If the buyer pays the agent’s fee, who is the client?

When the market became more buoyant a year or so ago, a number of mostly larger agents started offering to sell property at low fixed fees, sometimes under £200. Other agents, sensing an opportunity, jumped onto the bandwagon by offering to sell your home without charging you a fee at all! How can they do it? Well, in both cases it is based on the idea that the normal agency fee is paid by the buyer, rather than the seller.

This might sound great. You, the vendor, either pay nothing at all, or just a nominal “administration charge”, while the buyer picks up the main cost. Perfect! Except...remember the old saying: if something sounds too good to be true, then it probably is.

What is the catch?

Firstly, it often puts buyers off, ‘out of principle’. In other words, many buyers won’t even consider purchasing a property if it involves paying the agent’s fees – particularly if they are selling their existing home in the usual way, and have to pay fees on that half of the deal as well. Of course, historically, the seller is the client so why would the buyer want to pay for the service the seller gets?

Secondly, if you’re selling a first time buyer property, it could seriously limit the number of possible buyers. First time buyers generally have very limited funds at their disposal. Consequently, any additional expense will directly impact on the amount of deposit they are able to put down – which in turn will drastically reduce the amount they can borrow. In other words, by asking them to pay the agent’s fees, you may be making it impossible for them to buy your home at all. As it is not a part of the property price, the amount cannot be added on the mortgage either.

Thirdly, many buyers’ solicitors will advise their clients that there could be additional Stamp Duty due on the agent’s fee, since duty is generally calculated on the total amount of money (or “money’s worth”) paid – either directly or indirectly – by a buyer in order to acquire a property.

Last, but by no means least, there’s the little matter of conflict of interest. If the buyer is paying the agent’s fees, then who is the client? Can you really be confident that “your” agent is going to act in your best interests, when the bulk of his fee is actually being paid by someone else? There is no doubt that an agent will be compromised if the buyer is going to pay the fee. Even more so, if a group of potential buyers will not even look at the property if they think they will have to pay the agent on top of paying for the property itself...Can you the seller be sure you are getting the cream of the buyers looking in the area if a proportion of them are put off looking even due to this anomalous fee structure.

The Property Ombudsman has been deliberating on this for some time now and it would be good if the industry were to be given guidance on the potential for conflict of interest as soon as possible.

Paul Bonett f.n.a.e.a. m.a.r.l.a.