Which Letting Agent?
Selecting a letting agent
The best way for a landlord to identify a good local letting agent is by word of mouth – a personal recommendation from a fellow landlord, or friends who might have received good service as tenants. Ask around and read feedback and comments online. Compile a list of at least three prospective letting agents, then arrange some meetings to see what they have to offer. Before going any further a landlord should be aware and understand property marketing to tenants and also consider the services of online letting agents.
A landlord’s decision ultimately on which letting agent to use will be based on; the letting agents fees, the levels of service, and how well personally a landlord thinks they can work alongside the letting agent.
In conducting their initial selections of a prospective letting agent, a landlord should try and put themself in a tenant’s shoes. Which letting agent does a landlord think would most likely attract the type of tenant they are wanting to target and most of all find good tenants?
For instance, if a landlord has a council house, it wouldn’t be a good idea to go with an upmarket letting agent such as Savills or Foxtons, and equally, a letting agent that specialises in rural locations would not be a good spot for a city centre apartment.
Another factor landlords should look out for, is the length of time the letting agent has been in existance. I’d personally avoid a new business. Remember, anybody can set themselves up as a letting agent. You don’t want to sign up with a ‘fly by night’, who’s gone tommorrow. If the letting agent has survived for at least a couple of years; it’s a sign they’re doing a reasonable job and have a sustainable business.
It’s worth noting that letting agents are not regulated. Unlike estate agent’s, who are covered by the Estate Agents Act 1979, letting agents remain unregulated, so tread carefully. There are various trade bodies and schemes a letting agen can affiliate to. The most prominent professional body, is ARLA (Association of Residential Letting Agents). ARLA sets out a code of practice for its members to follow, including a complaints and disciplinary procedure. ARLA members are also required to have professional indemnity insurance in place. This is not to say that non-members of ARLA (Association of Residential Letting Agents) won’t be equally reputable; it just ensures that in an unknown market place landlords are less likely to end up with a ‘dud’ letting agent.
There are other trade bodies that letting agents can affiliate to, but non-regulation in this sector means that most have little power, and some are pretty much just a sticker in the window job. There are calls for tighter regulation of the letting industry, much as happened in the estate agency market, which has long been covered by the Estate Agents Act 1979, but for now, letting agents remain unregulated and are free to make their own rules – so tread carefully.
Moving on to more practical considerations, it’s worth landlords considering the location and the opening hours of the letting agency offices. Extended opening hours or weekend opening will obviously be attractive to busy professional tenants and if a landlord ever needs to call in to discuss something.
During their evaluation a landlord should gather as much information as possible about the services of the letting agent. Check carefully as to what is included. There is no recognised ‘standard service’ or ‘standard charges’ so it is not always as simple as comparing one against the other on their headline price.
Some landlords recommend going as far as acting as a ‘mystery shopper’ to test the levels of service they or a tenant can expect. This to me is probably excessive, but if landlords are in any way concerned, then might be a way of putting their mind at rest.
In essence landlords should be looking for:
- Letting offices that are smart and professional with helpful knowledgeable staff
- A synergy between the image of the letting agent and the lettings market of the tenant that the landlord is seeking to attract
- A good lettings office location
- Membership of ARLA (Association of Residential Letting Agents)
- Personal recommendation from respected lettings sources (other landlords)
Should Landlords employ the agent on a full management contract?
Most letting agents love a full letting management contract and will always encourage a landlord down this route. Why? Because this is how letting agents make a lot of money out of a landlord for doing very little. We have discussed in great detail before as to whether a landlord needs a letting agent.
If landlords think the bill for the initial let is steep, then for ongoing rental management landlords will be charged between 8-12% of the gross rent. This for most landlords will amount to many hundreds if not thousands of pounds a year.
What does a letting agent do for landlords under a full rental management contract? As is the case in the ‘let only’, the exact details of what is carried out under the rental management contract will vary depending on the letting agent.
However, generally it should include:
Once the let has been carried out, the letting agent will collect the rent and then pay it into the landlords nominated bank account
Organising the repair and maintenance of the rental property. The landlord is obviously responsible for the maintenance costs incurred. It is best to agree at the outset a figure below which the letting agent has the delegated responsibility to carry out any maintenance work. For example, jobs below £100. This allows the letting agent to get minor building faults repaired without delay, but also allows landlords to retain the option to bring in their own building contractors for larger scale maintenance works, or at least vet and approve those selected by the letting agent before work is undertaken.
1, All tenant enquiries and problems
2, Responsibility for organising the Gas Safety Certificates where appropriate
3, The letting agent should carry out the ‘check out’ at the end of the tenancy and make any deductions from the rental deposit if appropriate. Letting agents are responsible for organising any maintenance works to make good the investment property prior to marketing the property.
4, It’s worth landlords noting that very rarely will a full rental management agreement include the ‘let only’ service of getting in a new tenant. What some letting agents do is offer a reduced lettings fee for those landlords with a full property management contract.
The principle behind a full property management contract is that it is exactly that. Effectively the landlord cede day to day responsibility for letting the investment property to the letting agent who then deals with all aspects of residential property management from rent collection through to tenancy renewals and re-letting. The letting agent should then merely keep the landlord informed as to the progress of the tenancy and what actions they have taken. Certain aspects of the residential property management will inevitably involve some consultation with the landlord; but once in place a good letting agent should inform the landlord how they have sorted out any problems and not keep presenting the landlord with a whole series of questions and dilemmas. After all, isn’t that what a landlord is paying the letting agent to do? Otherwise all the landlord ends up with is another link in the chain of communication between the landlord and the tenant, which in itself can be difficult.
Maintenance of the rental property
Other than problems with the tenant such as non-payment of rent or dealing with the tenants complaints or requests; the biggest aspect of residential property management is maintenance. The repair and up keep of any property is a constant battle. Therefore what any good letting agent should have is a little ‘red book’ of local trades’ people that they can call on to sort out any problem cheaply and efficiently. The former is important because it will be the landlord that has to pick up the tab. This is where having an honest letting agent is so important. What landlords don’t want is a letting agent who is constantly on the make. Landlords don’t want to be paying for a tradesman’s ‘kick backs’ to the letting agent each time they have work done. After all, the letting agent is employed by the landlord to do their bidding, this should include finding a local tradesman who can do the cheapest property maintenance job.
However, like so much of business, malpractice is not easy for a landlord to prove. What the letting agent should always provide the landlord with is a receipt for the property maintenance work carried out so that the landlord can off set it for tax purposes against any residential property rental income. Ideally the letting agent should also be able to produce several alternative maintenance quotes to a landlord to prove that the one that the letting agent eventually accepted was the best. This is very unlikely to happen. From personal experience I know how difficult it is to get maintenance quotes especially for small maintenance jobs. Much of the process then has to be taken on trust by a landlord. This is why it is important for a landlord to feel that they can trust their letting agent right from the outset.
Setting a clear agreement with a letting agent
The secret to a successful relationship between landlord and letting agent employed on a full property management arrangement is that the landlord and letting agent are both clear about their respective lines of responsibility; who does what and when. This should be all set out in the initial residential management contract and landlords should ensure that any ambiguity is clarified and agreed with the letting agent right from the outset.
One minor point that I have noticed when I have had some of my investment properties managed is that suddenly keeping track of rental payments becomes more difficult. This is because; if landlords are managing the investment property themselves they will see the individual rental payments and the name of the payee on their bank statement. When these rental payments are made by a letting agent, they are generally received minus the investment properties management charge. They are therefore shown as amounts that don’t correspond to any rental figure; either that or they are lumped together as a single payment. Because of this, it is important that the landlords’ letting agent has a good reporting system. Therefore before landlords decide to use a letting agent they should enquire how often statements are sent out and what they look like. Having statements e-mailed to the landlord once a month is ideal with each payment clearly labelled makes keeping track of your payments and subsequently the preparation of a landlords accounts much easier.
Some letting agents will try and charge a landlords residential management fee up front for say the initial 6 month rental period. Having to pay 6 months of charges for managing a landlords investment property out of their first months rent can seriously damage a landlords cashflow. In my eyes it is also wrong. If the landlord is only getting paid each month by the tenant for their rental accommodation, then surely it makes sense that the letting agent should only be paid monthly for managing the tenancy. Some letting agents won’t like this, particularly the large national letting agents who have to operate within a rigid corporate structure. Therefore, if cashflow is a big issue for you as the landlord then make sure that the letting agent you use is prepared to accept being paid monthly.
Always remember that any letting fees are negotiable, especially with an independent letting agent. If they quote a landlord 12% then landlords should try for 10, if they are looking for 10% landlords should see if they can get 8. It is very unlikely that a landlord would get anything below 8%, if a letting agent advertises below this then landlords may have to start asking questions about how sustainable their letting business is and also what level of service they will get. Remember, a landlords’ negotiating position will be much stronger if they have several investment properties that they want managed; if the landlord has a portfolio of 10 they shouldn’t be paying over 10% of rent for the residential management service.
Additional fees by letting agents
Landlords should watch out for the additional fees that some letting agents like to tack on. These include a ‘repeat fee’ if the tenant stays on after the end of the original fixed term tenancy. The other trick of letting agents is that rather than allowing a residential tenancy to continue as a statutory periodic tenancy. They like getting the tenant to sign a new six month assured shorthold tenancy. The letting agent will then charge the landlord a fee of £50-70 for this 5 minute task. Landlords should make sure that they specifically request that they do not do this and where the tenant is happy to stay that they allow the tenancy to run on. It may well be that the tenant insists that they want the security of a 6 month tenancy contract in which case its probably wise for landlords to oblige if they want to be sure to keep the tenant.
Landlords should be beware of a sneaky clause that entitles the letting agent to a percentage of the selling price of the investment property should the landlord at any time (even after the expiry of the tenancy agreement) sell the investment property to the tenant or any member of the tenants family. The chances of this happening are of course remote but even so this clause is completely unacceptable for landlords.
Summary of letting agents
The message that comes through from my experience with letting agents and through talking to other landlords is that because letting agents are unregulated there is an incredible variety of letting practices and charges. Therefore it is more important than ever that landlords read the terms and conditions of their agreement with the letting agent to ensure that the landlord does not face a nasty surprise. This could include not being able to get rid of the letting agent even if a landlord is unsatisfied with the letting agent’s service. Typically landlords will have to give the letting agent 2 months notice if they want to end the contract.
I have employed a letting agent to manage several of my investment properties and to be honest I found it a frustrating experience. Having always previously managed my investment properties it was annoying that issues weren’t sorted out as quickly as I would have liked. Particularly where maintenance work was required on the investment property and I was trying to organise my own maintenance contractor. In this situation having a letting agent just made the chain of communication more complicated. The result was that there was me the landlord, the tenant, the letting agent and the contractor all trying to organise times, dates and work schedules. Needless to say after a short period of passing the rental management to a letting agent I have decided to take rental management back in house. The letting agents weren’t bad, but from my point of view it irked me that I was paying over a thousand pounds a year to the letting agent to forward rental payments and become in effect an extra tier in the chain of communication between me the landlord and the tenant. My advice would be that for most landlords it really isn’t worth it.
Exceptions to this rule are:
1. Where the residential investments are remote form a landlords’ home address or the landlord is frequently away
2. If landlords are or intend to be, a developer landlord. In which case landlords need to be focused on creating value in the residential investment portfolio by buying and developing property. This is likely to leave landlords little time to manage their investment properties. Landlords in this situation are therefore probably better focusing their efforts into creating value in their residential investment portfolio through development, rather than saving costs through self-management.
3. For landlords that start to build a residential portfolio of say 3 investment properties and above, property management whilst holding down a full time job can start to be an issue. Therefore, in this situation a landlord will have to make a decision based on their own circumstances and priorities. For instance if you are a high powered City lawyer earning hundreds of pounds per hour, then carrying out residential property management to the detriment of your full earning capacity makes no financial sense.