Why Estate Agents Shouldn't Undervalue Their Fees: Strategies for Maximising Profitability

When it comes to discussing fees with homeowners for selling their property, many estate agents might be surprised to learn that the fee they charge is often a bigger concern for them than it is for the seller. Estate agents across the country could generally charge higher fees if they simply asked for them from the outset.

Currently, UK estate agents charge one of the lowest percentages in the world. Fortunately, estate agency fees in the United Kingdom are gradually increasing. Nevertheless, the average fee still hovers around 1.2% + VAT of the selling price, which is far from impressive.

It's important to note that the fee charged by an estate agent usually comes from the home's value. This means the fee is derived from the equity the sellers have accumulated due to market appreciation rather than any hard work on their part. Hence, charging a higher fee should not be seen as unreasonable.

There is a common saying in the sales world: "You can always negotiate your fee down, but you can seldom negotiate it up." This is especially true in the estate agency business. Imagine walking into a property, having a successful appointment, and confidently stating your fee is 1% + VAT of the agreed sale price. It's highly unlikely that the homeowner will suggest paying you more than that. Therefore, it makes sense to set your fee higher initially. This way, if the owner haggles, you have some flexibility to negotiate down, but if they don't, you secure a higher fee than expected.

There are three areas where people commonly believe they can haggle: buying a car, purchasing souvenirs on holiday, and estate agency fees. Consider the scenario of buying a car where the salesman offers no flexibility on the price. If it's the car you want, you'll likely pay the price. Similarly, if you are confident in the value you bring as an estate agent, homeowners will agree to your fee, especially if they see you as the most expensive but also the best option.

Even if you believe in the value of your fee, some homeowners will try to negotiate it down. If you have a full schedule and sufficient business, you have the power to walk away from deals that don't meet your fee expectations. Demonstrating confidence and a lack of desperation can make homeowners more eager to work with you.

Another tactic is to include additional services in your selling package that you were already planning to offer. For example, you might offer a social media video or a premium listing on a property portal, presenting it as a bonus when it was part of the original package. This makes the homeowner feel they are getting more value.

Understanding your costs is crucial. Many business owners underestimate the cost of selling a property, which can lead to losses. Calculate the average home value in your area, determine the average fee, and subtract all costs associated with gaining the instruction and selling the home, including portal costs, listing fees, completion fees, board costs, fuel, time spent on viewings, and your personal hourly rate. This will give you an idea of the actual cost of selling a home.

With this information, you can establish a minimum fee to ensure profitability. This should be a cash figure, not a percentage, to prevent undervaluing your services. For instance, if your minimum fee is £4,000, any property where your percentage fee falls below this amount should default to the minimum fee.

Next, focus on the financial outcome for the seller rather than just your fee. If you consistently achieve closer to the asking price than other agents, emphasise this to homeowners. Convert percentage gains into actual monetary amounts to make the value clear. For example, if you achieve 99% of the asking price while others achieve 97%, translate this 2% difference into a specific cash amount. Most homeowners will be more impressed by the potential additional money they could receive.

Speed and timescale can also be significant factors. If you are the fastest-selling agent in your area, highlight this advantage, especially if the homeowner needs to move quickly. They might prefer to pay a higher fee for a faster sale.

Most UK estate agents' fees are payable only upon completion of the sale. Therefore, ensuring your fee is worth it is crucial. Consider offering a scaled fee structure, where your fee increases with the selling price. This incentivises you to achieve the best possible price for the homeowner, creating a win-win situation.

Finally, clarify what the seller will walk away with after the sale. Deduct your fee and any other fees from the expected sale price to give a clear picture of their net proceeds. If the seller is unsure about other costs, such as solicitor fees, this is an opportunity for you to offer additional services, potentially generating more revenue for your agency.

By confidently setting higher fees and effectively communicating the value you bring, you can enhance your estate agency's profitability and reputation, making you the preferred choice for homeowners looking to sell their property.