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Letting Agent's Fees - are the cheapest the best?

16th Mar 2016

Category: Opinion

Tagged: Lettings Agenc, Property Management

No-one likes paying more in fees than they have to, but are the cheapest fees always the best value?! We've run some figures and looked at a few scenarios, and the results are quite revealing...

I often recieve enquiries from prospective landlords about our letting agency fees (as an aside, our fees are published on our 'Landlords' page).  In explaining our fees and in comparing them to other agencies, I explain them in terms of 'value' rather than cost.  As an agency, we will always compete on value and we like to think that we will deliver the best value service for our Landlords.  In some cases, this might mean that we are not the cheapest, but in other cases, it may.  I have run some figures below for a landlord who explained an issue he was having with his current agent to illustrate this point.

Worked Example: In this example, we assume a monthly rent of £800pcm, and in scenario 1, a cheaper management fee of 5%+VAT and a void period within the year of 3 months.  In scenario 2, the rent figure is the same, but the agency fee is more than doubled to 12%+VAT.  In this example, the agent secures 11 full months of rent during the same 12 months.

 Letting periodManagement FeeGross yearly RentRent to Landlord
Option  1. 9 out of 12 months due to 3 month void in transition.5%+VAT (£432.00 p/a)£7,200 p/a£6,768 p/a
Option  2.11 our of 12 months due to 1 month void in transisiton.12% + VAT (£1,056 p/a)£8,800 p/a£7,744 p/a

 

As you can see from the figures in the final column, the landlord is sigificantly better off by paying more than double the rate of the cheaper fee.  This is a cash flow increase of £976 or 14.4%.   Clearly, these figures will not always be reflective of real world events, but it helps to provide some context when understanding the true value of an agent's fee structure.

In summary, a higher fee may be the best value decision you can make, returning to you a more secure and profitable income stream.  This may be something to consider when asking your next agent how much they charge - A much more informative question might be 'what value will you bring over and above any other agent?'.

Tom Kite

Comfort Partner

An experienced Nottingham Property Specialist and a Founding Partner of Comfort Lettings.

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