How a 0% commission costs you money

There is a well-known phrase that if something sounds too good to be true it probably is.

This came to mind this week when I was looking at another property auction and found the estate agent auctioneers offering to sell a client’s house at no cost to the client.

I can see how this sales technique might work, with an agent having had a property on their books for 6 months, and an anxious seller wanting to hear some good news, the agent suggest an auction “but don’t worry it’s not going to cost you a penny to sell.” A desperate seller frustrated at lack of progress might take up the tempting offer.

What the agent will not be telling their client is that this will cost them money, not in the form of an open and transparent charge for their services but with a lower sale price.

The estate agent and auction supplier will not be working for free, so someone will have to pay. In this model it is the buyer that pays the bills, but at a cost to the seller.

This unlikely situation occurs as the estate agent and auction supplier adds huge charges to the buyer. I have seen up to £10,000 written into what you might call the small print of auction contracts  when the hammer price is only £100,000.

So what,  I hear you say. Well I would argue that a buyer without this additional £10,000 would bid up to £110,000 for this property. So the seller has sold their property at no charge but at a loss of £10,000 lower return.

It seems more honest to tell the seller that they will have to pay a vendor commission, Biddle & Webb’s is 1.25% and deduct this from £110,000. As the Americans would say “do the maths”.

At Biddle and Webb we are an IT company that sells items.  We are proudly still a physical entity with an auctioneer, gavel, saleroom and public viewing. It is not that hard to become better informed of what are marketed as modern forms of auctions. One supplier of online auction services actually seems to acknowledge that there is a cost to these 0% commission sellers. Their literature says, as there is no charge to the seller properties will be reserved at a lower level and later goes on to inform buyers that on top of the hammer price an additional fee, either a percentage of the final hammer or £6,000, whichever is larger, will be added to the hammer total.

This is made clear to all prospective bidders  and so the buyer will bid less.  Vendors and buyers beware, with some agents stating that 4.2% will be added to houses worth up to £500,000, the fees charged are eye-watering. In this case, that is a fee income of £21,000 to be split between the estate agent and supplier of auction services.

After decades of public auctioneering, Biddle and Webb are certain of one thing, buyers are not stupid.

Sorry give me the traditional, open and transparent agreed charge to the seller and everyone knows where they stand.  This does not mean that we are not modern.

 Jeremy Thornton

Owner and Director

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