Commission or fixed fees – What’s the better deal?

Early Momentum Building in UK Housing Market.

Buying or selling a house used to be very different.

Way back in the 70s and 80s, visiting an estate agent was quite a grand affair, and people used to dress up to make a good impression. It was almost as if the estate agent wanted to check whether you were good enough to buy their houses, rather than them trying to sell you something.

The whole process of buying was also intertwined with the financing.

Very often, an estate agent would have links to a mortgage advisor and a solicitor. Probably even a removal firm, tree surgeon, and decorators.

In short, you visited one estate agent, and as well as buying a house from them, they would also get a cut of all the related services that go into getting you into that house.

There was a huge problem with this situation, though.

Put simply; the estate agent may not have been serving your best interests.

For example, they might not have got the best rates for a solicitor, or the removal firm they “recommend” might actually be very expensive.

There was a price for having everything in one place.

Regulations stepped in, and the whole financial market changed, disrupting the practice, but arguably the biggest single disruptor had nothing to do with government – it was the Internet.

The Internet made it possible to shop around easier than ever before.

It was now easy to find your own conveyancing company, mortgage advisor, and estate agent. They didn’t need to know each other, the steps involved in buying and selling a house were known – you just fill in the blanks with your own experts.

As such, competitiveness increased, and prices dropped.

But the Internet wasn’t done with it yet!

It costs how much to sell a house?!

For decades, people have been under the impression that an estate agent had to be linked or associated with a building society or some other financial agency.

Surely they needed to be part of a big group which has a number of offices?

Well, no.

The perennial question often cropped up – “What does an estate agent do?”

It was no surprise, because it was seen that when selling a house, the estate agent was simply the middle man between a picture of your house and it appearing in an advert.

And you paid how much for this?

Estate agents were often paid a percentage of the selling price of a house, and when property prices boomed in the 90s and 2000s, suddenly this became expensive, and it wasn’t just a small figure on the bill – it was huge.

In the 1980s, the average price of a house was £22,676.

An estate agent with a fee of 3% would charge you £680 for selling it.

In 2016, the average price of a house was £198,564, so that same estate agent would now be charging a shade under £6k.

That’s quite an increase.

Online estate agents and fixed fees

Obviously, this meant there was room for manoeuvre.

There was suddenly money to be made, and the online estate agent found the way to undercut the larger estate agents while remaining in profit.

They did this through the use of fixed fees.

A fixed fee is just that.

They charge one fee, regardless of what price the house eventually sells for, and for many, this was perfect.

Selling and buying houses now became as easy as buying something from the supermarket.

You knew exactly what it was going to cost you when you got to the till, so there weren’t going to be any nasty shocks.

But is it that easy?

Fixed fees would seem to be the ideal compromise – so why isn’t everyone using them?

The benefits of fixed fee

When you come to sell your house these days, you do so in a volatile marketplace.

Not a month goes by without some news outlet explaining how house prices have risen drastically, or dropped like a stone. It seems the price of an average house is the bellwether for the economy as a whole.

As long as house prices are going up, we can rest assured that we’re doing OK.

Of course, this volatility means you are unsure of how much it’s going to cost you to sell your house.

When the house goes on the market, it’ll have a price attached to it. Whether you actually get that price will have a lot to do with the expertise of your estate agent, the current climate and any number of other issues.

So if you’re paying a percentage of the sale, you’ll never know exactly how much it’s going to cost you until you finally sell the house.

A fixed fee, then, sounds like an ideal solution. You’ll probably also have a fixed fee from your conveyancer, and you’ll know what your mortgage advisor is going to charge so that you can budget accordingly.

Is it the answer then?

Well, maybe not…

There are some obvious, and not so obvious problems.

Firstly, some fixed fees are plainly too cheap.

Remember, the estate agent is there to ensure you get the best price for your house. Whether they do or not will have a lot to do with their skill, and skills have a price attached.

As we’re in this volatile market, we can’t know whether it will be a quick or a slow sale, so we need the agent to work on our behalf at all times and not be distracted by higher paying clients or easier sells.

If your house has been on the market for months and has yet to attract a buyer, will your agent spend more time on it or will his or her focus be on other houses with a better chance of selling?

And will they get the best price?

On a percentage fee, the agent will get more if they sell the house for more.

It’s a simple equation, and although this seems to suggest that they’re all in it for the money, you have to agree, if you could get more money for a house by simply putting more effort in, you’d probably do it.

We want the estate agent to work really hard for their commission.

And that means, we want them to get the best possible price for our house, and their reward will be more cash in their pocket.

This seems like the argument that would kill fixed fees, but there’s another, more important one.

Fixed fee might not be fixed fee

Have you ever bought a car at the lower end of the price and model range, only to discover that it’s missing out on a lot of options?

This is the problem with going cheap.

Of course, the dealer will offer to “upgrade” your car to get some of those options back, but you’ll find in most cases you’ll be paying more than if you’d just bought them in the first place.

It’s the same with some fixed fees.

Although there’s a fixed fee – there might be “extras” that end up costing more than if you were to pay a percentage.

These fees can be avoided, obviously, by simply not paying them, you’re not forced to.

When is your fixed fee paid?

Check when you are due to pay your agent the fixed fee.

Is it immediately?

Is it when they put your house on the property portals online?

Is it on completion of the house sale?

Ascertaining this information, like in our first point, will most likely give you a good indication of how hard and how long your estate agent will work for you to sell your house.

The upshot?

Fixed fees are often a great way to sell your home, but check what you’re getting.

Very often, estate agents offering a percentage fee will do all the work for you.

They’ll arrange the viewings, be there when you’re not and in many cases work harder to get you a better sale. They’re also often very knowledgeable.

Fixed fee agents are often online only and they won’t arrange viewings, you’ll have to do that yourself. There might also be other hidden charges that you’ll need to check first.

In the end, a lot of it comes down to your personal circumstances.

If you have the time to do much of the work yourself, and you have knowledge of the property market, then a fixed fee estate agent may well save you money.

However, if you want more peace of mind and an agent that will work to get you the best price for your house, you may well be better off with a commission based agent.

Or, work with a Personal Estate Agent who can control every aspect of their own business, they will generally be professionally qualified, local property experts.

And they could be flexible and adapt their package to give you as much or as little as you need/want/can afford.

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