By Greg Ninness
One of the perhaps unintended consequences of the Government’s move to stop residential landlords charging tenants letting fees, is that it should promote competition and improve efficiency among letting agencies.
It has been a commercial anomaly that it is the landlord who chooses and hires a letting agency to find and sign up a tenant on their behalf, but it is usually the tenant who pays the letting agency’s bill.
Under that arrangement, tenants have very little leverage to ensure that the fee they pay is reasonable or that the letting agency is providing value for money.
In theory they could try and negotiate a lower fee, or walk away from signing up for a property if they thought the letting fee was too high.
That is not as far-fetched as it sounds.
In times gone by when we had negative migration growth and the market was awash with rental properties, it was not uncommon for landlords to advertise their properties with “no letting fee” to try and attract a tenant.
But those days are long gone and the reality tenants face today in a market where the supply of housing is tight, is that they just have to grin and bear paying the letting fee if they want to secure a property to live in.
For their part, landlords are in a far superior position to negotiate the fees a letting agency charges, but under the current arrangement have no incentive to do so because they are not the ones paying the bill.
But all that will change on December 12 when an amendment to the Residential Tenancies Act comes into force that will make it illegal for landlords and letting agencies to charge tenants letting fees.
So landlords will be paying the bill.
That could usher in major changes for letting agencies because it means cost becomes one of the factors landlords will consider when appointing a letting agency.
And landlords are notoriously cost conscious.
For agencies that means not just providing a good service, but providing good value for money.
It is likely to lead to more innovative pricing packages among agencies, perhaps tied to other services they may provide such as property management, and of course landlords with large portfolios will likely be able to negotiate a better deal for themselves than mums and dads with just one or two rental properties.
It will probably also lead to efficiency drives within letting agencies as they seek to control their own costs to protect their margins.
That could lead to a shakeout in the industry over time as less efficient players fall by the wayside.
That could favour the larger players whose size helps them develop economies of scale, or agencies that have specialist expertise in a particular niche of the market.
There could well be a round of mergers, acquisitions and rationalisations over the next year or two as agencies adapt to, or become victims of, those changes.
While landlords will inevitably grizzle about the change, and there’s no escaping the fact it will feed in to their overall costs, they are in a far better position to negotiate a better deal for themselves than their tenants were, and most will only pay for the service if they believe it is giving them value for money.
And of course for landlords the letting fee will be a tax deductible expense.
So although landlords won’t like it, the letting fee will probably be less painful cost for them that it was for their tenants.
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