Wednesday, March 23, 2011

Agency commissions

The argument about who pays the agency commission on sale of a French property is as old as the hills, whether it implies that the buyer pays more or the vendor receives less.

Properties sold by French estate agents are normally marked as 'F A I' - frais d'agence inclus (including agency fees) - and the figure expressed in Euros is the price at which the property is offered for sale. Arriving at a correct sale price is an inexact process, as it is invariably a combination of the owner/vendor's aspirations (the highest price possible!) and what the agent considers the property is worth, in relation to the local market and similar properties offered for sale. A price reduction may encourage a quick sale, if this is regarded as below the market price.

As property prices tend to fluctuate in reality by few percentage points, there is relatively little room for manoeuvre.  It is rarely possible for a house to sold at the market price plus agency commission on top, as this would exceed the market price by too large a percentage.

The picture becomes confused when there is talk of the 'nett vendor' price, a term widely (mis)used by owners about to sell, but employed by agents to indicate the amount the vendor will receive after deduction of the agency commission and any other costs, such as capital gains tax.

Buyers applying for a mortgage may find that their lenders may wish to exclude the agency commission (and other transaction costs such as Notaire's fees, taxes and land registration charges) from the loan they are prepared to offer. But this is like borrowing money to buy a car and being told the loan will only cover the manufacter's wholesale price to the garage and not the costs and profits associated with the showroom.

Buyers facing this problem with their lenders should insist that the price stated is the price at which the property is offered for sale and that is the price they are expected to pay.