Spanish estate agent commissions: is 5% too high?

A recent study conducted by the online estate agent urban.co.uk found that, while traditional estate agents’ commissions in the UK may vary, they typically charge a commission of between 1-2% - a striking difference to commissions charged by agencies in Spain. An article on the website money-marketuk.com, which commented on the study, implied that commissions at the top of this range -2%- were outrageous and unjustified. We asked ourselves what the author, Zoë Henry, would have thought of the 4%, 5%, 7.5% or even 10% that agencies in Spain have been known to charge. We then decided to ask Spanish-based agencies to comment on the apparent discrepancy in rates between Spain and the UK, and these were our findings.

Several of the real estate agents we consulted started off by commenting that this was a question that they were often asked by UK citizens, who are taken aback upon learning that they will have to pay 5%+VAT for the services of an agent. The typical commission on the sale of a €250,000 property on the costas is €12,500+VAT, compared to the approximately €3,750+VAT it would be in the UK. Actually it appears that it is not the case that commission rates in Spain are too high, but rather that the opposite is true: they are particularly low in the UK (see comparative list published on tranio.com).

Commission rates in Spain compare favourably with fees charged in France (6%-11%) and the USA (around 6%-9%), and are in line with, say, Germany (around 6%). There is a marked difference the world over between commissions charged on sales in domestic residential markets and those in popular holiday and second home destinations, such as California, Florida, the Côte d’Azur and the Spanish costas. A typical commission rate in Madrid or Málaga, for example, is nearer the 3% mark (as it also is on the quieter Spanish costas). Which brings us to an important differentiating characteristic of the second home Spanish real estate scene.

Agents’ main justification, when they find themselves explaining the situation to Brits, is the difference in marketing costs that they have in comparison to a UK agency. The huge majority of sales in the UK are made to locals, and consequently marketing costs are relatively low: marketing outside the local area is wholly unnecessary. In the case of larger and more prestigious costa agencies, marketing budgets can be astoundingly high, as agencies are required to market the properties on their books on a global scale: sending a sales team to a property show in Earl’s Court one week, Dublin the next and Dubai the week after soon takes its toll on the budget. Higher marketing costs are therefore one bona fide reason for the difference in commission rates.

Another costly aspect to the work of a Spanish agent is the hand-holding culture that exists. A UK buyer moving to another part of town knows the area and does a lot of the legwork himself. UK buyers in Spain, on the other hand, are in a foreign country and expect to be driven to and from the airport, to several properties, taken to lawyers, notaries, the electricity board, furniture shops and even a good restaurant – all services that the agent provides. It could also be said that agencies are loathed to let a potential buyer out of their sight, lest he fall into the hands of a rival agency or hear anything but positive vibes about his new home or the area in general that would lead him to question his decision.

Some agencies attempt to charge 7.5% commission, which is high on the global scale, and starts to become difficult to justify, as well as artificially inflating average market prices. Rates of 10-15%, that were sometimes charged during the property boom of the early and mid-2000s, are simply abusive. Charging extra for photography or ‘enhanced’ marketing, as some agencies do, is also unscrupulous, as these services form part of the marketing, which is precisely what agents cite to justify the commission in the first place.

A 5% agency commission, therefore, is in line with comparable markets and can be quite convincingly explained by the comparatively higher costs associated with the nature of the Spanish property market. Given these criteria, it is a reasonable price to pay as long as the agency performs a professional job of marketing the property and is proactive about its sale – work that any reputable agency is incentivised do tirelessly, as 5% of nothing is nothing. So how do you choose a reputable agency? This is material for a future article.