Real estate agency fees

Falling real estate agency fees: causes and consequences

Real estate agency fees are falling in France, the result of increased competition and a change in legislation.

Agent fees in France for the sale of real estate are historically among the highest in Europe. On average, they are around 5% of the purchase price, in a range of 3% to 10%.

The commission received by agents, unlike notary fees, is not regulated. They are therefore free to charge what the market will bear.

Real estate ads were often unclear about who is responsible for the fees and how much. Concise statements such as “real estate agency fees included” are often found.

However, since a change in the law in 2014 that became operational in the last two years. The commission must be paid by the buyer. Agents are now required to clearly indicate in the real estate ad the level of commission to be paid.

It is only if the fee is borne by the seller that the real estate advertisement can remain silent on this point. Although she frequently mentions “fees paid by the seller.” In such circumstances, real estate agency fees cannot be included in the advertised selling price. And that's even though many ads still have to comply with this requirement.

How does this situation involve changes?

As a result of this change in the law, most often, it is now the seller who pays the fees.

However, sometimes it is in the best interests of the buyer to accept responsibility for the fees. Indeed, this reduces notary fees and taxes to be paid.

Even when, in a sale, it is the buyer who must pay the commission. This does not prevent the buyer from negotiating with the agent about the amount to be paid. Although the most common and effective strategy is to negotiate on the purchase price. Thus, the agent can be retained during larger negotiations. The distinction may seem artificial. The net result, in both cases, is to reduce the purchase price. But the agent is often a useful ally against an uncompromising salesperson.

The change in the law was, of course, accompanied by the internet revolution. The web offers greater visibility and greater choice to the consumer. Sellers no longer need a real estate agent to advertise their property. They can easily do it themselves, online.

These agents operate as a network of agents, without a network of agencies or a large number of employees, relying on the conduct of their online business, and using a network of independent real estate agents as a sales force. In turn, they run their business from their own homes. They meet buyers and sellers on site, not in a local office.

What does this change represent for the real estate agent profession?

Although access to the profession of real estate agent is regulated, provided that the real estate agent operates under the aegis of a real estate agent holding a professional card, this is perfectly legal. There is no limit to the number of independent sales agents that can be hired by a properly licensed real estate agent.

Real estate agents of the classical model have always used independent “commercial agents”, but what is new is that neo-agents are aggressively low-cost and online.

Inevitably, they have a dramatic impact on the entire sector, forcing traditional agencies to review their rates and practices.

Many of them have now been forced to lower their rates, be more active online, and improve the quality of their staff and the services they offer to customers.

Agent prices are still very variable, starting at 1%, i.e. a fixed sum of a few thousand euros for some neo-agents, even if most are around 4% to 5% of the sale price. In other cases, real estate agency fees vary according to the selling price of the property; it is even lower when the sale value is high.

In rural areas, the reduction in real estate agency fees has been slower, due to a more limited presence of neo-agents and the costs associated with the sale of these properties, often involving significant travel and numerous visits.

Although new entrants make the market more competitive, with agencies operating with low margins and using field workers who are often poorly trained and experienced, the quality of service they offer generally leaves something to be desired, but this is also the case with many traditional agents.

Internet: an essential playground for a real estate agency

The sustainability of the low real estate agency fee rates of some of these agencies is also questionable.

The weaknesses in these real estate agency fees are partly offset by the growth of online information on the market and the law.

Thus, sellers can consult online the selling prices of other properties sold in the region in recent years. There are now a significant number of regulatory investigations carried out on the property. As well as a substantial amount of information on the law and best practices is available online.

However, the value of these alternative sources should not be overstated. Information on market prices in rural areas in France is still rare and often unreliable. With appropriate comparisons that are particularly difficult to find. Nothing beats the market knowledge offered by a qualified and experienced local real estate agent.

Likewise, regulatory inquiries fall well short of a comprehensive building investigation. Sellers and buyers need to be wary of the accuracy of a lot of information online.

While licensed real estate agents can process the sale and purchase contract, this is not a practice we recommend.

Despite the availability of a large number of online portals where sellers can advertise and sell their property without going through a real estate agent, more than two-thirds of sales in France continue to be made by real estate agents. Perhaps this shows that the intervention of a professional seller remains a key factor in obtaining a successful sale.