Letting Agents – A Rip Off?
For years landlords have had an uneasy relationship with letting agents.
Some are no doubt very good. Some fulfil the function of ensuring that a landlord’s property remains let, by providing a let only service. In many cases they manage the entire letting and management of the buy-to-let property allowing a landlord to concentrate on developing their portfolio. We’ve asked before do landlords need a letting agent?
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The problem for many landlords is that there is no standard service level agreement between landlord and letting agent. This means that the costs and level of service will often vary from letting agent to letting agent.
Many landlords particularly those new to letting property will be unaware of this, and will often inadvertently end up paying way more than they need for letting their property.
‘Sharp practices’ in the letting industry
A recent report carried in the Telegraph warns landlords following a recent survey by the Citizen Advice Bureau (CAB) of sharp practices in the letting industry. Much of it affects tenants but some can impact on landlords as well.
Some of the most common areas affecting landlords are:
1. The amount of commission being charged. There is no maximum or minimum fee. Many landlords will opt for a let only service. This is where a letting agent will advertise a landlords rental property, including taking photos and placing the advert on a property portal such as Rightmove. They should also conduct or viewings and vet any potential tenant. Should the tenant’s reference and credit check out the letting agent will then conduct the property ‘handover’ with the tenant. Some will also prepare the inventory whilst many landlords charge a separate fee for this.
The cost for this service could be as little as a couple of hundred of pounds but frequently the charges relates to the amount of rent being charged.
A landlord looking at this should realise that they can often save many hundreds of pounds by advertising their buy-to-let property and carrying out the viewings, credit referencing themselves. They can be easily overcharged. Landlords should remember to negotiate. Independent letting agents will often have scope to ‘strike a deal’ particularly if you have a portfolio of properties and they can see the potential for long-term repeat business. Don’t be shy and drive a hard bargain.
2. The over supply of some rental accommodation is causing many landlords to suffer extended periods of voids. A landlord that uses a letting agent could find that they are relying on a letting agent to find them a tenant when in reality there is little scope for the landlord to secure a tenant because the amount of similar properties on the letting agents books. The letting agent won’t tell you this because they have nothing to loose by having another client and more choice for their tenants. The landlord on the other hand would be far better advertising their property separately where they can be pro-active with the marketing, negotiate with potential tenants to agree a let and ensure that their buy-to-let property is let quickly.
3. Letting agents, particularly those on a let only fee will often be ‘desperate’ to get a tenant in so that they can collect their fees. This will often be at the expense of the quality of the tenant. They will often sign up a tenant that only just passes the vetting process. The landlord is often unaware of the marginal nature of the tenant until several months down the line the tenant stops paying rent. If the landlord was in charge of the process they would be able to either reject the tenant or ensure that rent protection insurance was in place or they insisted on a tenant guarantor.
4. One of the clearest ‘rip offs’ being perpetrated by letting agents is charging a renewal fee.
This practice is currently being contested in the High Court by the Office of Fair Trading (OFT). It relates to the practice where a letting agent will charge a landlord a renewal fee when residential tenants renew their tenancy agreement even when the letting agent is no longer involved in the on going management of the buy-to-let property. All this constitutes paying a letting agent an awful lot of money for what is a 10 minute process carried out by the landlord as the existing tenant signs a new tenancy agreement.
A test case is currently being pursued by the OFT against Foxtons the upmarket London estate agent. The 3 day trial hearing at the High Court ended several weeks ago and a decision is expected by the end of July about commission payments, which the OFT argues are unfair.
This practice is common in London and the South East which has the largest letting market. It has been suggested that if the OFT is successful then potentially millions of pounds of fees paid by landlords could be reclaimed. The fall out of this and a reduction of future letting fees would result in many letting agents going out of business.
Government tightens the controls on letting agents.
Letting agents are currently able to set up without any prior training or qualifications. In response to complaints about the actions of some letting agents, the Government has announced recently that they intend to introduce an independent regulator for all letting and managing agents.
The sector currently has some measure of competency through letting agents being able to join non mandatory groups such as the Association of Residential Letting Agents (ARLA).
Whilst this does not guarantee that a landlord’s grievance will be addressed as there is no statutory footing for the Association, it does have a code of conduct that members are required to operate by. All members are also required to have a professional qualification.
Landlords are therefore warned when using a letting agent they need to make sure exactly what the level of service is and what is delivered for the charge. This should all be set out in a letter of engagement signed by both parties. If they don’t have this in place, landlords may find that they don’t get the service they expected and will go away with the feeling they have been ‘ripped off’; but by then it will be far too late.