Estate Agents who become Part Time Letting Agents BEWARE says @MarkTrenfield
Published 15/07/2012 Have you noticed how many Estate Agents, who did not previously offer residential letting services, that have suddenly opened a lettings department to try and supplement their monthly income, and stop their businesses from going to the wall, as the house sales market continues to stagnate?
The Estate Agent will usually select junior, inexperienced, staff members to create their new letting facility and a “Letting Department” banner will be proudly erected above their desk.
An estate agency sales flyer will be printed and delivered to all houses within the vicinity announcing that “we now do LETTINGS – so LET US impress you”. As many of the letting tasks as possible will be outsourced to third parties. For example, security deposits will be sent to the custodial scheme and inventories and check-ins / check-outs will be created and performed by third party inventory clerks (with the associated additional charges passed back to the landlord – of course!).
That’s it – job done – letting agency created. No letting qualifications, no letting experienced staff, no knowledge of tenancy law, no idea what they are really doing and no shame that they are providing, at best, a third rate service to an unsuspecting, often accidental, landlord! But then we are talking about Estate Agents I suppose!
The problem is that the General Public don’t understand the difference between a Letting Agent and an Estate Agent. They think they are the same thing (as they both deal in property). Nothing could be further from the truth!
To explain – when I have toothache I go to a tooth specialist – the Dentist. I don’t visit the Doctor who deals with general matters relating to the human body to get my teeth fixed. I guess I could go to the Doctor but the advice and service I would receive would not be as specialised or experienced as the Dentist.
Using the same analogy – if I have a house to let then I visit the specialist Letting Agent (rather than the generalist Estate Agent). I don’t understand why the General Public don’t understand this!
Landlords need to be very wary of these “hard up” Estate Agents that have moved into residential lettings as a side-line as they do not have a thorough understanding of the complex legislation surrounding the renting of property; a detailed knowledge of the local lettings market; trusted relationships with local handymen and property maintenance companies; and the interpersonal and negotiation skills to handle all of the issues that the landlord and the tenant will raise throughout the lifecycle of the tenancy.
Pointedly, Estate Agents usually earn their sales fee when the property is sold (and this is automatically paid to them by the solicitor during sales process). The Letting Agent is paid a management fee that is deducted from the tenants rent for every day that the tenancy continues. If the tenant doesn’t pay the rent – the Letting Agent works “for free”.
So, the Letting Agent has to collect the rent and mediate between the landlord (who wants to maximise the investment income by not spending any money unless he has to) and the tenant (who always has a list of jobs that they would like the landlord to pay for).
So, letting a property (and generating a fee) requires a very different skill set to selling a property to a purchaser and being paid by a solicitor. The Letting Agent will need to have strong, but tactful, negotiation skills to ensure that the rent does not fall into arrears and that the landlord maintains the property to an acceptable and safe standard.
Additionally, a high level of customer service towards the tenant will sustain the tenancy and please the landlord (as void periods are minimized and initial tenant setup charges reduced).
Letting is not a business you can easily dip in and out of when it suits. There is a lot at stake, not least the safety and well-being of the tenants as well as the success or failure of the landlord’s investment. Getting it wrong and making elementary schoolboy errors can have dire consequences for landlords, including huge legal expenses, loss of rent, extended void periods, loss of tenant’s deposit money and penalties for not complying with legislation.
Use an Estate Agent to rent out your investment property AT YOUR PERIL.
About Mark Trenfield
An enthusiastic property investor/landlord with investment properties across Wiltshire and Dorset. Started investing in property back in 1998 when I became disillusioned with the stock market and then created his own letting agency - mlettings - in 2002 Member of UKALA)
A regular columnist in the Swindon Advertiser as well as providing expert landlord commentary to BBC Radio Swindon and BBC Radio Wiltshire since 2006. Never afraid to raise and discuss highly controversial topics that affect landlords and tenants.
-
Chief Executive says:
16/07/2012 at 09:23
-
David Benson says:
16/07/2012 at 16:55
-
Francis Dolley says:
16/07/2012 at 17:30
-
Industry Observer says:
16/07/2012 at 16:32
-
Mark Trenfield says:
16/07/2012 at 18:01
-
Mark Trenfield says:
16/07/2012 at 18:23
-
more says:
16/07/2012 at 18:08
-
Mary Latham says:
16/07/2012 at 19:54
-
Mark Alexander says:
16/07/2012 at 20:11
-
Mary Latham says:
16/07/2012 at 20:37
-
Antony says:
17/07/2012 at 08:32
-
Mark Trenfield says:
17/07/2012 at 11:55
-
Robert Davies says:
17/07/2012 at 11:26
-
Mark Trenfield says:
17/07/2012 at 14:22
-
Mark Trenfield says:
17/07/2012 at 14:25
-
Robert Davies says:
18/07/2012 at 10:20
-
Paul Barrett says:
18/07/2012 at 12:06
-
Mark Trenfield says:
18/07/2012 at 13:06
Leave a commentHi Mark,
Interesting points you raise in this blog.
If a letting agent joins an industry body such as ARLA or NALS and also registers with a client money protection scheme, there is some peace of mind for the Landlord and indeed tenant as, at the very least, they know their monies are protected, should the agent go out of business.
It’s also worth mentioning that no one can divest a Landlord of their responsibilities … not even a lettings agent employed on a “fully managed” basis.
As a specialised letting agent I am a little puzzled as to why anybody, let alone a so-called expert, would decry using a third party for inventories as my understanding is that these are the only ones that stand up in a court of law. They need to be truly independent. Also, surely it is better to deposit bond monies in a custodial scheme rather than entrust it to an agent who may abscond, as several have done lately. Am I missing something? David Benson of Ellis and Co
Great article Mark. A good letting agent is worth their weight in gold. But do you not think a good estate agent can learn lettings skills. No reason why a good estate agent wouldn’t apply the same professionalism to the lettings sector. And no I’m not an estate agent
)
Custodial scheme – good idea why let a party with a vested interest hold the deposit i.e. the landlord
Independent inventories – very good ide most Landlords don’t have a clue
Estate agents come lettigs agents no idewa of thw Law? So private Landlord do then do they?
Hi Francis, Thanks for your comment. I agree that an estate agent could learn the skills to become a good letting agent and a letting agent could learn the skills to be a good estate agent.
However, the problem is that many Estate Agents are simply launching letting departments (in a desperate search for additional income) – without learning, or even understanding, those skills and this is compromising their landlords and, possibly, the safety of their future tenants – hence the reason for the article.
Hi David, I agree that an inventory needs to be independent. That is why a letting agent or a 3rd party inventory company is best preparing them.
I was going to write a future blog on why I don’t believe that 3rd party inventories deliver value to landlords – but I will touch on a couple of points now.
Don’t get me wrong – 3rd party prepared inventories (from inventory companies) look beautiful – often presented on glossy paper – with lots of photographs – lots of details and fully signed by the future tenant at check in and check out – ALL AT CONSIDERABLE LANDLORD EXPENSE.
But do they enhance or damage the tenant / landlord relationship?
A fully checked-in, checked-out tenant with a professional inventory from a 3rd party company can cost the landlord about £350 / £400 – yet the average security deposit is only £600. So, the landlord is spending £350 .. to gain a £600 …. not a great return on investment?
Glossy paper does not protect your property from tenant damage though! They are only semi-useful if you cannot agree with your tenant (what damage they have done) at the end of the tenancy.
Having a great relationship with your tenant is fundamental (and much cheaper than paying an inventory company) to being a good landlord. Compromise with the tenant is always the better approach than legal proceedings.
By example – a 3rd party inventory will prove that the tenant had burned an iron stain in the landlord’s carpet yet the tenant wouldn’t accept the landlords demand for a new £300 carpet. The issue went to adjudication and the adjudicator awarded the landlord £45 (to buy a rug to cover the stain).
So the inventory etc cost the landlord £350+ – the award was £45 – the carpet cost £300 – the landlord would have been better off with a less glossy inventory and a better working relationship with his tenant in my opinion!
A quick word on custodial versus insurance based schemes. Good tenants have to wait up to 10 days or longer to get their security deposits back from the custodial schemes (and much longer if there is a dispute over deductions etc). I accept your point about bad agents absconding (but client money protection insurance should fix this issue).
We expect our tenants to give us their security deposit (in cleared funds) at the start of the tenancy and I believe we should return the deposit at the end of the tenancy (not 10 day+ later).
I know of many happy tenancies that have ended on a sour note because the money had been sent to the custodial scheme and the tenant could not raise the deposit funds for his next landlord.
one such agent around here gets vendors of properties he can’t sell to let them out.
He then puts tenants in, but badgers the tenants to keep looking at properties to buy as first or second time cash buyers in a postion to move.
The tenants then leave the rented property after 6 months or so into the property the agent has sold them.
The agent then suggests to the landlord that now is the time to sell as the tenants have left.
It represents good business for him (in financial services, its called churning) and for some landlords it works well.
For the majority of professional landlords however it results in lower returns from high voids, fees and refurbishment costs.
But then the estate agent is only interested in lettings whilst it suits him, not for the longer term.
There is a lot more to a solid Inventory than protection against loss or damage and reclaiming monies from a tenants deposit.
If the Inventory has been done properly by the landlord, Agent or Inventory Clerk, it will be snapshot of exactly what the tenant is taking and the landlord is giving. It will include the location of each item and the fact that items with working parts have been provided with Manufacturers In Use and Safety Instructions. Why?
I need to protect myself against litigation and a good Inventory is my best defence
If there is a fire and a tenant is hurt by smoke from a piece of furniture that does not have fire safe covering or filling – it was not on my inventory the tenant brought it with him
If someone trips and is hurt because furniture is badly placed – this is how I left it as you will see from my Inventory
If a tenant is hurt because he is using a piece of equipment that I have supplied – was it used in line with the Manufacturers recommendations? If it was it is the Manufacturers problem not mine. If it was not, why not because the information was given with the item
I never argue over a few pounds worth of damages or losses I prefer to pay 100% of my deposits back to my tenants BUT in an increasingly litigious society I need to cover my back.
I totally agree Mary, it makes virtually no difference whether the inventory is done by an agent, a landlord or an independent inventory clerk. I say virtually no difference as it comes down to two main factors; competence and cost.
We can all be competent with a phone App like Imfuna, it takes very little time and costs about £1. The end product is very professional and it would be difficult to say who had carried out the inspection.
Agree great article Mark. As a chartered surveyor specialising in management I cringe at the way some estate agents try their hand at lettings. Their lack of knowledge is astounding. As for getting the money back from custodial scheme, I know of one tenant still waiting to get her deposit back from a tenancy ended in December 2011. Give me insurance backed any time. Possession gives a far better negotiating position. In 5 years of deposit protection the only time I have been to adjudication is on behalf of my daughter at university where the agents were so bad they did not even bother to provide any evidence for their case
I totally agree – it is outrageous that 3rd party inventory companies are charging landlords hundreds of pounds and using the adjudication process relating to tenancy deposits to try and justify these charges. Imfuna is a great application that every landlord should take a look at!
Mark, I am not a letting specialist or an estate agent. But it strikes me as absolutely common sense for an estate agent to venture into lettings when the sales market is poor. After all, very few people will allow their business to fail without trying to generate new income streams. Whilst I agree it doesn’t make sense to place junior staff in this role, lets not pretend that letting or managing a property is rocket science. There are plenty of organisations that will support a lettings business even with the legislative aspect such as RLA. So in summary,I applaud estate agents for just having a go and NOT allowing their business to go to the wall.
Hi Robert, I guess we will have to agree to disagree!
It is like suggesting that a failing dental surgery should venture into giving General Medical advice to create more cash … or a failing Doctor should become a part time Denist!
They might generate a little more income …. they might still go bust anyway ….. and they might KILL THE PATIENT (ie: the tenant) along the way!
Hi Antony, Thanks for your feedback. The reason I immediately opted for the more costly insurance based deposit schemes (over the free custodial) was to maintain control of the money. If it was in my (ring fenced) client bank account – I didn’t have to write to anyone requesting it back etc etc – which means I could refund it to a fantastic tenant as I picked up the keys to the rental property.
Estate agents should continue to specialize in SELLING houses and they should leave the Letting agents to specialize in letting ……. but, of course, they won’t!
Hi Mark, I guess we will!
It’s nothing like suggesting a failing dental surgery giving general medical advice. Both dentists and doctors are highly trained and study for a minimum of 6 years before they are able to practice. Do you think a letting specialist would need as much training to get to the required standard? Besides, the basic skills of the customer facing side of lettings and sales is exactly the same you need good sales people that can execute the trade. Whilst the support and management function you need people with a good eye for detail to manage the paperwork. Simples!
Mary Latham who has been in the LL game for as long as a lot of us have been alive has posted about a scheme she runs for LA only who can communicate with her in confidence without fear of retribution in not knowing things.
This she does on the basis that it is better to educate rather than leave industry professionals in blissful ignorance.
In her advices without naming any names of course she has stated that many LA, some of whom have been in business for many years have and are getting things wrong.
Now this is not because of refusal or inability to learn, it is because it doesn’t matter how long you may have been doing things, it could still be wrong.
She gives tutorials to LL and LA and is always surprised, or rather not by now of how much LL and LA are getting wrong.
It therefore stands that a EA cannot easily become a LA from hitting the ground running.Yes you can have all the relevant custmer service skills, which if you are an EA is ntaken as a given; but a LA is a whole different ball game.
There are many, many hazards to trip up the unwary.
So I personally would NOT use an EA who has only recently commenced acting as a LL, no matter how swish the office is!!
Hi Robert – thanks for the continued debate!
The point is that a letting specialist is a _specialist_ in letting whereas an Estate Agent is a specialist in Sales. The Estate Agent sells a property – then moves onto the next deal.
The Letting Agent rents out a property, does all the LEGAL work, makes sure all the safety checks are done, maintains the property, collects the rent, keeps landlord and tenant happy to sustain the tenancy etc etc
Yes – the Estate Agent could learn the legal and safety skills and information required to become a letting agent (the same as a Doctor could cross train to be a Dentist) but, without cross TRAINING, the Estate Agent is not going to deliver the same level of specialism, or the same duty of care towards the landlord or tenant.
What does all this mean in practice – landlords probably getting large rent arrears because the EA is not equipped to track or chase them – the tenant put at risk because the required safety checks are carried out (because the EA didn’t know about them all) – landlord and tenant both compromised (because the correct legal paperwork not put into place).