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Estate agents charging sellers AND buyers
Traditionally, estate agent services are paid by the seller or 'vendor' of the property. The agent’s commission will be a percentage of the sale price, normally 1% to 2%. On a £200,000 property, that means a payment of £2,000 to £4,000 plus VAT. In most business models, the agent is only paid if the property is sold.
The commission model motivates agents to get the best price possible for the property. Buyers, meanwhile, don’t pay the agent anything.
But in the current sellers’ market, more agents are offering vendors the option of 'sale by tender'. But how does this work?
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Sale by tender
Agents often offer sale by tender as an option for vendors when they’re competing for business. With supply low in many areas of the country, that’s very much the case for most estate agents at the moment.
Sellers are enticed in by the low fees they have to pay. Kent-based Douglas Allen for example charges sellers just £150 plus VAT (£180) to sell via sale by tender.
So how does the agent make his or her money? By charging the buyer a massive fee, that’s how.
The buyer of the property will pay an introductory or finder's fee to the agent, usually around 2% to 2.5% of the cost of the property, so £4,000 or more plus VAT on a £200,000 property.
Some agents charge a flat fee to the buyer. A quick Google search shows Haart estate agents marketing a property in Essex for sale by tender. The agent’s note said the buyer would need to pay Haart an introductory fee of £4,200 on top of the sale price.
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Sealed bids
Fees aside, sale by tender is quite similar to the sealed bids process. The agent will market the property at a guide price, arrange viewings either individually or via open days, and ask for interested buyers to put in a bid for the property.
There will be a deadline for the bids and as well as the price, buyers will be expected to state their position. This will include whether they are first-time buyers, if they have a property to sell, need a mortgage or are cash buyers.
Some sales by tender also stipulate a completion date that will need to be stuck to.
Once the deadline arrives the bids will be passed to the vendor. He or she is not obliged to accept any of them, but if they do the successful bidder will be informed and the transaction will continue in the normal way, with the main difference being the bill the buyer receives from the agent at the end.
Pros and cons
When it comes to sale by tender, it’s clear what’s in it for the seller. It will cost them much less than the normal estate agent commission structure, while the bidding process will drive up the purchase price of the property.
The only possible downside is that bids will reflect the fee buyers have to pay the agent, meaning they will offer less. So sellers will have to do the sums to work out if it’s worth selling their property for less than the maximum achievable, if it means they get out of paying the estate agent a hefty fee.
For the buyer, paying an agent £4,000 or so is yet another expense on top of all the other costs of moving such as Stamp Duty and solicitors. As well as it being an expense, the buyer has to find the money from somewhere.
First-time buyers struggling to raise a deposit are unlikely to have a spare few thousand pounds lying around and it’s unlikely that mortgage lenders will be keen to add this on to the mortgage.
However, with the housing market looking positively insane in certain areas of the country, who knows what desperate buyers will do to secure the house of their dreams?