Nigel Bosworth Blog
Thursday 27th October 2011
Citizens Advice has hit out at charges levied by letting agents and accused us of ripping off the public. The story was carried by LAT on Tuesday this week: Letting agents slammed for 'ripping off' customers
I am sure I am not the only one wanting to react to these claims.
We founded Dwell Residential on the basis that our pricing would be transparent and fair. Our guiding principle is that we charge a fair price for the work that we do. This applies equally to landlords and tenants.
Many agents have been driven from the principles of transparent pricing by the fierce competition between agents for market share. Landlords are almost fixated on the percentage commission that they pay the agent, wanting it to be as low as possible. Agents cut this to the bone, often agreeing to commission rates on which they make no margin at all in order to secure the landlord as a client ahead of their competitors.
Agents are in business, though, and have to eat, and so it is necessary for them to make a margin somewhere. Many look to do this by charging very high margin renewal fees to landlords, and making mark-ups of perhaps 200% to 300% on services such as drafting tenancy agreements, reference checking, and inventory clerk services. They will also look for ‘commissions’ from suppliers such as cleaners and maintenance contractors.
Agents are merely responding to market demand for unsustainably low rates of commission for their core letting service. If landlords were to take a more holistic approach to agents’ fees and look at all the services that they are going to need and what they will be charged for those services, then pricing structures would be fairer and could be more transparent than they often are.
For example, with our landlords our lettings fee is 10% plus VAT; however, we don’t charge renewal commission but instead charge a flat fee of £295 including VAT which more closely rewards us for the work which we do in negotiating a tenancy extension. With a rent of say £400 per week, a 10% renewal fee would be £2,496 including VAT.
We use an independent tenant referencing agency and charge our tenants £37.50 including VAT for this. We buy these services at wholesale rates and we do make a mark-up, but this mark-up is entirely consistent with any other business that buys at wholesale prices and then sells at retail prices.
We do not take any ‘commissions’ or ‘referral fees’ from contractors such as cleaners, maintenance contractors or inventory clerks. All charges for such services are invoiced to the landlord or tenant at cost.
We charge £240 including VAT for our tenancy agreement and this is split equally between landlord and tenant. This is a very comprehensive document and is drafted to suit each individual combination of property, landlord and tenant. It usually takes 2-3 hours of work to draft, issue, negotiate, re-draft, engross and arrange for signing.
When we launched Dwell Residential in 2009 we believed that landlords and tenants were crying out for an agent that had a fair and transparent pricing structure. The response from these two groups has been very positive, though not quite as positive as we had expected. There are still a good proportion of landlords who only care about the headline fee and are ambivalent about other fees and charges.
Furthermore, it’s clear that once a tenant has found the right place for them, they rarely (if ever) choose not to proceed because the agent is asking unreasonable charges. Agents know that once a tenant is ‘on the hook’ that they will pay what’s asked in order to rent the flat that they want. What’s surprising and disappointing, though, is that almost every tenant we’ve encountered has failed to ask what our charges are before viewing property with us.
Agents are highly commercial beasts, and are only giving the market what it’s asking for (which may or may not be what it actually wants).
Until landlords and tenants take a different approach and start acting like transparent and fair charging is important to them by voting with their feet, then I fear that little will change.
Nigel Bosworth is co-founder of London agents Dwell Residential
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