23:32 PM, 15th July 2012, About 11 years ago 18
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.
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9:23 AM, 16th July 2012, About 11 years ago
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.
16:55 PM, 16th July 2012, About 11 years ago
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
17:30 PM, 16th July 2012, About 11 years ago
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 :-))
16:32 PM, 16th July 2012, About 11 years ago
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?
18:01 PM, 16th July 2012, About 11 years ago
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.
18:23 PM, 16th July 2012, About 11 years ago
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.
18:08 PM, 16th July 2012, About 11 years ago
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.
19:54 PM, 16th July 2012, About 11 years ago
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.
Mark Alexander - Founder of Property118
20:11 PM, 16th July 2012, About 11 years ago
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.
20:37 PM, 16th July 2012, About 11 years ago
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.