"Rip-off" tenancy fees - Fight back!

Notoconsumerapathy

Gonzo1987 wrote: »

If tenant fee's are banned then rents will increase because the agent's will have to charge the landlord more, who will in turn, pass this onto the tenant.

I agree certain agents seem to charge a lot, but some, (like us) don't charge extortionate fees, but, fee's aren't at the forefront of a tenant's mind when looking for somewhere to live. We're not a charity, we have to do a lot of work on the tenant's behalf, not just the landlord to create a tenancy, so why shouldn't we charge for that service?

Fee's should be regulated, not banned.

The same argument was used in Scotland before the ban but Shelter say that several years on there has been no evidence to suggest this has happened.

princeofpounds

If tenant fee's are banned then rents will increase because the agent's will have to charge the landlord more, who will in turn, pass this onto the tenant.

This is not a correct assertion.


To make such a statement, you would need to know that the removal of fees would suppress agency profitability to the degree that they could no longer generate a sufficient return on invested capital to make it economic to continue.


Your assumption might be correct if all agents were operating in a highly competitive market where all excess economic profits are competed away. But I would contend the evidence is that they do not.


It's a not really possible to untangle sales and lettings, but a casual look can point to the proliferation of estate agents in many high streets, likely far more than needed to actually process the transactions.


Or we can look at something like Foxtons, earning something like 20% return on invested capital every year for the past few. Your typical FTSE company makes something more like 5-6% IIRC. You could take a whole chunk of revenue out of it before it had to look at actually cutting capacity

DandelionPatrol

Gonzo1987 wrote: »

If tenant fee's are banned then rents will increase because the agent's will have to charge the landlord more, who will in turn, pass this onto the tenant.

I agree certain agents seem to charge a lot, but some, (like us) don't charge extortionate fees, but, fee's aren't at the forefront of a tenant's mind when looking for somewhere to live. We're not a charity, we have to do a lot of work on the tenant's behalf, not just the landlord to create a tenancy, so why shouldn't we charge for that service?

Fee's should be regulated, not banned.

Really??? Fees are not at the forefront of a tenant's mind when looking for somewhere to live???

These fees plus the need to find a deposit, because the deposit has not been released from the last place can only be at the forefront of a tenant's mind.

Taken in combination with the poor security of tenure and short notice allowed under ASTs, renting is an unattractive option.

I would accept regulation of fees to tenants, but in these days of deregulation, I think it is more satisfactory to make the landlords bear the fees in an unregulated market on the Landlord side.

princeofpounds

I don't see that this is an issue and that that would solve anything.

Perhaps you suffer from a limited understanding of liquidity in markets then.


If you are dealing with an illiquid asset class, that demand for liquidity can be smoothed by increasing the time over which transactions can take place.


In practice, what does this mean? A common experience as a renter is receiving your 2 month notice. You go out to the letting agents, register, but have to spend 4 weeks doing nothing because all the properties are for people with earlier availability, as the LL doesn't want to sit around with a void waiting for you to turn up.


You then dive into a mad rush with a few weeks left to go, trying to find a place before you hit the wire. This reduces choice and encourages pressured decisions making - all factors that kill the genuine competitiveness of a market. And everyone who rents for an extended period knows the feeling.

This has nothing to do with tenancy law. This is about the contract between a landlord and his agent, which the landlord is free to negotiate.

I am not talking about interfering in a private contract. I am talking about potentially structuring tenancy law in such a way as to make redundant a procedure (tenancy renewals) which carries costs disproportionate to its value. It was just a speculative idea anyway, the thrust of the post is entirely about actually understanding how oligopolistic behaviour arises in the lettings market.

The letting market is not oligopolistic.
You might argue that in a given area the letting agency market is oligopolistic but then so would be many industries.

I didn't say it was oligopolistic. I said it had oligopolistic tendencies, which is a perfectly reasonable and correct assertion. Yes, this operates at a local level, but people rent on a local level so they are fully vulnerable to these effects.


Furthermore, the assertion that local oligopolies are perfectly acceptable because some other industries display them is a terribly weak defence of the market structure. An oligopoly is never a positive thing for developing fair and free markets, and wherever we can remove them, we should.

princeofpounds

Or we can look at something like Foxtons, earning something like 20% return on invested capital every year for the past few. Your typical FTSE company makes something more like 5-6% IIRC. You could take a whole chunk of revenue out of it before it had to look at actually cutting capacity

I just wanted to develop this line of thinking a little more.


Obtaining profitability levels likes this is quite remarkable really. In a 'classic' competitive industry, it arises from an excess of demand or shortfall in supply for a service. The super-normal returns stimulate investment in extra capacity, which compete away margins and reduce returns to the acceptable levels.


But I can honestly say I have never heard anyone come on these boards and say "I had such a difficult time searching for an estate agent with capacity to take on my business, I wish there were more estate agents around".

Mallotum_X

Dan-Dan wrote: »

Crap analogy , and you know it

Pick any business then

airlines
hotels
gas
water
electricity
house building
banking
cornflakes at tesco
coffee

the cost and the mark up to cover overheads etc generally bear little relation to each other.

Dont like it, then shop elsewhere. Force the end of the fees and pay them monthly instead though higher rents.

His_Dudeness

princeofpounds wrote: »

Perhaps you suffer from a limited understanding of liquidity in markets then.

No, the issue is that your proposal would not change anything.

A tenant stays an average of about 2 years (or in that range if I am not mistaken) and leave mostly because they decide to, not because they are forced to.
Therefore, either the tenant has the possibility to plan in advance, or he has to move quickly because whatever made him move was unpredictable and required quick action.

princeofpounds wrote: »

I am not talking about interfering in a private contract. I am talking about potentially structuring tenancy law in such a way as to make redundant a procedure (tenancy renewals) which carries costs disproportionate to its value.

Renewals and costs 'disproportionate to value' and entirely avoidable as it is.

princeofpounds wrote: »

Or we can look at something like Foxtons, earning something like 20% return on invested capital every year for the past few. Your typical FTSE company makes something more like 5-6% IIRC.

ROIC varies depending on the industry.

Some industries have average ROIC of about 20% or even higher. 15%+ is not extraordinary.
Heavy industries tend to have lower ROIC, and services higher ROIC.

Of course, if your business does not require massive amount of capital (e.g. if you start a letting agency) the return will tend to be higher than if you need to build a nuclear plant in order to sell electricity.

booksurr

Notoconsumerapathy wrote: »

I quite agree with you that stating something is fraudulent just because one doesn’t like the level of fees charged is quite clearly ridiculous.

That is not what I have said and certainly not what I meant.

I am well versed in the particulars of “fraud” and do choose my words carefully. One particular tenancy fee in my opinion could be potentially fraudulent when coupled with the conversation the individual has had with the estate agent regarding the charge. Certainly, dishonesty is present in my case as the reasoning for the charge explained and the practice I have since discovered do not match. Misrepresentations were made dishonestly but in doing so, are they trying to obtain an advantage they are otherwise not entitled to make it fraudulent?! That would be a grey area indeed although one argument would be to suggest that the fee itself could not stand up to scrutiny without the “dishonest misrepresentation” made in the first place.

I appreciate the feedback on my language used to convey the complaint and certainly hope my response has cleared the matter up regarding “fraud”.

OK. Your introduction of the word into what is otherwise a strong argument against "fees" charged to tenants was unnecessary and obfuscating. FWIW I support abolition of "double dipping" etc but do not consider their existence fraudulent since both LL and (in principle only) the tenant have a choice to shop elsewhere and an ability to research the market so as to remove misrepresentation of a charge's rationale.

Notoconsumerapathy wrote: »

I can assure you that a letting agent in a legal and commercial sense is most certainly NOT independent of the Landlord. They are paid a fee to manage the property on behalf of the Landlord and are accordingly the Landlord’s agent. That is the reason for their existence. They are not impartial middlemen regardless of where the property will be managed or not. I do not know what has ever led you to believe the estate agent is independent of the landlord.

You have misread what i said, a LA is an independent business who sits in the middle of 2 customers and whose sole agenda is to make money for themselves, that is the reason for their existence and is what makes them independent. Patently once in a contractual relationship with either customer there are of course dependencies which mean their subsequent actions are not without influencers which control the extent of those actions.

Notoconsumerapathy wrote: »

I do not have a lack of understanding of monopoly markets,

your apparent belief that charges should be commensurate with costs belies that assertion. In a monopoly the charge is the maximal that the customer will pay, it is not predicated on a % of the underlying costs. In a free market the price is what the market will support and the relationship with costs is simply whether the price is profitable

in summary I agree that the crux of your argument is the anti competitive position agencies hold when dealing with tenants, ie I support the Scottish model and therefore agents should not be able to charges fees to tenants. Landlords on the other hand can pick and choose and that ability means "fraudulent" charges will not stand as they will be competed away.

Innys1

Gonzo1987 wrote: »

If tenant fee's are banned then rents will increase because the agent's will have to charge the landlord more, who will in turn, pass this onto the tenant.

I agree certain agents seem to charge a lot, but some, (like us) don't charge extortionate fees, but, fee's aren't at the forefront of a tenant's mind when looking for somewhere to live. We're not a charity, we have to do a lot of work on the tenant's behalf, not just the landlord to create a tenancy, so why shouldn't we charge for that service?

Fee's should be regulated, not banned.

I presume you aren't an online agent. If you are, I apologise. If you aren't what do you offer which justifies charging several times what an online agent charges?

High St agents will soon go the way of the dodo and an element of reasonableness will return to fees.

Money_maker

The letting agents who are charging high fees to tenants will obviously be charging the landlords a high charge too. Do you really think that the tenants are taking the brunt of the charges?

Lets consider a student let. Up to 5 or so students from different geographical areas of the uk united by facebook or whatever to try to find a house to rent. They can perhaps get together just once or twice as they may have large distances to travel. So they check out the letting agents and take a look at whats available. The majority are dives but one place looks ok. So they express their interest to the agent. A few days later, the agent asks for a deposit and lists their charges. So this is the stage the students realise the agent wants over £700 EACH in fees and charges. Extortionate, you say. But get this, student houses are only just starting to get back on the market, there's only a short time to go until uni starts, there doesn't appear to be a flooding of properties on the market judging by the numbers of students still looking and the chances of getting everyone together again to househunt looks remote.

Thats how they get away with it and the parents bite their tongues as the dont want to rock the boat for the other students. Now dont tell me that they dont charge the landlord over the top for the priviledge of providing tenants.

And thats the short story leaving out all the admin errors that had to be sorted out.