Estate Agency Contracts

Don’t become the victim of unscrupulous estate agents and end up having to pay thousands of pounds of commission to and estate agent who did not even find you a property. Read our guide to estate agency contracts and find out about what terms of the contract to look for and the different types of estate agency contracts.

WHAT TYPE OF CONTRACT?

Before you sign the contract make sure that you are completely clear about the type of selling arrangement you are entering into. There are different types of contracts and it is important that you choose a contract that suits your needs.

• Sole agency

‘Sole agency’ is probably is the most common type of estate agency contract. It means that one agent has exclusive right to sell your property for the duration of the contract. For this type of contract fees are only be payable, if the agent finds a buyer for your property.This means that the estate agency would be not entitled to payment, if you found a buyer yourself. When you opt for a ‘Sole Agency’ contract, you are committing yourself to one agent for a set period of time. So, if you were to involve another agent within that period of time and the second agent secured a sale, commission would have to be paid to both estate agents. You can avoid this by making sure that you are happy with the length of the tie in period of your contract.Generally speaking, ‘Sole Agency’ contracts are very popular with buyers. Property guru Phil Spencer recommends ‘Sole Agency’ contracts for two reasons: Firstly, they are cheaper than multi-agency contracts. Secondly, staying with one agent for a certain period of time gives “them the best chance and motivation to sell your property fast.”

Sole agency contracts can be any length of time. But what is a reasonable amount of time for a contract? This depends to large degree on market conditions as well the property in question. Phil Spencer points out that “there is considerable expense behind successfully marketing a property, and so it’s reasonable for the agent to have a tie-in period during which you can’t go to the competition, but it shouldn’t be overly restrictive.”

Of course, once the sole agency contract has ended, all your options are open again. Youcould extend the contract or alternatively, you could re-engage your estate agent  under a ‘Multiple Agency’ or ‘Joint Sole Agency’ contract. Whatever you do, be careful not to confuse ‘Sole agency’ with ‘Sole Selling’. In the case of a ‘Sole Selling’ the contract is also be with one agent, but here the estate agency commission is due, even if you found a buyer yourself.

• Joint Sole agency

Under a ‘Joint Sole’ agency contract you appoint two estate agencies, instead of one agency.Again, the contract will be for a specified period of time, but this time the commission has to be split between the two agents irrespective of which agent found the buyer. As a result of this, fees for ‘Joint Sole’ contracts are higher than those for ‘Sole Agency’ contracts. The obvious disadvantage of such a contract is that it is more expensive. In addition to this, the agents might be less motivated “because there’s always the possibility that “the other guy” will find the buyer, thus allowing one agent to make his commission without having to do very much. If both agents have this mentality you’ll find yourself in a position where no one is focusing on finding you a buyer.”

On the other hand ‘Joint Sole Agency’ agreements could make a lot of sense in some cases. For example, if you chose estate agents that specialise in different markets and would not compete against each other. A national agency specialising in exclusive properties could for instance be teamed/paired up with a general local agent. This would mean that your net would be cast wider.

• Multiple agency

‘Joint Sole Agency’ contracts have to be distinguished from ‘Multiple Agency contracts’.A ‘Multiple Agency Contract’ means that you appoint more than one agent with no fixed contract period. In fact, if you so wish, you can add or remove as many agents as you want. Only the agent that actually finds the buyer will receive any commission. Because of the initial outlay in marketing a property, some estate agents will not enter into a ‘Multiple Agency’ contract. According to the Primelocation “The strategy of engaging multiple agents is often only for those who are under serious pressure to sell their property fast, as commission fees tend to be higher than with a ‘sole’ agent.” Also, some people believe that it “smacks of desperation and often causes buyers to become suspicious of (or dismiss) your property.”  As the commission is not split, problems could also arise among agencies, as to who found the buyer. So if you opt for this type of contract, it might be wise to keep a note of which estate agent arranged which viewing. However, there are also some advantages. This type of contract will, for example, give you a lot more flexibility. You can choose the number of estate agency you want to use and for how long you want to use them for. To make sure that you have covered every niche, the Buy Association suggests “Instructing at least three agents, including a smaller, independent one and a representative of one of the larger chains”, to “maximise your opportunities.”  It really depends what your needs are. Although “Multi Agency Contracts” cost more” there is no denying the fact that “your property will get more exposure” which will increase “the prospect of a quick sale.”  Of course, there is always room for manoeuvre. You could for example, as Moneyfacts suggests that “start out with sole agency” and then move “to a multi agency agreement at the end of the tie in period.” Alternatively, you could opt for a ‘Joint Sole Agency’ agreement instead of a Multi Agency one. The ball is in your court.

Negotiate?

Of course, you should negotiate! If you like the estate agency, do not turn your back on them, because you are not happy with some parts of the contract. However, before you embark on your negotiations or sign your contract, here are some words of WISDOM from some independent property experts:

1. PACKAGE

Compare like with like. “Get to the Bottom Line – Every agent will have a slightly different marketing package and fee structure. Ensure that all costs associated with selling are fully explained and that a total figure is given and confirmed in writing. That way you will know exactly what you will have to pay at the end of the process. They you can compare each quote, like for like, to decide which is the best option for you!

2. FEES

Property expert Henry Pryor believes that ‘Tempting though it is to grind agents on price, now might be a time to remunerate them to find a buyer,’ says Henry Pryor, of www.housingexpert.net, himself a former agent. ‘Being relatively generous will help keep your house at the top of the heap.’ Primelocation agrees with this. They believe that getting “the fee down may end up being a false economy. Remember, your estate agent works on a commission and you want them to be motivated to sell your property fast. By haggling too low, you may be taking away much of the incentive the estate agent needs to focus on your sale. Henry Pryor has noticed that “Plenty of agents will also cut their fees by finding buyers without advertising your property.” Buyers, who don’t have their property exposed on the open market, are, of course, running the risk of selling for less than it is worth. Would you be happy for your property not to be exposed on the open market? If an estate agency is offering very low fees, find out what service and package you will be getting in return.

3. EXCEPTIONS to negotiations

“Estate agency chains that are run corporately are more difficult to negotiate with than small agencies or estate agents who work independently. Corporately run, nation-wide agencies tend to enforce some strict policies surrounding commission levels and their employees have to adhere to these. These chains can get away with this rigidity because they know that there will always be buyers and sellers who will accept the terms of their contracts and the exorbitant charges without doing research into it.” http://info.mouseprice.com/articles/for-house-sellers/how-to-negotiate-estate-agent-fees/

We hope our articles will help you maximise the return on your property and wish you much success with the sale of it!! Next month we are looking at what home improvement are best to increase the value of your property.

How to choose a good estate agent

Your property will probably be your most valuable asset. So choosing a good estate agent, who can help you maximize the value of your investment and minimize any stress, must be your first consideration. A good estate agent has to be a master of many talents: a salesman and marketer; a top negotiator and administrator; and let’s not forget a diplomat and counselor for those last minute hiccups. To help you distinguish the wheat from the chaff, here is step by step guide of how to find a top notch estate agent for your property:

Make a short list

Look for three or four estate agents who have a good track record of selling similar properties in the same area as your property. Perhaps this is stating the obvious, but it’s really important to get this right. An estate agent in Hampstead for example would usually be sought out by buyers in North London. So, if you have a property to sell in Chelsea, instruct an estate agent who covers the same area. Likewise, if you are selling a country property, don’t put it on the market with an estate agent who specializes in trendy urban flats. You are employing an estate agent so that you have instant access to their existing bank of customers. But you can only take full advantage of this, if the agent’s customers are also the type that would be interested in buying your property.

Decide on sale price

Contact three or four estate agents and ask them to give you a free valuation. Property prices fluctuate and there is no scientific formula to work out the value of a property. A good estate agent, who is constantly selling similar properties in the area, should have the expertise to give you a fairly accurate value of your property. But “Don’t be fooled by the valuations they give”, warns the Home Owners Alliance. “Agents know that one of the main reasons people pick them is the valuation they give. They take two general approaches: Some agents give deliberately optimistic valuations, to make you think you can get a higher price with them,and then try and talk you down after you have chosen them. Other agents “insist they are giving a realistic price, and tell you not to be fooled by falsely high valuations.” (see http://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/how-should-i-choose-an-estate-agent/).In fact, going with the highest valuation could cost you dearly the long run. According to the Buy Association “your best time for selling is when your property is newly on the market. If it is overpriced, you risk it lingering unsold, which reduces its impact. If you then lower the price, potential buyers may think there’s a problem and be put off even coming to view it.”

So what are you to do?

Cutton Clox solicitors recommend that you ask your “estate agent to value your house on a “priced to sell” basis” as well as “expect to achieve” price. “Remember, your Estate Agent wants to create a buzz for your property, so attracting more than one interested buyer can lead to a small scale (or large) bidding war.”

At the end of the day it is, of course, your property and you can call the shots. This might be a good time for you to think about what your requirements are. Are you after a quick sale or do you need to achieve the highest sale price?

Other fundamentals

By now you will probably be trying to decide which estate agent to instruct. Don’t rush into this. It is an important decision. So take your time and consider the following points before signing on the dotted line:

How approachable and professional is the agent?

Send them an e-mail or phone them up. Do you get a quick reply? Would you want to deal with this agent, if you were a buyer? Are they enthusiastic and friendly? What about the marketing and advertising of the property? Take a close look at their property brochures and compare them to those of other agents. How have the properties been presented? Do you feel that this agent is able to present your property to a high quality? Also, find out how the agent will advertise your property.

Is the agent a member of a trade association?Are they a member of an accredited body such as the National Association of Estate Agents(NAEA). Members of such an organisation have to sign up voluntarily to a code of practice and are bound by strict rules. If you are unhappy about your estate agent’s services the NAEA will protect your interests and take disciplinary action against the estate agent on your behalf.

What about the viewings?

Ask the estate agent who will look after the viewings? Will the same estate agent be around for all the viewings?

The Detail

Now it is time to decide on the type of contract you want to enter with your estate agent. You need to weigh up the advantages and disadvantages of a sole and multi agency agreement. Also, do not sign on the dotted line until you have read all the small print. How much will the agent charge? What do you get in return for this? When is the fee due?

In the May Newsletter I will write about what to look out for in an estate agent’s contract.

Property News : WHAT TO EXPECT IN 2014

Examining the year-end position reveals that investors have cause for celebration, if they’d bought prime central London property in 2013. According to the Nationwide, “UK house prices increased by 1.4% in December and were 8.4% higher than December 2012. “All UK regions saw annual price rises in 2013”. However, “house price growth continued to accelerate in London, reaching 14.9%, the highest growth rate since Q1 2010. Prices in London are now 14% above their 2007 peak.”

This means that the rise in prices in London is twice the UK average growth rate.  Similar figures are also recorded by the Halifax (see graph) and the Office for National Statistics. The ONS believes that rises are “again largely driven by London”, where the rise in prices is “more than double the UK average increase”.

Is property still a good investment?

The Nationwide has calculated that “house price growth has been outstripping average earnings growth since the middle of the year.” With the average Londoner earning about £37,000, this means that homeowners are making more money out their properties than their jobs. Prime central London property has also been outperforming other types of investments.  Andrew Batt, International Group Editor of Property Guru Group said that stock levels in the sub-£2 million bracket have been down 37% year-on-year and that prime central London property has also outperformed gold, which fell by a quarter from January to mid-December.

Reason for rise in house prices

The surge of London property prices is driven by a number of factors such as –

• Shortage of new homes.
• increased confidence about the economic recovery.
• huge demand for London properties by overseas buyer.
• low interest rates.
• poor investment returns in the Western hemisphere.
• London’s investment status as ‘safe haven’.

Housing Bubble?

Recent data from the Royal Institute of Surveyors has shown that UK property sales in December 2013 were highest since March 2008. This and the increase of property prices has caused speculation about a property bubble. Mark Carney, the Governor Of The Bank of England, has robustly rejected this, saying that “We’ve had acceleration from quite a low level. Any time we see a sharp increase in credit growth we take an interest.”  Peter Bolton King, the RICS global residential director said that an increase in affordable mortgages has released suppressed demand from aspiring buyers who have tried to get a foot on the housing ladder in recent years.

So what does the future hold?

Halifax is expecting “house prices to continue to rise this year, most likely at a broadly similar pace to 2013.” The RICS annual housing market forecasts that “2014 may well see the nascent pick-up in activity gather pace and this will be reflected in the housing market. Across the UK, all parts of the country should see prices rise next year. Predictably, the biggest increases are to be seen in London, where the cost of a home will jump by around 11%.” Mark Carney told lawmakers on Parliament’s treasury committee that he predicts that house prices will keep rising this year and next, but gains in 2015 are likely to be at a slower pace.” The Daily Telegraph put Kensington & Chelsea in second place among its top 20 places to invest property in London. It expects that property prices in Kensington & Chelsea to increase by 25% over the next five years.

London House Prices

Having ended 2012 with many keen to buy applicants and plenty of sales, 2013 has quite a lot to live up to. Taking a look at the broader picture it looks like London House prices throughout the capital are up 1.2 percent in February with areas like Fulham and Chelsea really taking off. At May & Co we have had a fresh avalanche of keen buyers registering daily with us and plenty of valuations, and property sales which are keeping us very busy. We have on offer this wonderful one bedroom flat in the charming Elm Park Mansions on offer

Lettings

After a somewhat leisurely start to the year the lettings market has really picked up in the last few weeks.Investors are back, the corporate market is returning and many new landlords are looking towards specialist letting agents like May&Co to manage their portfolio of properties.But there are still some competitively priced properties available  Like this stylish two bed flat on Edith Grove  – perfect for sharers!or this elegant one bed flat with balcony on Redcliffe Gardens