Exploring the expenses that high street estate agents pass onto their clients
It is absolutely clear is that estate agents charge a hefty price for their services. For example, a full month of rent to place a tenant, two percent of the closing price for sales and up to 20 percent of the annual rent for property management.
One of the questions that we get asked the most at Heyworth Gordon is: why do estate agents charge so much money? And, when you look a little bit closer at the situation, you can see that they ask their clients to carry a variety of expenses that do not relate back to the service they’re providing.
The top five are:
National Advertising Campaigns
Insurance Policies
High Street Property Space
Junior Staff
Client Withdrawal
If we start at the beginning, there’s a high probability that you’ve seen advertising for the estate agent chains in a variety of different places. The cost of these country-wide campaigns are huge:
Magazine Placement: £200,000
National Newspaper Ad: £100,000
TV Exposure: £250,000 per 30 second ad
This expenditure, that is decided around a boardroom table, is pushed down on the local franchises and then passed on to the clients.
The second behind the scenes cost is insurance. Because estate agents handle client money they need to be registered with the Financial Conduct Authority. As they are considered to be in a high risk group, their insurance policies are directly related to their turnover. For example, if a branch makes £200,000 in a year, an insurance company can charge up to 0.15% of that in order to ensure them. This equates to £30,000 per year or £2,500 per month!!
If that wasn’t enough to make you spit tea at the screen, let’s move swiftly on to the sordid topic of physical office space. We’ve all seen the individual estate agent branches, glistening with their designer mineral water and flat computer screens, nestled on our high streets. Like me, I’m sure you cannot remember the last time you actually walked into one of them but clients are still supporting these coveted air conditioned oases.
Looking locally here in Blackheath, London, a modest space could easily cost £30,000 per year or £2,500 per month (and that's just for the just for the office). On top of that you still need to add utilities, internet, phone line, computer equipment and contents insurance (to name a few). Conservatively, it will cost each branch at least £3,500 to £4,000 per month to keep those mini-fridges filled.
Next on the chopping block is the gift that is junior staff. They’re sent out by the branch mangers to collect keys, ineffectively managing tenant requests and race VW Polos around the city. On average, a trainee salary is around £18,000 per year, which is another £1,500 per month per employee. It’s easy to see how quickly that can add up.
Last, but certainly not least, is the cost to estate agents of client withdrawal. This happens when people decide to engage an estate agent and then subsequently remove their property from the market. As a result, the estate agents needs to swallow the cost of photography, floorplan design, client management and local property promotion. It’s difficult to pin an exact price on that but it’s certainly a factor in their pricing model.
Overall, it’s clear to see that it’s expensive to run an estate agency but that doesn’t mean that you need to float someone else’s lifestyle. There are a variety of choices available to property owners that don’t feed into this archaic system. Do your research and don’t be afraid to represent yourself and your investment.