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Beware of señor 7.5 per cent

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The cost of selling a home in Spain could be unexpectedly high – and buyers can unwittingly contribute to estate agents’ commissions, too. So check you’re not signing up for hefty fees.

Sunday Times Home Section, 16th October 2005

Michael Alinek has his two-bed flat in Duquesa, near Marbella in southern Spain, on the market for £170,000. If and when he makes the sale, he will have to pay £12,000 plus Vat at 16% (about £14,000 in total) in commission to his estate agent, leaving him with just £156,000 from the proceeds.

“These commissions are eye-watering,” says Alinek, “but it’s a struggle to find any big agents here who charge less than 7.5%, plus Vat, so if you want to sell, you have to put up with them.”

According to Pandora from south London, who won’t reveal her surname in case it jeopardises the sale of her £340,000 town house in Puerto Banus, “many of the big agents here employ Essex used-car salesmen who are incompetent, useless and don’t speak a word of Spanish. They justify their commissions of 7.5% by saying that everybody charges them, so the market must be comfortable with the practice.”

Buyer beware
Although Spanish estate agents work on behalf of – and are paid by – vendors, don’t look on this issue as a problem just for vendors. After all, the commission is paid out of the money handed over by the buyer. Excessive commissions have helped to drive up the prices that buyers have to pay.

Commissions also become murky and especially prone to excess when more than one agent is involved in a sale; additional hungry mouths are fed by increasing, rather than splitting, the cake.

Investment alert 
Excessive commissions substantially reduce the investment returns of Spanish properties. With an agent’s commission of 7.5% and capital-gains tax at 35%, a non-resident buying a resale property of £170,000 (no mortgage) would need capital appreciation of 6% every year just to break even if selling after three years. Annual capital growth of 10% would leave such an investor with an after-tax profit of only £15,000, a feeble 8% net return after three years – and less than what the agent would earn from the sale.

Who’s the greediest? 
The commissions that estate agents charge in Spain vary considerably by region and type of agent. In the north of Spain, Catalonia and the Balearics, commissions vary from 3% to 5%, plus Vat. They are higher in the south: along the Costa Blanca and Costa del Sol, many big agents charge 7.5% upwards, plus Vat. For cheap properties in rural areas, British agents have been known to slice 35% or more from the sale price as their commission – a wheeze buyers get wind of only when they see what they “really” paid for their property on the land registry deeds. British agents tend to charge more than Spanish agents.

Professional standards
Both the API and GIPE – professional organisations that represent trained and registered real-estate brokers in Spain – recommend that their members charge a commission of 5%, plus Vat. However, until the 1990s, Spanish property prices were low and estate agents played second fiddle to sales by word of mouth, which meant that agents’ earnings were modest, even at 5%. Now, with property prices much higher, and with estate agents increasing their share of transactions, the argument is building for revising that 5% downwards.

But the vast majority of British buyers and vendors don’t deal with API or GIPE agents, not least because fluent Spanish is required to qualify for membership of these organisations.

Smart tactics
Vendors should refuse to deal with any agent or network that charges more than 5%. There are well-run, professional, mid-sized and small agencies that charge 5% or less.

Buyers should insist that the estate agents they deal with are transparent about the commissions they earn. Far too many British buyers make no effort to find out how much of their cash is going on commissions. Of course, agents can lie or refuse to answer, but the mere act of asking puts the question under the spotlight. Avoid dealing with agents who are at all cagey about what they earn.

Cut out the middle man 
Placing Se Vende (for sale) signs on balconies or classified adverts in newspapers are two ways for sellers to make contact with buyers while avoiding commissions, but these options aren’t practical for vendors who don’t live in Spain.

However, the internet is starting to produce new business models that present a serious challenge to estate agents. Vender Direct allows sellers to advertise their properties directly to buyers. The company charges a fee to put your property on its site, starting at £137, plus extra if you want to use its key-holding service so your property can be shown.

2011 Update: Venderdirect.com have (long) since gone out of business, along with many other companies in the Spanish property sector. Complaints have also filtered back about their service before they closed. They were not endorsed in this article, merely mentioned as an example of new business models trying to challenge estate agents.

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