A REAL ESTATE

A 1,563 word feature

By

Nick Snelling

- A REAL ESTATE -

‘Too much for too little’ seems to be the common refrain of both house sellers and lawyers alike when referring to estate agents in Spain.  Tales of exorbitant commissions abound, together with stories of professional conduct that is, at best, immoral and, at worst, downright crooked.

So what is the truth?  How do estate agents work and how can buyers and sellers avoid the worst excesses of Spanish estate agency?

To do justice to all sides, Spanish estate agency differs markedly from the UK.  For example, with regard to sales to the British, the relationship between the estate agent, seller and buyer is blurred.  Whilst the seller clearly pays the agent, it is with the buyer that an agent is most likely to form a close relationship.  The complications of buying abroad and the very extensive pre and after sales care that a buyer expects have direct implications upon the commission charged by agents.  Within reason, this enormously time consuming work alone justifies higher fees than would be considered normal in the UK.

In Spain, furthermore, it is unusual for an agent to obtain a sole agency to a property.  Most sellers place their Spanish properties with as many agents as they can, without signing any binding, written agreement that safeguards the interests of the agent over even a short, defined time period.  Consequently, agents are invariably left to market and sell properties on a multiple agency basis with perhaps a dozen, or more, direct local competitors.  This makes the marketing of a property in Spain a hazardous, treacherous and potentially expensive process.

Sales commission to an agent tends to be worked out on the basis of one of two options.  The most common, and least contentious, way of charging commission is for an agent to agree with a client a fixed commission, generally 3%-5%, of the gross sale price of the property.

However, it is the second option that has caused so much discredit to the industry.   A seller can agree with an agent that the fee for selling his Spanish property will be any money obtained from a buyer over and above a minimum sale price.  So, a seller may state that he wants to obtain 200,000 Euros for his property.  An agent will then be at liberty to set a sale price at any figure above the 200,000 Euros that he feels he can achieve.  He may market the property for 250,000 Euros.  If he finds a buyer prepared to pay 250,000 Euros, then he will receive 50,000 Euros as his sales commission – a handsome fee indeed.

In many ways earning commission this way can be compared to any other business deal.  The seller is happy because he obtains the price he wanted.  Meanwhile the agent treats the transaction as a simple business deal in which he extracts the maximum profit possible.  The buyer, by definition, must be content as he has willingly parted with his money!  On the face of it this option is fair, however there are problems which have made this practice notorious.

Firstly, sellers often rely upon agents to act in good faith when providing property valuations.  If an agent deliberately undervalues a property, he can earn an inflated commission, which is unfair to the naive seller.  Secondly, the size of commission can artificially inflate the true value of the property.  This leaves a very sour taste in the mouth of the buyer, who may well have been relying upon the agent to act as an ‘honest broker’ dispensing sound advice on the true merits and value of the property.  Thirdly, and in UK terms bizarrely, the same property in Spain may be on the market for wildly varying prices dependent upon where you look.

In the raw, unforgiving world of rampant capitalism and ‘caveat emptor’ this conduct of estate agents cannot be too heavily criticised.  After all, most businesses will try to achieve the highest possible profit from any deal that they can.  Few high street shops, for example, will sell goods at less than 100% mark-up, let alone advise customers of the profit that they are making on a product.  Nonetheless, it is hard to consider this method of obtaining commission on Spanish property sales as good practice and it is probably a poor way to run a business long term.

Some types of properties in Spain can earn agents, in UK terms, consistently exceptional fees.  These are generally, but by no means always, new development properties, particularly those aimed strictly at overseas buyers.  These are frequently places which are built on very cheap land, creating an ‘artificial’ environment far from existing towns and villages which may well suffer from water shortages.  A developer may, for example, construct a golf course and swimming pool complex in this sort of area and surround it with apartments.

By their very nature the properties within these developments are difficult and expensive to sell and can be very hard for an owner to resell.  Estate agents use ‘pressure salesmanship’ to earn commissions that can sometimes exceed 15% of the gross sale price, which is a lot of money for a property to appreciate before a buyer has any hope of a return on his investment. 

The size of commissions can be an indication of the profit margins that developers are making and, arguably, the over pricing of the properties concerned.  This may be particularly true if land and money was forcibly extracted from the existing property owners in the area during an abuse of the spirit of the recently replaced and contentious LRAU.  This law (6/94 of the Valencia Autonomous Community) has been used to demand that existing property owners in an area of a plan parcial pay towards the development and infrastructure costs.

Valuations are another source of contention in Spain for all parties, including estate agents.  The market has been consistently rising over the past few years and has resulted in properties, previously almost worthless, now selling for prices the Spanish find hard to credit.  This is particularly true of country properties, the UK desire for which the gregarious Spanish find quite perverse and which can be particularly vulnerable to the application of the LRAU or variations of that law.

The different property requirements of ex-patriots and the Spanish themselves, the influx of north European money, the rising market and the subtleties of location make valuations a minefield for all concerned.  Most agents are left, somewhat inadequately, asking the seller what they feel their property is worth.

Needless to say, it is of little real help to compare the prices of similar properties already sold.  The sale price obtained can often be very different from that advertised and to find out the price actually achieved can be as difficult for an agent as for a private seller.  At the end of the day, all too often, all parties are left hazarding a guess.

The vast majority of estate agents in Spain act honestly, work hard and do their best for their clients in a ferociously competitive and confusing housing market.  However, this is little consolation for those who have already experienced the worst of the industry.  That said, many people are themselves to blame for not acting with far greater circumspection when entering a foreign property market.

The key to success, for buyers and sellers alike largely comes down to the cool application of commonsense – a commodity often in short supply when the British are abroad, in the sunshine and in holiday mood. 

The consensus of most professionals is that, whether buying or selling, you should act calmly and not stint on your homework.  “Take your time, never be forced into a quick decision and really research the market in depth before you do anything”, recommends Alberto Diaz, Managing Director of Costa Azahar Homes an estate agency specialising in sales to the British.

According to Russell Thompson, the recently retired British Consul in Alicante, a further dictum should be indelibly tattooed on the forehead of the British: ‘always use an experienced, completely independent, English speaking lawyer, preferably out of the area, for any conveyance.  Get a lawyer you think you can trust first, look at properties second.”  He says, despairingly, that: “it is simply beyond belief how many Britons do what they would never even dream of doing in the UK.  Incredibly, they all too often do not use a lawyer at all, use one who also acts for the other party or, amazingly, they appoint a lawyer who speaks little or no English.’

The buying and selling of Spanish property is a serious, big money business with high stakes for all those involved.  It needs to be treated as such by both buyers and sellers alike.  Undue haste, not understanding the way the market works, confusing an agent’s friendship with that of a professional sales relationship, not using a lawyer and outright gullibility are all common and unnecessary routes to disaster.    

On the whole, it is far too simplistic to accept that estate agents in Spain obtain ‘too much for too little’.  Most provide value for money and earn their commissions fairly. However, as in all professions, there are exceptions to every rule.  It is therefore vital to understand how the Spanish property market and the professionals within it work before either buying or selling.  Otherwise it may well be you who is paying too much for too little.    

Copyright Nick Snelling (www.nicholassnelling.com) author of three books on Spain including ‘How to Move Safely to Spain’ (www.movesafelytospain.com)

ENDS