Depending on your point of view (and personal experiences), letting agents are either money pits or a service you can’t live without. If you’re reading this article, we’ll assume you don’t fall into the former camp!
Many landlords use a letting agent to manage their properties. If you lack experience or time, a letting agent can find tenants, manage the day-to-day running of your properties, and ensure you remain compliant. But this service comes at a cost (naturally), so in this article, we are going to explore the various fees you can expect to pay.
The Tenant Fees Bill
Letting agents charge fees to landlords and tenants. In years gone by, tenants were routinely charged fees for anything and everything, often with no real understanding of what they were being charged for. In some cases, there was a significant crossover of fees, referred to in colloquial terms as taking two bites of the cherry.
Widespread outrage at such sharp practices led to the Tenant Fees Bill, which came into force on June 1 this year. Letting agents can no longer charge tenants for anything and everything and fees are capped. There are no such restrictions on landlord fees, however, so it’s vital that you check exactly what your letting agent is proposing to charge you – and for what.
Fees are charged according to the service provided by the letting agent. Different landlords will need different levels of service, depending on their individual requirements. Some landlords only use a letting agent to source tenants, whereas others pay for a fully managed service.
Fees can either be fixed or a percentage of the rent. Some letting agents also charge a one-off fee to find a tenant, and then an annual fee to manage the property, which would be a percentage of the rent per calendar month.
What’s important here is that there are differences between what agents charge, largely driven by local market forces. So, in an area where there are several letting agents all competing for the same customers, fees will be lower. Because of this, it is sensible to shop around before signing up with a letting agent. Don’t assume the advertised rate is the going rate either. Depending on the service you need and how many properties you own, there could be room for negotiation.
Different levels of service
Letting agents typically offer different tiers of service. The level of service you choose will likely depend on your budget, but time-strapped landlords may opt to use a tenant finder package and then manage the tenancy themselves going forward.
Make sure you choose the right service. Don’t be bamboozled into paying for a service you don’t want or need. Also, don’t feel you have to continue paying for a service you don’t need just because the letting agent is persuasive and very charming.
Always read the T&Cs before signing up for anything. The devil is in the detail, as they say. If you don’t pay attention to the small print, you could end up paying for a service you didn’t ask for and don’t need.
Be careful to check what the service you sign up for actually includes. You don’t want to belatedly discover that organising repairs is not included as part of a package you pay for each month.
If anything in the agreement is unclear, ask the letting agent to explain. Beware of hidden fees and erroneous charges that are so ambiguous they may as well be written in pure jargon. Some disreputable agents are more than happy to pull the wool over your eyes ad charge you for things they didn’t do or were covered by another fee.
Be a proactive landlord. Don’t assume the first letting agent you talk to is the best one for the job. Shop around. Compare prices for the package you want and make sure you mention the fact you are visiting a few agents to discuss their service. It never hurts to encourage a bit of professional competitiveness. If a letting agent wants your business, make them work for it!
Be aware that fees will vary according to the number of letting agents operating in the area. The more agents there are – the more room you have to negotiate a better deal. You also have the upper hand if you own a large portfolio, as letting agents will definitely want your business and will be willing to haggle over their fees to secure it.
According to Which? letting agent fees range from less than 10% of the annual rent to more than 20%. Naturally, letting agents in London charge more than their colleagues in Yorkshire or the North-East. There may also be a minimum fee threshold in place, too.
Whilst there are regional variations in letting agent fees, with places like London being more expensive, prices are largely dictated by supply and demand. To check local letting agent fees in your area, ring around a few agents for a ball-park price or ask other landlords what they pay. This should give you a reasonable idea of what you will have to pay.
Don’t be fooled by the headline price. Check what the fee covers, so you can do a like-for-like comparison. One agent may appear cheaper, but it isn’t cheaper if everything you need them to do comes at an additional cost. Some agents include the cost of credit checks in their package whereas others charge extra. This is where it pays to scrutinise the paperwork before you sign up.
Before you start looking and comparing letting agent fees, have a bucket list of things you need an agent to do. Tick off these items for each letting agent you consider, and if there is an additional cost involved, make a note of this. Add up the costs for each agent on your list. This will help you to do a fair comparison.
Here are the basic tiers of service offered by most letting agents:
Landlords on a budget can opt for a basic tenant finder service, which does exactly what it says on the tin: the letting agent finds you a new tenant. This service covers everything up to the point when a tenant moves in. Thereafter, you are on your own.
With a tenant finder service, you can expect your agent to:
- Take photos, create a floor plan, and build a property listing
- Advertise the property on well-known property portals
- Organise viewings for prospective tenants
- Carry out tenant checks, etc.
- Prepare the tenancy agreement
- Register the deposit
A tenant finder service is usually a one-off fee per property. Fees vary but it can be as high as one month’s rent, so shop around and don’t be afraid to haggle if necessary.
Collecting the rent can be onerous when the tenant is late paying and you need to chase them for the money. Some letting agents let you outsource rent collection to them as a stand-alone service. If you’d rather not have the hassle of dealing with rent collection and rent arrears, look for a letting agent offering this service.
Most letting agents charge a percentage of the rent for rent collection. Expect to pay around 5% of what your tenant pays each month. This will be billed monthly.
Full management means signing a contract with the agent. This could be a 12-month contract or even an 18-month contract.
A fully managed service does everything listed above, plus the following:
- Property inventories
- Repairs and maintenance
- Acting as the first point of contact for tenants
A fully managed service is the most expensive option, for obvious reasons. Again, agents usually charge a percentage fee based on the annual rent. Expect to pay between 10% and 15%. This is normally a monthly charge, but you may be able to pay annually.
High street versus online letting agents
There was a time when high street letting agents were the only game in town. But the rise of online letting agents has given landlords plenty of new options to save money on high street letting agent fees. High street agents usually charge more than online letting agents because they have higher overheads. Unfortunately, you may not find that this represents value for money. Often, high street letting agents are A LOT more expensive, and unless you need your hand holding or you have a close personal relationship with your agent (or would like to!), it’s sensible to switch to an online-only letting agent.
Online agents can do everything a high street agent does. They will draw up floor plans, take professional photos, list your property on the main property sites like Rightmove, Zoopla, and onthemarket.com, and book viewings. Many online agents also offer a fully managed service that includes rent collection, inventories, and more.
Manage your letting agent fees
Don’t just sign on the dotted line and forget about what you’re paying every month or year. That’s a fast-track way to end up being ripped off and out of pocket. Track your letting agent fees. It makes it easier to spot errors, innocent or otherwise, and also to check whether using a letting agent is cost-effective. Watch out for unexpected costs, such as a tenancy renewal fee when a 12-month tenancy rolls over into a new year.
Landlord software is a useful tool for tracking letting agent fees. Try Landlord Vision to see how it works. You’ll save time and effort, plus tax returns will be a breeze.
DIY property management
There are plenty of sensible reasons to pay a letting agent to find tenants and manage your properties. But before you rush in and saddle yourself with some hefty letting agent fees, think carefully about whether you need their help.
DIY property management isn’t so terrible. It is now super easy to find a tenant thanks to social media. The more times you do it, the easier it will be to find good quality tenants. Take your own photos of the property and set up group viewings to save time.
And if you do need to use an agent, why not try an online agent instead? Their fees are a lot lower and you may find they offer a better service.
Weigh up the pros and cons of letting agent fees before you commit. Remember, letting agent fees can seriously eat into your rental yields!
What’s your experience of letting agent fees – good or bad? Do you use a letting agent or do you prefer to manage your own rental properties? Tell us more. We’d love to hear from you in the comments below, or as always, you can connect with us on Facebook or Twitter.
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