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Agents dropping fees - the right move for business?

Posted on 2017-06-29

Agents dropping fees - the right move for business?

During recent weeks, the country has been consumed by talks of the General Election and the commencement of official Brexit negotiations.

Naturally, these important events carry a strong interest for the property and housing industries. That's why issues that had received a lot of air time over the previous few months have taken a back seat recently.

One such example specific to the lettings industry is the proposed ban on up-front letting agent fees charged to tenants. The official consultation period for the suggested ban closed on June 2, but - perhaps understandably - got lost in the build up to the General Election.

If the ban is introduced - which is expected to happen sometime in 2018 – it’ll be a landmark moment for the country's letting agents, many of whom will most likely need to adjust the structure of their businesses.

With all this to consider, it's no surprise that agents are already thinking about the future or even taking action now. One trend we've noticed is agents ceasing to charge up-front fees to tenants now, before any proposed ban has been implemented.

Below, we explore some of the pros and cons of this business decision…

The story so far

Since the proposed fee ban was announced by Chancellor Philip Hammond in November 2016's Autumn Statement, plenty of lettings professionals have publicly voiced their opinions on the measure.

While some people have argued that there should be no restrictions on agents' fees, one of the most common responses has been to call for a cap on fees instead of a blanket ban.

More recently, as it seems increasingly likely that the Government will not renege on its decision, a number of letting agents have taken the opportunity to publicly announce that they are dropping fees.

During May, a letting agency in Leeds announced that it had stopped charging admin fees to tenants in preparation for the proposed fee ban.

The two-branch agency - Parklane Properties - also said it was offering 0% management fees for six months to help landlords prepare financially for the ban.

Later the same month, the UK division of global agency Sotheby's International Realty also reported that it was no longer charging tenants up-front letting agent fees.

Sotheby's said it was absorbing admin costs and would not be passing any additional costs to landlords.

“At present, some agents are charging above and beyond the modest costs associated with a tenancy agreement and until an agreed policy has been announced by Government, we feel we have made the right decision in omitting these fees to help simplify the process of finding a new home,” said the agency's lettings manager, Hannah McDougall.

Is dropping fees now a good PR move?

Well, on the surface, it is a good PR move. It could quite easily be argued that if letting agents are going to lose the ability to charge fees in the near future anyway, dropping them now can secure some positive publicity before the inevitable occurs.

Letting agents' reputation among tenants isn't always particularly positive, which is one of the reasons people have been campaigning for a fee ban in the first place. Ceasing to charge fees when they don't yet have to do so, Is a strategy that could lead them to more interest from potential tenants in the short term and could also save them from a sudden change in processes if a fee ban is later introduced.

What's more, this strategy could benefit an agent's relationship with their landlords. One of the key narratives to come out of the proposed ban on fees is that landlords could be charged more by agents to cover the costs. If agents show that they are willing to absorb the additional costs themselves, this  provides more appeal to landlords and could give them more opportunities to win new instructions in the future.

On the other side of the coin, quite simply, agents who drop fees will be losing out on legitimate income and may need to create new strategies to financially support this change.  

As well as the financial implications, this move could also backfire in a PR sense. Some sceptical landlords and tenants could view the move to drop fees that will soon be banned anyway purely as a PR stunt, designed to curry favour.

Looking ahead to 2018

As the implementation of the proposed ban on fees moves closer, it’s likely that more agents will announce that they have stopped charging fees. For those firms planning on absorbing fees when the ban is introduced, it seems a beneficial idea to drop the charges before the ban with the aim of securing a reputational boost.

During this period, it’s also likely we’ll see a range of new products launched with the aim of helping agents and landlords to minimise the impact of the ban.

The next stage of the process is waiting to see the results of the Government’s official consultation. When these are released, we’ll have a better idea of exactly how the proposed ban will be implemented and when we can expect it. 

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