In over thirty years in the property industry, I don’t think I can remember a time when the fee wars were raging more fiercely than now. In many areas of England, estate agency fees have fallen to less than 0.75 per cent and letting fees have fallen to five per cent for full management and two per cent for let-only. This is commercial madness and agents who do not learn how to defend better fee levels will end up being driven into bankruptcy by the internet estate agencies. So what can you do to increase your fee levels?
The fee doesn’t matter (honestly)
For residential estate agents, the key is to persuade prospective clients that the fee that they pay doesn’t matter. What does matter is the net proceeds that they achieve from their sale, i.e. the sale price minus the fee paid. Having communicated this concept, you need to show prospective clients why you will achieve a better price for their property than your competitors.
The fee they pay doesn’t matter, it’s the net proceeds they achieve from the sale that matters.”
The best-run estate agents and letting agents are already good at achieving this. The most high profile example is Foxtons who achieve a non-negotiable fee of 2.5 per cent for sales and 18 per cent for lettings and management but there are many, many other examples of firms who achieve fees that are two, three or four times more than their competitors. They achieve this by making superb sales presentations that explain precisely how a better estate agency service will achieve a better price. The very best presentations are supported by high quality visual aids, case studies and testimonials from satisfied clients who have paid a higher fee and have been pleased that they did so.
It’s all about service
For letting agents, the process of justifying a premium fee is rather more complex. Some landlords only care about achieving the highest possible rent but most have other objectives. These might include: finding tenants who will care for their property, finding tenants who will pay the rent reliably or concerns about falling foul of the many new rules and regulations. In order to persuade a prospective landlord to pay a premium fee, you will need to find out which of these issues are of greatest concern to them and tailor your presentation accordingly.
For example, if their priority is to achieve the highest rent, you need to explain how your superior marketing of the property will achieve more viewings, more offers and a better price. If their priority is to find a tenant who will care for the property, you need to talk about the thoroughness of your referencing procedures, the quality of your inventories, the regular inspections and your dedicated in-house property management team. If the priority is legal compliance, you need to explain that you are an ARLA qualified agent and that your knowledge of the law and robust procedures will ensure that they do not end up being fined for breaking the law.
The key selling points of your company need to be conveyed to prospective landlords during every valuation appointment and backed up with visual aids, anecdotes and client testimonials. Prospective clients must know what you do to justify your premium fee levels.
During a letting presentation, it can also be effective to use negative selling techniques, i.e. horror stories about landlords who have gone to cheaper agents and regretted it. Almost every agent in the country has a story to tell about a landlord who went to a cheap competitor only to find that their property was turned into a cannabis farm or worse. You need to use these stories to support your presentation so that prospective clients are fully aware of the dangers of using a cheap agent rather than a good one.
Defence and margins
Finally, you need to be prepared to defend your fee when challenged. Landlords will almost inevitably ask for a discount on their fees and you need to be ready to justify a second and third time why you are worth the extra money. One of my big clients recently carried out an analysis of this and they found that their top valuers, i.e. the ones with the highest conversion ratio of valuations to instructions and the highest average fee levels, were closing an average of five times before they clinched the business.
The average estate agency makes a profit margin of around 20 per cent of turnover and the fee percentage that you charge is critical to maintaining this. The firms that are charging rock bottom fees simply cannot survive and they will inevitably amalgamate or close over the next few years. The firms that have the skills to persuade their clients that they are worth a premium fee will, on the other hand, prosper and grow and many will plough back their profits into increasing their market share still further. You need to take steps to ensure that your firm is one of the winners during this process.
Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for over 25 years.