With the government’s ban on letting fees paid by tenants due to come in on June 1 more and more landlords are questioning whether they should cut out the middle man and ditch their agent to manage their properties themselves. In this article – first published in RLA magazine Residential Property Investor – we look at the pros and cons – and the pitfalls should you decide to take the leap.
Since the government took the decision to ban letting agent fees paid by tenants to agents or landlords the RLA has been receiving a steady stream of telephone calls from landlords looking to move into self-management.
Fears that abolishing the tenants’ fees will increase charges to landlords have seen more and more landlords asking whether they need an agent at all, with 70% of landlords questioned in the wake of the announcement saying they are less likely to use an agent in future.
While landlords could, in theory, raise rents to cover any increase in costs, this is a gamble and – in some areas at least – the market will not support it.
This also goes against the whole ethos of the ban, which is to make renting more affordable. Changes to mortgage interest relief, stamp duty and wear and tear allowance mean landlords are already being hit hard in the pocket.
For many, especially those already unhappy with the level of fees they are paying their agent, now may well be the time for change.
So, what do agents charge landlords – and what do you get for your money?
Typically, agents offer three levels of service:
• Finding tenants and establishing the tenancy – often called a tenant find or finder’s fee. The landlord then manages all aspects of the tenancy themselves.
• Full management – a complete package including tenant find, tenancy management and property maintenance, for a percentage of the rent, as well as marketing costs.
• Non-repair or rent collection only – like full management but the landlord handles any repair issues.
Fees differ according to the level of service, the property or properties in question and the agent that you choose, but very generally fees for full management are around 10% of your monthly rental income plus VAT.
If you do opt to stay with an agent then you should always do your homework.
Teresa Galley, director of Doncaster estate and letting agent Galley Properties said a good agent is worth their weight in gold, but you need to make sure you are with a reputable firm.
She said: “It is imperative you make sure you have a good agent. If someone is offering you a deal that seems too good to be true then it probably is. We still hear of agents that aren’t protecting deposits, agents that landlords are having to chase for rent.”
Before employing an agent, ask for a full list of their fees as well as a detailed explanation of what these charges cover.
It is also worth asking whether the agent takes any fees or commissions from its contractors – as some unscrupulous agents can mark-up contractors bills and charge the landlord.
Also look at their reputation. RLA director and property management company director Carrie Kus said: “One of the things I always advise landlords when they are looking for an agent is to ask for a recommendation.
“Ask other landlords who they use and whether they would recommend them, and when you are talking to potential agents ask to speak to some of their existing clients.”
I want to self-manage. What do I need to do?
With more than 150 Acts of Parliament containing over 400 individual regulations affecting the PRS – and the additional burden of local licensing schemes – there are no two ways about it, self-managing is a big commitment.
Once you have decided to go it alone you would need to:
- Advertise for tenants
- Carry out credit checks and referencing
- Arrange the tenancy and the required associated documents such as the How to Rent guide – a checklist for renting in England – the EPC and the gas safety certificate
- Carry out the check-in and inventory
- Protect the deposit and issue necessary paperwork
- Carry out the necessary legal checks such as Right to Rent
- Manage the tenancy as it continues.
However, there are common pitfalls, with paperwork often causing issues.
Carrie said: “The biggest stumbling block we see is paperwork. There is a lot of it and you have to be meticulous when it comes to making sure everything is filled in and served as it should be.
“One of the benefits of using an agent is that they have software programmes that can track every communication between a landlord and their tenants.
“This doesn’t mean to say that you can’t do it yourself, but you must take your record keeping very seriously. Write absolutely everything down and keep every communication and every receipt, there needs to be full records of every tenancy.
But what is it really like self-managing? And what do letting agents actually do for their money?
Here letting agent Teresa Galley shares her thoughts on why you should stick with an agent for hassle free lets, managed by professionals with a wealth of experience and hi-tech software.
She said landlords underestimate the work agents do, that employing a good agent offers peace of mind – and can even save you money in the long run.
On the other side of the coin landlord Allison Richardson talks about the benefits of self-managing – and how with an eye for detail and the personal touch you can run a successful lettings business yourself – without having to pay a third party.
She says self-managing gives you greater control of who your homes are let to as well as the fees you charge.
Using an agent
Teresa Galley is director of Doncaster estate and letting agent Galley Properties.
She said: “A good letting agent will start by having a long conversation with the landlord about what they want and then only provide that type of tenant.
“Most agents spend a fortune to be on all the top portals. Just being on Rightmove and Zoopla alone costs £2,700 a month, that is without spending on premium or featured property listings. And we always use a professional photographer to take the pictures.
“Good agents will also have very impressive property management software systems, which will flag up a late payment and automatically generate letters and phone-calls.
“We have very, very low rent arrears as a result.
“We only do accompanied viewings and we don’t just accept the first person that views the property and wants to rent it. We use a third party to verify documents used for right to rent checks aren’t fake – which is an additional service we pay for, as well as checking there are no CCJs or IVAs.
“We are also approved by Experian to put tenants’ credit details onto their files to build up their credit score – which benefits them.
“Our reference checks are extremely thorough, as is our inventory, which is around 45-50 pages for a two up, two down home.
“It is a condition of our tenancies that tenants have to have accidental damage cover – then if there is damage they can claim on their insurance and know their deposit will still be there at the end of their tenancy.
“We manage over 400 properties, and the more properties you manage the more experience you have and the better you can predict people’s behaviour.
“Having an agent with a good software system – that logs the fault, when the contractor is issued with a job sheet, the feedback and sign off – is vital.
“We carry out an inspection a month after tenants move in and every six months thereafter.
“We look for signs of over-occupation and any damage or health and safety issues.
“There is a proper inspection regime, which means you can look for issues that can be fixed right away, spotting a broken gutter for example, before it causes any further damage. It also shows a duty of care to the tenant.
“An agent will also have good cost -effective contractors on their books which can save you money, and we also offer out-of-hours cover – so you won’t be taking calls at all hours of the day and night if a tenant has a problem.
“We also help keep on top of paperwork for the Inland Revenue. Having professional management means you have statements each month on what was due and what was paid, any maintenance and repair costs and we also have all the contractor invoices.
“It is also worth remembering agents’ fees are deductible against tax.
“With Section 24 now coming into force some landlords might need more expenses to avoid being pushed into the higher tax bracket.
“Agents’ fees have to pay for the premises, bills, business rates, salaries and pensions of the staff, not to mention CMP, insurance, legal advice, and it adds up to a lot. I believe our fees are very low especially for tenants. We charge £150 for up to two tenants.
“There is also a £200 reservation deposit to hold the property, which is then taken off their rent, although this is forfeited if the tenant fails the referencing or changes their mind.”
Speaking ahead of the ban moving into law, she said: “I do believe there should be a cap on fees as some agents do make a lot of their fees from tenants and I think this is wrong. However there have to be fees as there has to be some kind of commitment from the tenant.
“Our cheapest fee for landlords is £35 a month – it depends on the rent being charged for a property and the level of service. Our standard fee is 10.5% of the rent that we collect for a full managed. For find a tenant only, we charge £350.
“To my mind it is a small price to pay when you think that landlords can face fines and even prison sentences if they get something wrong.
Having a good agent to sort everything out for you means you can sleep better at night –and could even reduce your tax bill.”
Landlord Allison Richardson (above) self manages 75 units in Leeds with her husband and son.
She said: “The family has been letting out properties since 1998. We did put some of our properties with a management agent for a while, but we had a lot of problems.
“They weren’t chasing rent payments if they hadn’t been made. They would tell us things needed doing to the properties without any evidence, sometimes we would get statements through without rent payments on, or with deductions on them that no-one could explain.
“At that point, we were managing some of the rentals ourselves anyway, so we decided to get rid of the agent and do it all ourselves.
“A hairdressers’ shop, which was part of a block we already owned became vacant and we decided to take that on and renovate it as an office, so that we had somewhere to work from.
“We opened an office purely for our own tenants in 2010.
“This gave them somewhere they could come to, to see us.
“We are not a letting agent, we only let out our own properties, but found having an office really useful as it is a point of contact for the tenants and somewhere they can come if there is a problem.
“For us it means that we don’t have to run the business from home or rely on using our home phone numbers as contacts.
“However, like agents, we do a lot of letting online through Rightmove and Zoopla.
“When we employed an agent, we had some concerns about the checks they were doing and didn’t feel as though they were using the right referencing.
“We weren’t happy with some of the tenants, and didn’t feel the checks had been in-depth enough.
“We now always ask potential tenants for two landlord references. This is in case their current landlord is trying to get rid of them.
“They might be tempted to tone down certain aspects of their behaviour, if they’ve had problems, whereas the landlord before can tell the truth.
“We are confident in what we are doing, as we have tenants who have been with us for years. In fact, we have three tenants who have been with us for more than a decade.
“Some landlords are worried about self-managing as they think they might get something wrong, they won’t be able to attract the right tenants, or they don’t know what they can or can’t ask – but the information is out there.
“We use the RLA all the time for our documents.
Again, speaking to RPI ahead of the ban she said: “We have been on courses to find out what to do and what not to do and we have books on how to write letters to employees and ask for references. We do charge a fee of £95 to the tenant, which covers the cost of the referencing and putting together the tenant pack which takes up time and resources.
“If it is a couple renting together we just charge a single £95 fee, however if it is just two people house or flat sharing we have to charge them separately.
“Regarding the tenancy itself, we take our own photographs and we do a comprehensive inventory which they look at and sign, using the RLA format.
“If you are self-managing it is important you keep a detailed record of everything.
“Everything is emailed, especially dealings with the council, but we also keep a paper trail and get everything signed.
‘The process we follow is that if someone is interested in a property they fill in a basic enquiry form and we book a viewing.
“If they like the property they fill in an application form including things like bank details.
“We tend to do our viewings during working hours, but if potential tenants really can’t make it then we will sometimes do Saturdays.
“Some letting agents will charge £60 for this, but we don’t charge anything.
“We are a family firm and the tenants know us all.
“If there are any problems we can usually sort them out quite easily, by putting a payment plan in place if they are behind with their rent for example. I think our tenants prefer dealing with us directly rather than a faceless entity.
“I can understand why some people do opt to use an agent, if their properties are spread over a wide area or if they are working in another job.
“I don’t think you could manage more than around 10 properties and work as well, what with maintenance, managing voids, keeping up with legislation etc. This really is a full-time job.
“We find self-managing gives us peace of mind that we are in control of our portfolio and I honestly don’t think I would ever use an agent again.
“There is no point paying someone else to do something you can do yourself.”
Agent tenants’ fee ban
The ban was announced in the 2016 Autumn Statement – taking many in the industry by surprise.
But with the Tories pledging to support those ‘just about managing’, – Theresa May’s JAMs – and desperate for a share of the youth vote it is perhaps unsurprising. The government said the proposed ban will “stop hidden charges and end tenants being hit by costly upfront payments that can be difficult to afford”.
It also says that the move will bring an end to the small minority of agents exploiting their role between renters and landlords, banish unfair charges and stop those agents that double charge tenants and property owners for the same service.
ARLA branded the move ‘draconian’, however with a report from Citizens Advice last year showing tenant referencing fees in Oxford ranged from £15 up to £360 and a ‘mystery shopping’ exercise in Wales showing the highest fee was 12 times the lowest, there is clearly an issue.
There is an argument that landlords will now have the opportunity to ‘shop around’ – which will force agents to be more competitive.
What do our members think?
- A total of 445 landlords responded to a survey conducted by the RLA in 2017, in response to the letting agent fee ban. The survey found:
- 70% of landlords are less likely to consider using a letting agent in the future.
- 69% of landlords responded that because of the proposed ban they will be considering switching agents to find a better deal.
- 77% of landlords do not support the move to abolish letting agent fees for tenants.
- 30% of landlords use a letting agent for full management.
- 42% of landlords when asked about their local rental market believed they could recover a proportion of their increased costs through increased rents.
- 70% of landlords will increase rents because of the proposed fee changes.
- According to the survey 30% of members use agents for full management, 36% solely use them to find tenants, 7% for the let only, 3% for non-repair with just 23% totally self-managing.