A 21st Century Letting Agent

by Roger Lancaster

11:51 AM, 17th January 2012
About 7 years ago

A 21st Century Letting Agent

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A 21st Century Letting Agent

What should a landlord expect?

ARLA have been complaining that the Government should regulate Letting Agents in the same way they have done for Estate Agents. They may have a case, but ARLA standards are still pretty minimal compared to what the best agents are providing already. Landlords often make their own bed by going for the cheapest headline option without looking in detail at the service being provided. Added to which Grant Schapps and the government are not minded to regulate in the near future and with the current state of the economy, I believe they have more important issues to attend to.

So what should a Landlord expect of a 21st Century Letting Agent?

First of all what is crucial to the Landlord to maximise the income from their properties.

  1. Maximise Rent Year on Year
  2. No Arrears
  3. No Void periods
  4. Minimal Repairs

Therefore the 21st Century Letting Agent must be working towards these goals on behalf of the Landlord. The problem is that for many agents these goals do not align with their own goals and, being charitable, in many cases are clearly not understood by the new breed of Letting Agent.

Landlords own an asset which they hand over to a letting agent to run (note not manage) for them and it is in this crucial aspect that a 21st Century Letting Agent will differ. Asset Management is the art of managing an asset to maximise net income from it while protecting the security of the asset. Most (not all) letting agents run a portfolio to maximise profit from it for themselves rather than maximising the net income to the Landlord.

Usually the lower the basic fee, the more ways the agent will find to generate other income from the properties they ‘manage’ which is all very well but it must be transparent what those charges are right from the outset. Unfortunately, in many cases it resembles the chaos and confusion of the energy industry with landlords being unable to compare like for like. Neither should agents take kickbacks from supplier as it works against the landlords best interest. Therefore, it only goes to say that if a regular turnover of tenants increases their profit, an Agent will not be looking for long term tenants which are the most profitable for the landlord. Longer tenants means fewer finders fees and fewer voids and it also means fewer refurbs and repairs on which the agency may also make a margin. A 21st Century Letting Agent should ONLY charge a single finders fee in any 18mth period following the induction of a tenant and the commission fee as a % of the gross monthly rental income, with any other chargeable activities clearly and transparently set out. Then, if with truly comparable data this results in proper price competition between agents and drives fees down and or the 18mths to 2 years so much the better. Voids are the cancer that eats away the profits on a property in lost rent and refurb costs so by only making these their charges totally transparent the agent is incentivised to find long term tenants. Anything less than 18mths and the Agency loses money as well as the landlord.

If all lettings agents adopted this strategy alone it would revolutionise the industry at a stroke and allow landlords to make really effective comparisons between agents.

But that is not all a 21st Century Letting Agent/Asset Manager could and should be doing to provide the real level of service landlords should expect in the modern era and I will expand on these in the next part.



Comments

Ian Ringrose

10:51 AM, 19th January 2012
About 7 years ago

If ARLA were to define a
“key facts” sheet (no more than two pages of A4) that set out the charges an
agent makes and the service they provide in a standard format it would be a
great start.   ARLA could then hold
agents to account if they did not provide the services that were listed on the
fact sheet or made charges that were not listed.

 

I still for example
don’t know our agents how far they will take action against a problem
talent before expecting the landlord to pay legal costs.  A “pick list” of a few levels of services on
each type of issues defined by ARLA, so least the wordings were standardised
would help landlords a lot.  (Likewise
some agents will charge an easy to reach light bulb in an empty property
without charging, but others claim they must send in a trade person to do it)

 

As a thought experiment,
it would interesting to see how an agent would act if they were paid on the
bases of a fixed fee per month, and a percentage of our  long-term “profit” over a given amount excluding
the costs of mortgage payments. 

John Gell

12:35 PM, 19th January 2012
About 7 years ago

Roger's views are similar to mine, and this makes a heartening read.  A professional agent's prime obligation must be to his client.  See

8:46 AM, 20th January 2012
About 7 years ago

It has been mentioned before but a LA's business model is to make as much money for himself; that does not translate into looking after the LL's interests.
This what an agent Should do but;  they don't.
Estate Agents actively work as hard as possible to obtain the best possible price for the seller.
Whereas the LL expects to keep the costs as low as possible.
The business relationship is therefore fundamentally flawed and as a consequence a LA will never work hard to reduce a LL's costs.

8:20 AM, 21st January 2012
About 7 years ago

Hi Paul
This is exactly my arguement that unless an agent is fundamentally paid in a way which aligns his goals with those of the landlord and this is totally transparent the landlord will not be able to judge. Ians comment is interesting re profit as this would certainly align the goals. The biggest issue is transparency and that needs account access by the landlord at a level of details letting agents either can't or do not want to provide. You will be interested to read are later issue on this particular aspect.

8:24 AM, 21st January 2012
About 7 years ago

I like the idea of profit share and it may be something a fporward looking organisation would consider. The problem for most Landlords is they never get a detailed breakdown of the charges and expenses or see them early enough to do something about it. Comes down to transparency of charging and reporting which I deal with in a later issue.

21:21 PM, 21st January 2012
About 7 years ago

So perhaps a useful business model that LL could trust would be the IFA one or rather the regimene for IFA's coming in at the end of this year.
I think a fixed fee scenario would be attractive to LL but of course this could leave the LA out of pocket if he has issues with the properties which cost him.
Perhaps LA would then be more selective over which LL and properties they choose to take on.
Rather than the case at the moment in taking everything and charging ridiculous charges to the LL

Mark Alexander

21:58 PM, 21st January 2012
About 7 years ago

Hi Paul

If the only fee was a percentage of rent collected then letting agents would be inventivised to collect as much rent as possible and to minimise voids. It would also be easier for landlords to compare charges. If letting agents were also compelled to declare their average void days period (e.g. an average of X days per annum across their entire portfolio) and these figures had to be independently audited this would also provide transparency. The problem is that there are so many varieties of charging that it's virtually impossible for landlords to make good comparisons. I've seen agents charging as little as 5% and as much as 18% but is that a basis to compare? Actually no, the agent charging 5% may heap a whole load of extra charges on to a landlords account and be useless at letting properties, thus subjecting the landlord to huge voids and costing the landlord a lot more than 18% of potential rental income. I don't think the RDR method which is to be imposed on the IFA sector would work for landlords because charging for time spent would encourage agents to make a meal of the smallest issues and could result in similar complaints to those often directed towards the legal professions.

13:56 PM, 22nd January 2012
About 7 years ago

Regarding making a meal of things; perhaps the LA should charge a set fee for those smallest issues and if he overruns then the cost is down to him.
This would concentrate the LA's mind on producing a transparent tariff and ensure he is as efficient as possible .
There are clearly going to be times when issues are completed before the allotted period and of course some will overrun; but with the swings and roundabouts he he should come out at worst even or possibly even on top.
Having such a tariff menu would concentrate the LA's mind on cost efficiency and provide clear differentials to other LA's charges.
However the more issues I see with LA's the more I think they should be regulated.
Perhaps in association with the Good landlord scheme you are working on we could have a good La scheme with best practice procedures to be adhered to?

Mark Alexander

14:23 PM, 22nd January 2012
About 7 years ago

Hi Paul, the Good Letting Agents scheme is already there. Pretty much everything I have in mind for the good landlords campaign is already functional in our Directory, the only difference being, full membership of this costs £25 + VAT per month. It's a great marketing scheme for letting agents too. Thanks for your suggestions to develop the scheme but it was never our intention to become a regulator.

21:04 PM, 22nd January 2012
About 7 years ago

Hi Mark,
As well as void days I think agents should have to declare the level of bad depts, so as to make these numbers meaningful the mix of tenant types will also need to be declared in a standard way.  Somehow the rents the agents get relative to other agents also needs to be declared, as otherwise an agent could get very low void days just by asking for a rent that is greatly below the market.
Stats can be so meaningless in isolation…
Including a copper bottom unpaid rent and damage insurance in the management charge at least would make the agent responsible for their actions in choosing the talents.  (But that would cost more than the standard 10%)
As the agent chooses trade people and control their costs maybe the cost of normal repairs should also be covered by the management charge.I agree with Paul that charging for time spent is not the way to do, as a good agent stops problems before they take a lot of time/money to sort out.

The more I think about this sort of thing, the more inclined I would be to self manage if our two properties were within easy reach of us.

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