage advice, suggestions of which lawyers and surveyors to use and other supposed favours the agent is offering with a more than healthy cynicism. In addition, it might be worth checking that your offers are being passed on to the seller – perhaps by dropping them a note to tell them you like their property and have made an offer. Above all, forget about any pretence mortgage advisors, lawyers or surveyors may have about being independent professionals. They are acting for themselves not you, so you have to maintain tight control on them and question everything they say and do. And whenever possible resist the temptation to use the phone. Do everything in writing. If you have to phone them or they phone you, send an email or letter immediately confirming what was said and agreed. When I managed to get £8,500 back from my lawyer and surveyor, I’d have got £20,000 to £30,000 if I’d kept better records of all our discussions and not been influenced by time pressure to discuss some things on the phone..
Finally, if things do go wrong and you do get fleeced, forget about getting any compensation by complaining to any regulators. Most regulators are paid by the people they are supposed to regulate and will normally find reasons to reject around 90% of complaints and to delay any valid complaints for months and even years. The only way you’ll get compensation from crooked, self-serving lawyers, surveyors, mortgage sellers and others is by suing them directly. So before you buy a new home, get yourself insurance on your current home which also covers you for legal expenses. Then as soon as you suspect foul play while buying your new home, use the legal insurance on your current home to sue the pants off your surveyor, lawyer or mortgage advisor. Once they find they’ve been caught out cheating you, you can usually shake them down for thousands of pounds in compensation