Beware the rise in estate agent fees

The headline on job losses didn’t break many hearts: thousands of estate agents could lose their jobs. The pariahs of the housing market spent years making a fortune for little work on the back of rising prices, so it stands to reason they should suffer in the downturn. Unfortunately, when estate agents are under pressure, it’s customers who suffer with increased charges.

The most obvious change is commissions, with more agents charging between 2% and 3%, up from around 1% or 1.5% during the boom. Chris Wood, president-elect of the National Association of Estate Agents (NAEA), says: “The credit crunch is obviously having an impact on estate agents – and that means their pricing structures too.”

Natalie Carter, a 28-year-old mum from Surrey, who sold her flat last year, says: “When we sold our place, we couldn’t get a quote any lower than 2%. The estate agent was supposed to put together details for our property, put it on the website, and show buyers round – none of this happened.

"We had two people round. Both viewings I did myself, and I handled the negotiations over price. All they did was get me to sign a standard contract, introduced the buyer and charged us £5,000. I will never use an estate agent again - it’s money for old rope.”


In some cases, commission increases have been sneakier. Christopher Hamer, the Ombudsman for Estate Agents, says: “There’s been a switch in emphasis from variable fees to fixed fees. The agent values the property and sets the fee as a percentage of this value. However, in the current climate, homes often end up selling for significantly less, so effectively the fee becomes a larger percentage of the selling price.”

Some estate agents charge customers upfront and others throw in extra charges for advertising, producing brochures or appearing on a website. These are often buried in the small print so can come as a nasty surprise.

Alternatively, some agents look for income streams elsewhere, such as employing a commission-based mortgage broker, who tends to charge more than an independent broker. Also, they often don’t have access to the full mortgage market so buyers could end up with a worse deal.

The estate agent acts for the seller, and the mortgage broker for the buyer, and some take advantage of this
situation. An undercover BBC report found that some agents were asking in-house brokers about budgets so they would know how far they could push buyers and drive prices as high as possible.

The Office of Fair Trading (OFT) is investigating the industry and will reveal its findings by the end of 2009. In the meantime, if you have a problem, start with the estate agent, make a formal complaint and demand redress.

You could also contact the NAEA if your estate agent is a member. Since October 2008, all agents must be a member of a redress scheme – the Ombudsman for Estate Agents or Surveyors Ombudsman Service. You need to collect evidence and contact the scheme. To be successful, you need to show the service has been substandard.

Hamer explains: “If you feel disadvantaged because the service has not been up to the level you’re entitled to, you can bring the matter to me and I can award compensation.”

For sale or rent

Letting agents also employ opportunistic practices. Among the most outrageous is the ‘administration fee’ for new tenants. This starts at about £90 and covers reference checks and contracts. But many agents fire off standard letters, print out basic contracts and charge hundreds of pounds for less than an hour’s work.

Susan Dyer, a 35-year-old carer from Sussex, says that when she paid a deposit, she was not told that £600 of the £1,900 deposit was an administration fee. “All they did was print off a standard contract and send us standard letters,” she says.

To add insult to injury, lettings agents are simultaneously charging the landlord for finding you. The Association of Residential Letting Agents (ARLA) defends these charges, saying: “They will depend on the business model of the agency, local competition and the complexity of the properties. You cannot draw broad comparisons.”

Perhaps most annoying is the charge for renewing a tenancy. Agents charge the tenant about £50, and the
landlord thousands. This has come under scrutiny by the OFT, which launched a test case against Foxtons. John Socha, vice-chairman of the National Landlord’s Association, says: “It’s totally unacceptable when a letting agent is purely renewing the contract for the next 12 months for the same tenants, that the landlord should pay 10% or 11% commission.”

If you face a shocking fee, query it with the agent. Several renters have done this with renewal fees and had them waived. You’re in a stronger position if you complain before signing the contract. If this fails, contact ARLA, if your agent is a member, or go to the Ombudsman.