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.