What A Joke - Estate Admin Fees

Pixie5740

The whole rental market isn't facing increases in costs though. It's only those landlords who choose to use a letting agent that could potentially end up with increase costs. Just like it's only those landlords who bought/are buying properties after 1st April 2016 that have to pay the additional 3% SDLT. That doesn't mean that those landlords paying more SDLT or higher letting agency fees are able to charge more rent than landlords who don't use a letting agent or paid less SDLT. There is a market cap set by supply and demand. Tenants aren't going to pay £750 a month for a property when the same kind of property in the same area can be rented for £720.

Since you chose oil let's look at Aberdeen. My colleague's father is a landlord in Aberdeen. When oil prices were high and people were flooding into the city because there was an abundance of jobs he could let the property for £1,200 pcm no bother at all with no void periods. People were biting his hand off to let the property. Roll on 2015 and that flat has been sitting empty for just over a year even though he has dropped the rent to £900 pcm. Have his costs decreased by 25%? He wishes. There are less jobs due to the downturn so workers are moving out of the city. It's simple supply and demand.

MyOnlyPost

I wasn't refering to the SDLT raise, I haven't bought a house since this change but as it is a capital cost it would go in my capital account. I would factor this in along with fees surveys etc to the total cost of purchase to work out the yield and decide whether to buy. The only likely change this will have on any future purchases (I'm not planning any) will be I will offer less for the houses I want as a cash buyer and try my luck.

I was referring specifically to the restricitng of finance cost on buy to let (I am not asking anyone to feel sorry for them before anybody chirps in). If we take 2 different types of landlord there will be a signifcant proportion of middle class people in the 40% tax bracket from work who have a single BTL as an investment with a mortgage. On the other end of the scale there will be a much smaller section who have multiple BTL and leveraged to the max. Due to affordability checks and other factors I would think I am in a minority of landlords who paid cash for houses and as a landlord isn't in and won't be pushed into the 40% tax bracket (my opinion, may be wrong).

It is not just the talk of switching fees on to landlords, this is just the latest in a long line of adding to landlords costs and it is always assumed by the masses that they should just be absorbed. It is not a large expense and can be done yourself but as an example of more legislation how many homeowners carry out a legionella risk assessment every two years? If you have a combi boiler and therefore no standing water the risk of legionella is negligible but you still have to do it. Landlords are now expected to nanny their tenants, compulsory provision of CO alarms in certain circumstances, Gas safety cert every year, EPC's, expenses that homeowners very rarely choose for themselves. I am not saying safety isn't important but their has to be some personal responsibility and every piece of new legislation aimed at landlords has a cumulative effect

Of course their are other factors in play, the same can be said of any business. Yes there will be a cap to what people will pay and that will vary by area. Whilst ever costs are being driven up though the end result will always eventually be the same and average rents will increase.

Earlier you alluded that landlords can just sell up, but it isn't that simple. Faced with a choice of selling up at a loss or increasing rents to cover increased costs I think you know which way most people would go. Those who got in years ago and are sitting on equity have that option but not everyone.

Finally if you are charging £750 for a house that is £720 comparable down the road you will still likely get a tenant in most areas. Once all the £720 properties are gone and yours is the only one left what choice does the tenant have then? And as demand outstrips supply in most of the country there will be someone who will pay. Once you have a few people paying £750 that becomes the new norm.

leslieknope

MyOnlyPost wrote: »

It is not a large expense and can be done yourself but as an example of more legislation how many homeowners carry out a legionella risk assessment every two years? If you have a combi boiler and therefore no standing water the risk of legionella is negligible but you still have to do it. Landlords are now expected to nanny their tenants, compulsory provision of CO alarms in certain circumstances, Gas safety cert every year, EPC's, expenses that homeowners very rarely choose for themselves. I am not saying safety isn't important but their has to be some personal responsibility and every piece of new legislation aimed at landlords has a cumulative effect

you are providing a service and thus you should be expected to make sure the service is safe. it's not nannying your tenant, it's making sure they're not going to become ill or potentially get blown up in your property while PAYING you. would you expect to check your own food is cooked correctly in a restaurant? or would you expect that as you're PAYING for a service, it's going to be safe to eat? nobody cares what you do in your own kitchen. poison yourself with undercooked chicken to your hearts content, but you cannot do that to a paying customer.

MyOnlyPost wrote: »

Once all the £720 properties are gone and yours is the only one left what choice does the tenant have then? And as demand outstrips supply in most of the country there will be someone who will pay. Once you have a few people paying £750 that becomes the new norm

this is why rental costs are spiralling. sigh.

MyOnlyPost

MyOnlyPost wrote: »

It is not a large expense and can be done yourself but as an example of more legislation how many homeowners carry out a legionella risk assessment every two years? If you have a combi boiler and therefore no standing water the risk of legionella is negligible but you still have to do it. Landlords are now expected to nanny their tenants, compulsory provision of CO alarms in certain circumstances, Gas safety cert every year, EPC's, expenses that homeowners very rarely choose for themselves. I am not saying safety isn't important but their has to be some personal responsibility and every piece of new legislation aimed at landlords has a cumulative effect

leslieknope wrote: »

you are providing a service and thus you should be expected to make sure the service is safe. it's not nannying your tenant, it's making sure they're not going to become ill or potentially get blown up in your property while PAYING you. would you expect to check your own food is cooked correctly in a restaurant? or would you expect that as you're PAYING for a service, it's going to be safe to eat? nobody cares what you do in your own kitchen. poison yourself with undercooked chicken to your hearts content, but you cannot do that to a paying customer.

You miss the point. My argument with Pixie is not abut the legislation but who bears the cost of it. All this legislation is built in to private rents. As a homeowner I can chose whether to get an annual CP12 Gas Safety Certificate at my cost, as a tenant that choice is taken away. The governement decides my landlord must do it and I then pay for it within my rent

Maybe you are happy with this higher rent for the sake of tenant safety, but I feel that the tenant should have the same right as a homeowner to only pay for this if it's something they want

MyOnlyPost wrote: »

Finally if you are charging £750 for a house that is £720 comparable down the road you will still likely get a tenant in most areas. Once all the £720 properties are gone and yours is the only one left what choice does the tenant have then? And as demand outstrips supply in most of the country there will be someone who will pay. Once you have a few people paying £750 that becomes the new norm.

This was in direct response to Pixie to illustrate that governement legislation on the private rented sector helps to fuel rent inflation

leslieknope wrote: »

this is why rental costs are spiralling. sigh.

This remark illustrates you agree with this, so why the sigh?

If the governement just stopped legislating against the private rented sector then maybe we would see a slowdown in rent increases and they could even encourage lower rents through positive legislation as they are planning to do with institutional investors which will have far less impact then if they did it for the PRS as well

MyOnlyPost

Pixie5740 wrote: »

You don't even need to wait for 3 months unpaid rent before taking a tenant to court under the current legislation so why would you want to string it out even longer?

I missed this earlier and you have deliberately misrepresented what I said. You make it sound like you can regain posession of your property within 3 months which you clearly can't and I have seen you advise tenants many times on how long eviction takes

I said it should be much quicker to get an eviction in these circumstances. Businesses do not allow customers to keep running up a debt when they have already reneged on their existing commitments and reached their credit limit. The customer has to make other financial arrangements to clear the debt before being allowed to continue trading with the business.

I also said it should be much harder to evict in other circumstances but you chose to ignore that. I have stated on several occasions on this board that when a tenant pays their rent and respects the property there should be a mandatory 12 months notice for repossession. I presume you ignore this as it doesn't fit with your narrative that I am unreasonable?

Pixie5740

Nothing you've posted MyOnlyPost suggests that business costs are more significant than supply and demand in determing rent levels. In fact most, if not all, of what you have posted confirms that supply and demand is the main driver. If demand for rental properties isn't great enough in a particular area or there's too much of a supply then it doesn't matter what business expenses the landlords in that area have the market sets the rent.

Much like the oil industry. Supply of crude oil increased and the price tumbled. It had nothing to do with how much it cost the Operators to extract the oil.

MyOnlyPost

I don't recall ever saying business costs are more significant than supply and demand. I have only ever stated that when you add costs to a business through increased legislation that the business will seek to mitigate these costs by whatever means necessary. I was working on the assumption we were talking about avergae rents across the sector as opposed to individual rents, but yes I have also referenced my own situation. It is because demand for rental property so far outsrips supply (especially in the areas with the highest percentage increases) that in the vast majority of areas these additional costs can passed on to the tenants.As the governement continually discourages new investment from the PRS and we see some landlords already starting to sell their portfolios the supply is going to dwindle further which is likely to further able landlords to incorporate new costs into rent increases.

I don't think you have grasped that I am on the side of the tenant in all this. I believe that legislation against the PRS increases costs to tenants and this is why I am against it, not because it eats into my profits. I am all for the governement legislating on extortionate fees charged by some letting Agents to tenants, but in a way that doesn't end up with other tenants paying more through increased rents. Clearly some tenants will be better off if they don't pay the very high up front fees and only a relativley marginal increased rent, however as I have ilustrated some tenants that are currently paying lower up front fees may find themselves worse off in the long run.

Pixie5740

We're going round in circles. You can believe whatever you want even if that belief is not backed up the evidence of what happened when letting agent fees to tenants were made unlawful in a very similar private rental market to that in England. I know what effect the removing the fess to tenants had because I actually lived through it.

I'm glad we can both agree that rent levels are driven by supply and demand rather than the business expenses a landlord might be facing.

steampowered

MyOnlyPost wrote: »

Businesses very rarely absorb costs. They may for a short while but not in the long term.

Your analysis is very simplistic. I also think it is wrong in the context of the market you are talking about - we are not talking about a commodity market here. The impact of revenue changes on pricing depends entirely on the nature of the business.

Low margin businesses operate in a world where the price is determined by the cost of supply and tend to pass on price increases.

High margin businesses operate in a world where price is determined by demand and prices do not track the cost of supply.

Letting agents have very high margins. Foxton's operating margin (i.e. the profit made on sales) is 22%. This is extremely high in comparison to other high street businesses.

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%. William Hill is at about 15%. The typical operating margin for a city law firm would be around 20%.

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.

Letting agents may try to recoup costs by passing letting fees onto landlords. But I don't think landlords will accept it as they are in a position to negotiate. The key watchword here is "competition".

MyOnlyPost

Pixie5740 wrote: »

I'm glad we can both agree that rent levels are driven by supply and demand rather than the business expenses a landlord might be facing.

Again you misquote or misrepresent me for the purposes of your argument. I'm glad we can both agree that rent levels are primarily driven by supply and demand [STRIKE]rather than[/STRIKE] as well as the business expenses a landlord might be facing.

Pixie5740 wrote: »

We're going round in circles. You can believe whatever you want even if that belief is not backed up the evidence of what happened when letting agent fees to tenants were made unlawful in a very similar private rental market to that in England. I know what effect the removing the fess to tenants had because I actually lived through it..

I'm sorry but you don't know because you can't show evidence of a) what would have happened to rents without the changes or b) how rent increases since the change have been driven.

As an illustration a one year rent increase of 6.6% may be 4% market driven and 2.6% down to increased costs, therefore would have only been a 4% increase otherwise. 2.6% of £800 pcm = £249.60 pa which would cover the fees of some agents

steampowered wrote: »

Your analysis is very simplistic. I also think it is wrong in the context of the market you are talking about - we are not talking about a commodity market here. The impact of revenue changes on pricing depends entirely on the nature of the business.

Low margin businesses operate in a world where the price is determined by the cost of supply and tend to pass on price increases.

High margin businesses operate in a world where price is determined by demand and prices do not track the cost of supply.

Letting agents have very high margins. Foxton's operating margin (i.e. the profit made on sales) is 22%. This is extremely high in comparison to other high street businesses.

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%. William Hill is at about 15%. The typical operating margin for a city law firm would be around 20%.

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.

Letting agents may try to recoup costs by passing letting fees onto landlords. But I don't think landlords will accept it as they are in a position to negotiate. The key watchword here is "competition".

I appreciate your analysis which is very good but as I said previously I am an economist so I am aware of the things you point out. I was saying, and have said multiple times that landlords (whos margins may be wafer thin if they have finance and are in the 40% tax bracket) will not absorb the costs if passed to them. I was not referring to estate agents.

I have just clarified that some EA's have extortionate charges, but not all. Some tenants currently pay relatively low upfront charges when taking a tenancy. If some agents are forced to lower their fees because they can only charge them to landlords and the landlords then negotiate lower fees due to increased competition then yes there will be some tenants who will be better off paying a marginally higher rent and the average fees across the sector may well fall. BUT I have illustrated that some tenants may find themselves worse off if the fees are loaded to the rent instead of upfront. It is my hope that whatever the governement does about fees it shouldn't make any tenant worse off

I don't know how to make that point any clearer.