Proportionately, one of the highest costs in running a buy-to-let property is letting agency fees which can substantially undermine an investment. Furthermore, the lettings industry is unregulated with many agents making secret profits from their landlord clients with a host of reports, such as from Which? and the Office for Fair Trading, highlighting its lack of integrity and transparency. However, for those landlords with no alternative other than to use a letting agent because they are too far away or busy to self-manage how can they reduce their risk of being ripped-off?
Be thorough with your research
To reduce the risk of selecting an agent, choose those that are members of any of the professional organisations, for example Association of Residential Letting Agents, Residential Landlords Association, and the UK Association of Letting Agents. Also you need to ensure that they are registered with the Property Ombudsman Scheme, which is a dispute resolution service that is currently voluntary but will become mandatory early next year. Don’t take the word of the agent that they’re members and check their membership claim with the relevant body. Often long-established local letting agents provide a better service than the well-known big chains.
Be clear on tenant finding costs and management
A major source of frustration when shopping around is the lack of upfront information available in an easily comparable format. It’s essential to ask the right questions so that you can winkle out what you should be paying. For finding a tenant agents usually charge a commission, which is based on a percentage of the annual rental income and landlords can expect to pay between 8 to 12% plus VAT. But some agents will claim that they have lined up a tenant for a two or three year tenancy and insist on receiving a two or three year fee in advance. Don’t pay this as there is a risk that the tenant will leave before the tenancy contract is over. Additionally, try to avoid paying a renewal fee as this is merely recharging every year the original tenant finding fee. There are agencies that don’t charge a renewal fees or if you have limited choice negotiate the fee down.
In addition to the tenant finding costs agents will want to manage the property, often so that they can then control the tenant find when the existing tenant leaves and charge the tenant find fee again. Typically agents charge 4-6% of the rental income for managing a property and will charge you administration fees and mark-ups for all property management services such as cleaning, inventory and maintenance. They will also take commissions from the contractors they engage to do the work.
Check the agent’s work
Unfortunately, it is often the case that in the rush to secure a tenant finding fee agents are less than diligent in checking the tenant’s credentials as it is not in their business interest. We found one horrendous case of a landlord letting his family home out who was a victim of a rent-to-rent scam with the tenant subletting the home to 12 individuals and turning the property without the requisite licence into a House in Multiple Occupation (HMO). On discovery the letting agent was promptly sacked and the landlord then signed-up with The Happy Tenant Company. It was discovered on investigation that the tenant’s bank statement was clearly not his own, which was ‘missed’ by the letting agent. The landlord had to deal with the cost of eviction as well as the severe stress of the whole episode. To reduce the risk of picking the wrong tenant, always insist on seeing the tenant’s credentials yourself.
It is often the case that the management service is poor or substandard with tenant issues being ignored. This leads to tenants refusing to pay the rent and wanting to move, which the agents don’t mind as they can recharge the tenant find fee when they find a new tenant
Much of the management is not undertaken by the agent – but rather they outsource the whole service to third parties, who may not be in the same city and just take a cut of the management fees
Negotiate tenant finding fee discounts for property portfolios
If you have a portfolio of properties you should be able to negotiate a discount with the letting agent. It may be worth clubbing together to buy services, even if you only have one or two properties you can gain access to group discounts. The Happy Tenant Company with a large portfolio of properties under management in Greater London is able to secure major discounts on behalf of its landlord clients from a panel of vetted and trusted agents with no renewal fees.
Insist on transparency – get in writing what charges you will be paying
From when a prospective tenant is found to maintaining the property, letting agencies have the opportunity to excessively mark-up services without the landlord knowing. For example, tenant referencing by outside bodies costs around £20, but some agencies have been known to charge the landlord up to £120 or six times the cost; and Gas Safety Certificates, which are around £55 at cost, can be marked-up to £150, three times the cost price. Then there are maintenance charges, where not only is the landlord paying massively marked-up contractor invoices, the costs are often inflated in the first place because the poor contractor may have had to pay a commission – a bribe – to win the letting agent’s business. Insist on seeing the original invoices by getting it in writing before signing up to the agent. If there’s an admin fee this should be open and transparent and not hidden away.
The Happy Tenant Company charges a flat rate for managing property, starting at £750 per annum, and repair charges are at cost with the original contractor invoices given to clients. It also is able to secure trade prices maintenance work and other costs and uses a pool of tried and tested tradesmen who offer quality and value for money.
In a nutshell, before appointment you can reduce your risk of falling victim to a rogue letting agent by being thorough with your research and getting as far as possible a detailed menu of costs. It is also essential to get a written commitment from the agent to provide invoices from any external contractor or service provider.
It’s best to have your property managed by an independent third party, who are dedicated to increasing your return and providing you and your tenants with a quality service rather than lining their own pockets.
A London lawyer, Jonathan founded after experiencing The Happy Tenant Company the stress of managing residential property himself, and the high costs of letting agents. Convinced there must be a better way, he set out to transform the market by creating a service that focuses on giving residential landlords a cost-effective alternative to time-consuming self-management or using expensive letting agents.
Building the company on expertise and integrity – something he’d found sadly lacking in the industry – he has instilled a long-term strategy of partnering with clients rather than chasing short-term gains. He’s brought together a team of like-minded, experienced property professionals to advise and support his leadership.
By Jonathan Monjack, chief executive of The Happy Tenant Company