marylsommers: The estate agent's gravy train speeds on

Saturday, November 5, 2011

The estate agent's gravy train speeds on

Percentage charges mean estate agents, and investment managers, are earning more while doing less

Ten years ago Christian Harper was working at estate agents Foxtons in the Chiswick area of west London. It's upmarket, and one of the homes he helped sell went for �302,000. The firm collected a fee of �6,000, which he thought reasonable given the amount of work involved ? these were pre-internet days, which meant spending a fair bit of time and effort on brochures and local newspaper advertising, on top of the business of valuing, showing people around and negotiating.

Fast-forward eight years. House prices, particularly at the top of the market, have galloped ahead. The house went back on sale, with alterations and improvements, at �2m. Harper estimates that the fees earned by the agent from the sale were a cool �40,000. Yet less legwork would have been needed, he says. "The investment in marketing the house would probably be less as most marketing is internet-based. I am not aware of any other industry that could charge �34,000 more for doing less work, just because of market prices ? outrageous! I have debated this point many times and, to date, not one agent could justify why they charge double the price to sell a house at �1m compared with one at �500,000."

Estate agency remains a cash cow, he says, with two new agencies opening in Chiswick over the last year despite a fall in transactions. His agency, Oliver Finn, charges fixed fees. This week, Money highlights the huge fees earned by the investment managers, despite paltry returns for so many investors over the last decade. Again, the gravy train has been driven by percentage fees. Ten years ago, the retail financial services industry earned about �4.5bn from managing about �300bn in assets. Those now total �600bn, and the disclosed fees around �9bn. Does it require much extra work? Not really. And, remarkably, the industry has even managed to raise the percentage it charges. To echo Harper ? outrageous! ? Two weeks ago I wrote a column on a think-tank's report highlighting the 25m spare bedrooms in the UK, many owned by pensioners in houses far too large for them. I wasn't advocating booting people out of their homes, but judging by the complaints, that's how many readers viewed it. Not least my own parents. My mother, 78, felt compelled to write her first letter, in the form of a poem, to the Guardian. I feel a filial duty to publish it.

"Dear Son. Remember this: A house is built of bricks and mortar/but a home is formed by love and caring/the joys, the sadnesses and the sharing./We know you will care for us, when our time is near/but here in our home, which we hold so dear."

OK, Mother, you can stay on a few more years ? Oops, I think I just kissed goodbye to my Christmas dinner.

Patrick Collinson