When estate agents start talking about fee hikes , you know the property boom has peaked, writes Paul Cullen, Consumer Affairs Correspondent
Here's a basic law of economics; when times are tough, businesses trim their costs and cut fees to bring in more custom. But not so in the world of Irish property, where the market slowdown has set estate agents and auctioneers thinking about how they might maintain revenue by increasing their fees. This week, the Institute of Professional Auctioneers and Valuers (IPAV) was reported as suggesting that fees might go up by as much as one-third, adding €1,750 in estate agents' fees to the cost of selling an average house.
Facing into a storm of criticism and derision, the head of IPAV, Fintan McNamara, spent the week qualifying his remarks. While not denying he had suggested fees might rise from an average of 1.5 per cent to 2 per cent, he now says his original comments were taken "out of context".
"We're not pushing for a rise in prices; we just don't see them dropping any further than they are at present," he told The Irish Times.
Yet the genie was out of the bottle, and many in the industry were happy to confirm, privately or publicly, that fees are going to rise.
"Something has to give," one estate agent said. "We're selling fewer houses and it's taking more effort to shift them. That has to be reflected in our charges." Keith Lowe of Douglas Newman Good acknowledges it's likely fees will "creep up" from "ridiculously low levels caused by competition. A few years ago, you could sell houses in weeks; now we're talking months, and marketing and a local presence are increasingly important."
No one has ridden the high waves of Irish property price increases over the past decade better than estate agents with their percentage-based fees. You or I might get lucky once when we sell our home and move on, but the estate agent gets lucky every time. And as house prices went though the roof, so did agents' commissions.
Industry representatives counter that fee levels have fallen over this time, from an average of 2 per cent in the early 1990s to around 1 per cent now in Dublin (fees outside the capital are higher, typically about 1.5 per cent). Yet this is more than offset by the massive increase in the price of property in this period.
The industry also cites figures from its European umbrella body that show Irish commissions are the lowest in Europe. However, this research was based on Dublin sales, where competition and high prices have driven fee levels down lower than elsewhere. In addition, Irish house prices are higher than in most other countries, so agents' commissions are also higher.
A booming market didn't tax the ingenuity of agents in persuading property-mad buyers to cough up the readies. "With the market in a frenzy, as it was this time a year ago, you didn't need much skill to sell a property," McNamara admits.
No wonder there was so little sympathy around this week for the profession. The expressions "money" and "old rope" come to the public mind: "I nearly crashed my car when I heard this," mused one contributor to the finance website askaboutmoney.ie about the mooted 33 per cent increase, which prompted another mailer to ask: "so does this mean you can ask for a 33 per cent refund in any fees that were paid over the last 10 years as the agents didn't have to work as 'hard'?" McNamara acknowledges his profession is down there with builders and lawyers in the low popularity stakes but he claims that "we're just making a living like anyone else".
"People think estate agents are driving around in Rolls Royces. Well, some are, but most are just having a reasonable life. Besides, there was no-one lining up to offer sympathy to us when times were hard in the 1980s," says Alan Cooke, chief executive of the Irish Auctioneers and Valuers Institute (IAVI). It represents most of the big Dublin auctioneers while IPAV's stronghold is outside the capital.
Both organisations are hoping for a shake-out of what Cooke terms "fly-by-night" operators, naturally not members of his organisation.
It is, says Cooke, ridiculously easy to set yourself up as an auctioneer and the number of licences issued, at a cost of €12,700, has doubled in the past five years.
"You can be a hairdresser or a taxi-driver today and an auctioneer tomorrow, and these guys are underselling themselves," says Lowe.
What he has in mind are small operators offering fees as low as 0.5 per cent of sale price. This kind of competition has forced the largest auction houses to revise their fees downwards, if not on their brochures then in individual discussions with sellers.
In Dublin, particularly, the competition is so fierce that there are cases where estate agents have waived their fees for selling houses with particularly prestigious addresses in order to keep the competition off the road. (The recipients of this remarkable generosity are presumably the hard-as-nails high-earners who manage not to have any tax to pay each year.)
Talking it up is second nature in the property business, but even experienced professionals are strangely muted about the current state of the market. More than 80 per cent of auctions resulted in withdrawals at the end of the last year, so not surprisingly the number of houses going to auction this spring is down 60 per cent.Meanwhile, prices are being cut as the lists of unsold houses grow: €35,000 off a two-bed in Dublin 8; €75,000 off a three-bed apartment in west Dublin. Both IPAV and IAVI deny any detailed knowledge of the fees charged by their members.
If last year's property market was a game of two halves - frenetic in the first six months and moribund in the rest of the year - this year is shaping up already as a scoreless draw. Cooke says a lot will depend on the coming Dublin auction season which, while not representative of the broad spectrum of properties for sale, acts as an indicator for the state of the industry.
"Business must pay its way. To pay staff you need income coming through the door," he says. "Layoffs may be a reality if the market turns, but it's far too early to say that now." Last year, the Minister for Justice, Michael McDowell, made a substantial contribution to the market slowdown by suggesting there might be reductions in stamp duty in the Budget; buyers simply waited to see if any benefits came their way (some did, but not in the form of stamp duty reductions).
Now, with the election looming, a similar appeal to populism could have the same effect.
"We certainly want to avoid a second dose of that," says Cooke. "You could kill the property market dead for six months if people thought stamp duty was going to fall after the election."
Selling? Well, here's the deal
Shop around:fees vary widely, as do levels of service. Cheap is good but cheapest isn't necessarily the best.
Incentivise your estate agent:by agreeing to pay a bit more if certain thresholds are reached - obtain details of all charges in writing before putting the house up for sale.
Sell the property yourself:this involves more leg work, but saves significantly on costs.