Two leading voices in the PropTech sector suggest a radical overhaul of agents’ fee structures, saying that neither traditional full service nor online business models have got the answer.
James Dearsley - a contributor to Estate Agent Today each Wednesday - and Eddie Holmes, both prominent figures in the UK PropTech Association, argue that traditional agents paid via commission may not enjoy sufficient incentives to fight for the highest possible purchase price.
The pair contend that a 1.3 per cent commission on a £190,000 home is £2,470. If the home was sold instead for £210,000, the commission would be £2,730. “That is a range of £260 – hardly the difference between life or death for the business” say the pair, suggesting that the share of such a figure going to the negotiator may be considerably less than that.
Dearsley and Holmes are also sceptical of the online model where an upfront fee is paid for listing with no incentive for the online agent to actually sell at all.
They then provide what they claim may be a solution, which goes as follows.
1. Low or no listing fee;
2. A sales price set by the vendor; and
3. A 50/50 share between agent and seller, of any upside over and above that asking price.
If that sounds familiar, then look at the Nested model which we covered in an Estate Agent Today story earlier this year.
“Nested are close to getting this right, but the fundamental issue with their model is that they are incentivised to bring properties to market at a below-market-value price. This is still a misalignment with vendors” say Dearsley and Holmes.
It’s a fascinating piece that the PropTech pair have written, and you can see it here.
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The market research group Mintel did a report on this in the 90s and found that performance based commission was the fairest and most effective estate agency fee structure. We operated a performance related option for three years and although it was a good door opener it didn't result in many performance related deals. We offered 1/2% flat rate commission plus a 20% bonus on everything above 80% of an agreed target price
When did you run that trial Simon - interesting. I suspect, over time, with people's awareness of online offerings and the associated costs (and supposed lack of sales) that alternatives will be looked for. % still works in my view but everyone has to be a winner and there could be serious upside for everyone.
I'm going to say we ran the system from about 1997-2000, it helped gain interest but our main valuer at the time found it simpler to convert the interest to a conventional flat fee. I think one of the difficulties is agreeing a reasonable target price, this is especially relevant because vendor expectations often start unrealistically high and have to be managed. It's still viable but we now use another innovation which is starting to work
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