Ban on buy to let agency fee's for tenants

steampowered

Conrad wrote: »

I'm thinking Letting Agents will set up new Ltd Co entities specifically offering reference gathering and credit searches and still charge tenants via this non Letting Agent entity?

I could set up such a business easily myself, I have a lot of time to spare, but cant work-out whether Letting Agents would find a way to set up such a referencing firm themselves so they don't miss out on valuable income (a Letting Agent arranging 10 new lets per month is set to loose about £3k per month)

I have asked 2 agents their thoughts on my proposal

I suppose we'll have to wait until the details of the bill implementing the fees ban are available. But it sounds very unlikely to me that such a big loophole would be left open. Surely the bill will catch any fees which tenants are required to pay as a condition of getting a tenancy.

If this loophole were available, surely a company like Foxtons would set-up a non-regulated company and then force their reference checks to go through that company?

However I think there will be a market for landlords. I imagine letting agents will still charge landlords for setting up tenancies. If letting agents try to charge landlords for things like checking references, I am sure many landlords will either do it themselves or look for the cheapest option.

steampowered

Fella wrote: »

The notion that all letting agencies are earning fortunes for doing nothing is as typically misguided as similar ideas about other businesses. For example, most of the population seems to think that banks & bookmakers are both licences to print money. But if they were we'd all be buying shares in banks, bookmakers & estate agents.

I have been taking a look into letting agent financials. I wanted to work out whether I should take the opportunity to buy Foxtons shares given that their share price dropped about 40% this week.

It turns out that Foxton's operating margin (i.e. the profit made on sales) is 22%. This is extremely high. Its much higher than the margins of other businesses you'll see on the high street.

To give you a comparison, Tesco's operating margin last year was 1.7%. The typical operating margin for high street clothes retailers and coffee shops is about 5-10%. The typical operating margin for professional services businesses like law firms is about 20%. The operating margin of William Hill last year (you mentioned bookmakers) was 15.5%.

Foxtons also seems to have plenty of cash and is paying a healthy dividend.

The fact that Foxtons have such high margins and lots of cash suggests to me that the estate agent market is uncompetitive and that there is a lot of fat in the system. At least for the larger agents. For this reason I suspect most of the lost income from banning letting agent fees will be absorbed by the letting agents themselves, rather than absorbed by landlords or passed on to tenants through higher rents.

Thrugelmir

Mr.Generous wrote: »

do all the tenants out there realise the agents charge the landlord a fee too? they have a snout in both sides of the trough. Has anyone actually ever read the T&C's from Countrywide? they are unbelievable, they get a fee when the wind changes.

Do they? Or do they make themselves attractive to LL's by charging low fees. 2% of £450 is only £9 a month. Instead picking up a good upfront income on new tenants. A far more profitable route. Pays the rent as well. As a business model the lack of upfront charging will hurt cowboys agencies the most.

GreatApe

Conrad wrote: »

I'm thinking Letting Agents will set up new Ltd Co entities specifically offering reference gathering and credit searches and still charge tenants via this non Letting Agent entity?


I could set up such a business easily myself, I have a lot of time to spare, but cant work-out whether Letting Agents would find a way to set up such a referencing firm themselves so they don't miss out on valuable income (a Letting Agent arranging 10 new lets per month is set to loose about £3k per month)


I have asked 2 agents their thoughts on my proposal

Advertise a rental as £2000 for the first month and then £1000 for the next 11 months?

The additional £1000 for the first month is just the agents fee by any other name.

Blackpool_Saver

Often it's not the fees that are the problem, it is the 2 months rent up front that is the problem. Having said that some of the stories in this thread are shocking...

Thrugelmir

steampowered wrote: »

I have been taking a look into letting agent financials. I wanted to work out whether I should take the opportunity to buy Foxtons shares given that their share price dropped about 40% this week.

It turns out that Foxton's operating margin (i.e. the profit made on sales) is 22%. This is extremely high. Its much higher than the margins of other businesses you'll see on the high street.

To give you a comparison, Tesco's operating margin last year was 1.7%. The typical operating margin for high street clothes retailers and coffee shops is about 5-10%. The typical operating margin for professional services businesses like law firms is about 20%. The operating margin of William Hill last year (you mentioned bookmakers) was 15.5%.

Foxtons also seems to have plenty of cash and is paying a healthy dividend.

The fact that Foxtons have such high margins and lots of cash suggests to me that the estate agent market is uncompetitive and that there is a lot of fat in the system. At least for the larger agents. For this reason I suspect most of the lost income from banning letting agent fees will be absorbed by the letting agents themselves, rather than absorbed by landlords or passed on to tenants through higher rents.

Also means that any drop in revenue falls straight to the bottom line i.e. lower profits. As majority of costs are fixed. As with any change. Will take a while for the effect to filter through into published results.

Easy to say Lettings Agents can absorb the costs. Like salesmen in new car showrooms. They spend a lot of time with time wasters. Only a few actually buy. Those few pay the cost of the running of the operation.

steampowered

Thrugelmir wrote: »

Also means that any drop in revenue falls straight to the bottom line i.e. lower profits. As majority of costs are fixed. As with any change. Will take a while for the effect to filter through into published results.

Easy to say Lettings Agents can absorb the costs. Like salesmen in new car showrooms. They spend a lot of time with time wasters. Only a few actually buy. Those few pay the cost of the running of the operation.

Yes, I agree.

The point I am trying to make is that Foxtons is currently more profitable other high street businesses. Therefore I think they could absorb a significant loss in profits from lettings and they would still be a very profitable business.

With regards to used car salesmen, I looked up the financials for Arnold Clark. Arnold Clark's operating margin last year was 7.8% (this means Arnold Clark made £7.80 for every £100 they spent). Foxton's operating margin was 22%, which is much higher.

Admittedly some of the smaller letting agents might be less profitable. Perhaps they will struggle and we will see consolidation in the profitable big estate agents as a result?