Last article we looked at the role of the Spanish agent for both the buyer and seller, what they should do and what they don’t do. This article we look at the highly charged issue of estate agents commissions and the effect it has on the selling price of your property. Oh mother there could be fireworks tonight.
Estate Agent commissions push up the price of our property
A common cry we hear is that estate agents commissions push the price of the property way over the top. To a degree I agree.
But stop right there!
Typically a buyer will look at properties 10 to 15% over their budget – the logic being that if they find something they like they are within the ball park to negotiate a deal. If the buyer ups his price 5% and the seller drops 5% then hey presto – deal made. But hey if you got rid of the agents commission – you wouldn’t have to drop your price much at all – and guess what you also wouldn’t be negotiating a deal because without the agent the buyer wouldn’t be there.
So even given the worst case scenario that an agent charges 6% - this still leaves a client in the ball park. No I am afraid this doesn’t wash, the harsh fact is most properties valued by their owners are way over priced in the first place. I am sure the guy next door has had his on for 300,000 – but that is no indication of the value – merely an indication of what the owner wants.
This is very different from market value. I won’t go into this as I wrote a separate article recently on this topic. But the long and short of it is that if the property is over priced it is not because agent commission is pushing it way over the top – it is because it is already way over priced.
Agents could of course help themselves here by giving valuations – but they generally don’t. Most prefer to fill their windows with properties that they have no chance of selling to make it look like they have a lot of properties for you to view.
Agents even bring clients round – who probably have no interest in being there because it wasn’t what they were wanting – but at least it looks as if our friendly agent is doing their job – they are at least bringing loads of people round. But what would you prefer – an agent who brings one buyer round who buys, or an agent that brings 50 people round who have no intention of buying.
Much better to give a realistic valuation then. If the client doesn’t like it –there are many agents out there who will put the property on the market – and you can always drop your price in a year’s time when it is still there to be sold.
Sharp practice or good business sense?
One practice that is common in Spain is that of an agent who signs the contract between the buyer and themselves and the seller and themselves. Effectively they are masking their true commission. However, the practice itself – although the way it is used is immoral, is not illegal. In fact providing the agent is being up front with both parties what is the problem?
Let me explain. I don’t condone this practice because the agent takes no risk they merely use the buyers money to buy the property from the owner and sell it on to the buyer at the same time. The agent is seldom upfront with both parties. This is sharp practice.
However, in the UK (and most of the developed world) it is accepted practice to flip property – that is what this assimilates to. That is to take an option on buying a property with a view to selling it on before purchase. A common practice carried out by thousands of investors daily buying off plan here in Spain.
It is acceptable in the UK and it is acceptable over here for off plan purchases. So why is it so bad that an agent does it? Is it because he or she is an agent therefore shouldn’t profit from the goods they are selling, or is it a deep rooted jealousy that they can find such properties and you cannot. Normally though agents don’t do it for any of the above reasons they do it for greed – to get the maximum commission they can.
Don’t get me wrong the practice I mentioned above is a sharp practice designed for one reason only – to make sure the buyer and seller don’t know the true buying and selling price.
So in this case make sure that you only sign the contract between yourself and the seller (or buyer) if the agent refuses then you have to question why.
However if the agent approaches you and signs a contract to buy from you with a deposit and an agreement to go to the Notary by a specific date and declares the intention of reselling it before the escritura. And if when they find a buyer they declare to the buyer that they have taken an option and the seller is buying that option – then what is the problem?
It happens every day in off plan purchases and there are millionaires out there who make their money doing exactly this in the UK and USA. As I said the practice is called flipping and it is perfectly legal and perfectly moral.
I do know of one agent in Oliva who does this as an investor. He puts down the deposit, then finds a buyer – not on every property – but selected ones. Some think he is con man for doing so – however what happens if he cant find a buyer – he has to buy the property. So he is taking the risk and the seller has a guaranteed buyer. Maybe he isn’t telling the seller the true value of their property or maybe he knows something that they don’t – who knows but if it is alright for an investor to do it should it matter that that investor is also an agent – I am sure this particular comment will enrage and engage some – and please feel free to express your opinions.
There are those agents who charge both buyer and seller – so it looks at first glance that they charge less commission (4% say) but they then charge the seller 4% as well. And there are a few out there who do so. Why? Well it looks to the potential buyer that the house is cheaper with them – but when they receive a bill also it clicks that they could have gotten the property cheaper with a more “Expensive” agent.
Finally of course there are rogue agents (we have discussed their tactics previously) who will charge what they can get away with. Of course these can add significantly to the price of a property – I have seen agents walk away with more than the owner. And perhaps it is these types of practices that are really giving the business a bad name. However most people coming over are wise to the Spanish market now (having seen many programmes on TV about it) and ask the right questions so such practices are hopefully disappearing.
In Summary then
1. Many agents who charge 6% commission are only pushing up the price of the property by that – 6%
2. Most buyers will look 10-15% over their original budget and a deal can be negotiated from here
3. The reason why buyers wont even look is because most owner valued properties are over priced
4. Some agents do not allow contracts between buyer and seller – which masks their true commissions this is a sharp practice and although legal is immoral and lacks transparency
5. Flipping a property is a common practice in the property world
6. An agent has as much right to flip a property as anyone else
7. Some agents charge both buyers and sellers so whilst it looks cheaper the reality is different.
8. Rogue agents who charge very high commissions obviously add significant amounts to the price meaning many buyers will never see the property.
Next article we will take a look whether you actually need an agent or not. First looking at what an agent will do for you as a buyer then as a seller. Perhaps you feel you can do a better job – well in the following issue we will also look at how you can do it for yourself - here is your opportunity to show your agent what your made of.
If you have any comments on the subject matter or want any advice then please feel free to contact me. email@example.com and for more articles about buying in Spain look at the website http://www.spanishproperty-direct.co.uk If you would like a free copy of the e-book - “An Insider’s Secret Guide To Buying A Property In Spain" then drop me an email and I will send you a copy by return.