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Estate Agency Myth No.8: Agency fees are falling!

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  • Estate Agency Myth No.8: Agency fees are falling!

Whilst the average fee percentage charged for selling a property has reduced and is continuing to do so – it is a myth for estate agents to believe this is leading to them being paid less! Let me explain why:

Let us begin by understanding what ‘paid less’ means. If we take a narrow view, from where this myth emanates, we will naturally conclude that a reduction of fee percentage automatically reduces the commission received. The myth misses the wider view which considers a longer time period and a yard stick for comparison. So, let me demonstrate by using 1980 to 2020 time period and average wages as my yard stick for comparison:

In 1980 the average UK salary was £6,000 and the average house price £20,268 with the average agent fee circa 1.75%
The average client paid £354 to sell their average property representing 6% of their annual salary.
Fast forward to 2020 average salary now £28,402 and average house price £234,370 with an average agent fee circa 1.1%
Today the average client is paying £2578 representing 9.07% of their annual salary
Compared to average wages an estate agency commission has leaped ahead by 50%
In a world where relative to salaries the prices of food, heating & lighting, cars to washing machines & TV’s have all reduced it would seem churlish for estate agents to complain!

PurpleBricks and other online agencies have taken a lot of the blame for the general trend of average agency fee levels falling. Unfairly so, as this trend was already happening before the arrival of online agency and PurpleBricks, and here’s why:
The reason for this trend is obvious to see if we look in the right place! Property values have risen nearly 3 times faster than Average wages. Meaning that as property values continue to increase more than wages, we are likely to see the average agent commission fee percentage fall further in the future too in order to compensate.
Why then do estate agents feel so hard done by and feel that they are losing ground when on paper (and in hard cash) they seem to have been gaining?

The answer I believe is due to:
Firstly, the number of estate agencies and agents has mushroomed fighting over a pot of house sales which has barely grown since the 1990’s. The result is agencies, on average, make a lower number of sales per year, in other words their productivity level has dropped.
Secondly, cost’s of running an agency have changed. In the 80’s an agency could be run on little more than a good filing cabinet, a rolodex, telephone and a leased photocopier. Today, in addition, they need a CRM system, subscriptions to one or more search portals, computers, mobile phones, social media accounts with someone to run them and several proptech aids to combat the increasing complexities of modern life and new regulations.

The belief in the myth is damaging for estate agents and the industry alike – concentrating on increasing fee levels misses the underlying point that the property transaction in real terms cost’s their clients 50% more than it did 40 years ago!

Max Fuller is the founder and creator of Mutual Pre-Portal Property Platform.