Finally, after more than six months of debate, the government has announced plans to ban fees to lettings agents in England. A new Tenants’ Fees Bill was announced in the Queen’s Speech today, which will stop tenants having to pay money to agents.
This gives me a great opportunity to speak out on this emotive subject, as it’s something that everyone has an opinion on and in my view, it is often misunderstood that agents are simply being their greedy selves and marking up anything that adds to their income pot.
How did this situation come about?
I think it helps to rewind back to the late eighties and nineties when the private rental sector was relatively new and processing a rental was relatively straightforward. There was minimal case law supporting the industry and although more legislation was still in place than ever imposed on sales, agents breezed through the preparation of tenancies, albeit, very manually. By that, I mean that someone in the office was handed a file to process everything in preparation of a move in and it was (and still is) relatively time-consuming but quite automated.
There were no mark-ups and no one even thought to mark-up raw costs connected to a tenancy or services required in managing a property on an owner’s behalf. Tenant referencing was done the good old-fashioned way; letters to the bank, employer and a private referee, also followed up manually. There was perhaps a token tenancy agreement charge and inventory check ins were charged out at cost but that was it.
So what changed that led to the Lettings industry mark-up movement?
Well, bluntly, legislation got heavier, the industry got bigger and margins got tightly squeezed by expanding networks and teams and agency sought quick income wins. It just became the norm to add a little extra. Once you got to a certain portfolio size (60-100 live tenancies), you needed a whole extra person or persons in the team to process that one extra tenancy and that was expensive. And then as if that wasn’t enough, larger centralised processing teams were needed to administer the lifecycle of each let, again requiring people power and a lot of processes forming the backbone of compliant and legitimate tenancies.
It comes back to the two cost heavy items that strangle high street agents; premises and people. Lettings agents continue to have to do so much more for their money and margins are still being tightly squeezed by a client base seeking value who readily negotiate fees down.
Let’s not get started on the online movement… simply, employment costs rose, compliance and legislative requirements increased and something had to give. Lettings agents needed to find top up income from somewhere and tenant mark-up became one of the easiest ways to achieve this. Lettings Fees are much smaller than Sales Fees (wherever I’ve worked they’ve been around 30% of an average sales fee) and the process around a rental is far lengthier and intricate than any sale I’ve ever come across.
In rentals, most attention revolves around the fee paying client, the landlord, and generally tenants are afforded less consideration in spite of them also being valued customers. The revolt against tenant fees is a reflection of a discontented movement that gradually got bigger and bigger until they were unprepared not to be heard. A few agents have taken this very seriously and aligned their charges accordingly, while others simply continue to turn a blind eye and feel that their charges are fair and now dare I say, normal. Until of course, intervention takes place, as it has today.
What are the main Mark-up culprits?
Credit referencing (raw cost £8.50-£18) often charged out at £25-£50 per application. An easy money maker for large agents that process thousands of references each year and not all result in an actual tenancy.
Tenancy agreements (raw cost is acquiring the standard tenancy templates from a good property lawyer, purchased for £200-£2000) often charged out at £100-£250 per tenant and per landlord of every new tenancy. Another good money maker.
Inventory check in (subject to property size raw cost is £100-£200) either conducted by the agent or more usually an independent privately owned inventory firm, the latter of which I’ve never known an agent to mark-up this cost. Mark-up myth on this one.
Management works. i.e. overseeing essential works on behalf of a landlord (raw cost of works plus 10-15% plus kick back from contractors for favoring their services). This is a very grey area and may not even be overt kick back. I’ve known teams to enjoy all paid for night outs with taxis home thereafter laid on by their favorite property management contractors (in my world that’s a big no-no- the Bribery Act 2010 doesn’t like this either).
Tenant switch mid-tenancy: Charges range on this one and if I’m honest although it is considered a bit of a pain switching out one tenant to switch another in it’s relatively straightforward; credit reference (mark-up 1) and a revised tenancy agreement (mark-up 2) and sometimes an additional mark-up (3). Some agents use this charge as a deterrent to stop too much tenant switching, which is, in my view, is very un-consumer friendly.
Thankfully ARLA Propertymark, Consumer Rights Act (2015), good agents’ conscience and the online movement have already gone some way to tidy up hidden charges and overloaded mark-ups, but some agents still add on extras for everything possible. Yes, in spite of the hostile call out from the consumer, the valued customer, it still goes on.
Why does it often take an anti-movement to impose change? It just makes our industry look shoddy and reinforces everything the public despise about estate agents. It’s like being caught with your hands in the cookie jar, being seen to have your cake and eat it and human nature seems to push things to a point of no respectful return.
I’m not saying that all mark-ups are wrong, but some agents have stretched their charges way beyond reason and fairness.
Hope for the future
Agents will now have to revise their charges ahead of any government intervention and make them fair. But I really hope that the following steps will also be taken in the future to allow our industry to regain some decorum:
Greater emphasis placed on the delivery of service to all customers i.e. landlords and tenants.
The consultation process will deal a fair hand and agents will be able to recover real costs within reason.
I fear that the penalties will be high, because it’s become a point of principle and that we, as an industry, are already on the back foot. We reacted too late to proactively address this without force. The public are now firmly in charge, as demonstrated of late and curve balls are to be expected, so we shall see where this goes.
In my view, we need to get back to the days of good old-fashioned service and relationship building, where our customers really value what we do and willingly settle our invoices because they feel that what they are paying is fair and well deserved and because they like us. But that’s another topic for another day…