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mat109

Why do estate agents love BTL?

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With property118 types in love with their housing empires and planning to 'never sell' (Life expectancy is mid 70s and I guess BTLer is mid 50s) why do the industry bodies not cheer attempts to make them sell up (eg. s24)?

That's ~£1440 annually (London, £1200pcm @ 10% fee a year -) compared to the £10k they'd get for selling comparable place in fees at 2% (yes, £500k, ~3% yield).

Assuming average time in house is 10 years, that's £14k over 10 years, excluding inflation, or £10k now, without the need to maintain an army of letting agents/management types - having to pay staff to worry about the boilers or periodically relet the place.

In NPV terms, the two are very similar even with low interest rates.

Obviously this excludes the fictional fees now under pressure.

... And yet:

http://www.propertyindustryeye.com/this-has-been-an-annus-horribilis-for-landords-says-connells-firm/

These guys depend on volume to generate fees. Volume = owner occupiers moving around buying and selling as much as possible, not mindless property hoarding.

Now that transaction levels seem to be crashing through the floor and RICS is telling us that supply is at an historic low, do they understand their business?

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Its an example of "local optimisation" (A lean process concept) - each estate agent is doing whats best for them in the short term at the expense of what good for all of them in the long term, which means selling to landlords because they have been 80% or so of the market for many years.

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BTLers are HPI fundamentalists. EAs are the priests of the cult. Without the faithful, the priest has to go back to working for a living. Miracles (ever increasing prices) underpin the faith, banish doubts from the wavering and convert the weak of mind. Like many belief systems there's a doomsday scenario (HPC), and there are the damned who are eager for the Armageddon to occur (that's us BTW).

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2 hours ago, goldbug9999 said:

Its an example of "local optimisation" (A lean process concept) - each estate agent is doing whats best for them in the short term at the expense of what good for all of them in the long term, which means selling to landlords because they have been 80% or so of the market for many years.

Even more so, the same also surely must apply to those chartered surveyors? They don't get anything from a house being rented out.

RICs seems to be all for BTL.

https://www.property118.com/rics-recommendations-for-the-private-rented-sector/93104/

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Not only the estate agents, but the government should want housing transactions to increase.  They gain even more from Stamp Duty than estate agents do from their commission.  

That's why they won't repeal S24, they want housing ownership to change, so they get the tax.

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  • No chains, ever - hence a sale to a BTL buyer presumably means a much greater chance of STC leading to a sale and a fee to the agent.
  • Unlike sales to an owner-occupier, the opportunity for the agent to become involved in repeated sales to the same buyer exists, and thus the opportunity for mutually convenient gouging of the another party (e.g. the agent gets a seller to accept a competitive price having lined up the BTL investor as buyer, then the BTL investor rewards the agent with a kickback).
  • You can 'rule of thumb' analyse the return from a house to an estate agent by considering it to sell once every ten years and deliver a 3% fee to the estate agent. Hence the house 'generates' fee income of 0.003 times its sales price annually (one tenth of 3%). When the estate agent in their role as seller's agent arranges a sale to a BTL investor they still collect the fee and if they can line up the letting agent business on 8% of rent then if we assume a 5% 'gross yield' then the BTL generates 0.004 times the sales price as annual managing agent fee income (and, for the time being, fee income from fleecing tenants for new ASTs etc. on top of that) If it was a straight choice between the fees from sales and the fees from the housing become a BTL and never selling again then the BTL offers the better return to the BTL investor (if they can line up the business as a managing agent).
Edited by Bland Unsight

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3 minutes ago, Bland Unsight said:
  • No chains, ever - hence a sale to a BTL buyer presumably means a much greater chance of STC leading to a sale and a fee to the agent.
  • Unlike sales to an owner-occupier, the opportunity for the agent to become involved in repeated sales to the same buyer exists, and thus the opportunity for mutually convenient gouging of the another party (e.g. the agent gets a seller to accept a competitive price having lined up the BTL investor as buyer, then the BTL investor rewards the agent with a kickback).
  • You can 'rule of thumb' analyse the return from a house to an estate agent by considering it to sell once every ten years and deliver a 3% fee to the estate agent. Hence the house 'generates' fee income of 0.003 times its sales price annually (one tenth of 3%). When the estate agent in their role as seller's agent arranges a sale to a BTL investor they still collect the fee and if they can line up the letting agent business on 8% of rent then if we assume a 5% 'gross yield' then the BTL generates 0.004 times the sales price as annual managing agent fee income (and, for the time being, fee income from fleecing tenants for new ASTs etc. on top of that) If it was a straight choice between the fees from sales and the fees from the housing become a BTL and never selling again then the BTL offers the better return to the BTL investor (if they can line up the business as a managing agent).

Add referral income to that - landlord insurance, mortgages, etc.

And agents don't want to see the pool of buyers whittled down. 

But I agree with the OP, agents are missing a trick not giving the BTL crew a helping shove down the stairs. 

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8 minutes ago, Patient London FTB said:

But I agree with the OP, agents are missing a trick not giving the BTL crew a helping shove down the stairs. 

Right or wrong, my gut instinct is that UK property is far more fragile than is generally acknowledged (and certainly a great deal more fragile than the BTL cheerleaders believe). In line with that one of my pet theories about the ultimate significance of the mooted changes to letting agent fees is that it will shift the motivations of estate agents. With landlords motivated to shop around a bit more and letting agents making a great deal less from the rental churn, agencies with both a sales side and a lettings side have had their incentives shifted. If this leads to a few more conversations about the possibility of selling up when a rental becomes vacant, and a few more conversations about prices being soft and investors perhaps considering getting out whilst there are gains on the table to be taken off the table then the shift in estate agents' incentives could be a cause of further weakness in prices as it starts to feed in additional supply on the sales side.

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7 minutes ago, Bland Unsight said:

Right or wrong, my gut instinct is that UK property is far more fragile than is generally acknowledged (and certainly a great deal more fragile than the BTL cheerleaders believe). In line with that one of my pet theories about the ultimate significance of the mooted changes to letting agent fees is that it will shift the motivations of estate agents. With landlords motivated to shop around a bit more and letting agents making a great deal less from the rental churn, agencies with both a sales side and a lettings side have had their incentives shifted. If this leads to a few more conversations about the possibility of selling up when a rental becomes vacant, and a few more conversations about prices being soft and investors perhaps considering getting out whilst there are gains on the table to be taken off the table then the shift in estate agents' incentives could be a cause of further weakness in prices as it starts to feed in additional supply on the sales side.

Oh man if I was an estate agent I would totally f*ck with their heads. 

"Sometimes you've got to know when to cash in. Nothing lasts forever. Bloke over the other side of town, jacked in the property game last year. Couldn't hack hooking the old underpants off the light fittings at his age. Said I'm only young once, sold everything and buggered off to the Costa del Sol. Course, you can't have everyone doing that at the same time or the market would ... phut! If you're going to sell, best steal a march on the others. Now, we reckon this place should rent for same as last time, long as you stick on another coat of magnolia, bang in a new bathroom and freshen up those twigs in the vase." 

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1 minute ago, Patient London FTB said:

Oh man if I was an estate agent I would totally f*ck with their heads. 

"Sometimes you've got to know when to cash in. Nothing lasts forever. Bloke over the other side of town, jacked in the property game last year. Couldn't hack hooking the old underpants off the light fittings at his age. Said I'm only young once, sold everything and buggered off to the Costa del Sol. Course, you can't have everyone doing that at the same time or the market would ... phut! If you're going to sell, best steal a march on the others. Now, we reckon this place should rent for same as last time, long as you stick on another coat of magnolia, bang in a new bathroom and freshen up those twigs in the vase." 

:lol:

I guess that estate agents have to follow the prices set by transactions. If they did a Bank of England "look through" of current prices and tried to anticipate a correction then they'd lose business to competitors touting for business with optimistic valuations anchored on current prices. However, once prices are falling they can shift the narrative, "Prices are falling, we could ask for more but end up getting less because they'll have fallen another 5% before you're pricing at where the market is".

It all turns on a dime; all the mechanism that can ratchet prices in a rising market have evil twins that drive down prices further when a market is seen to be falling steadily. The thing is that we've endured so many years of pretty uninterrupted price rises in London and the South East that the idea of falling prices comes across as a bit delusional; house prices don't fall. The idea that falling prices can beget further falls probably marks you out as a candidate for the funny farm outside theses hallowed forum boards. ;)

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Wonder which way this one jumps? Up for sale and up for rent, with three different agents

For sale at £1.085m http://www.rightmove.co.uk/property-for-sale/property-43049079.html

For rent at £2,665 pcm http://www.rightmove.co.uk/property-to-rent/property-63177404.html

Timeline seems to have been: 

  • late July 2016 - put up for sale with a single agent at £1.2m
  • early Sep - put up for sale with a second agent at £1.2m
  • mid-Sep - price cut to £1.125m
  • late Sep - put up for sale with a third agent at £1.125m
  • mid-Nov - put on the rental market through the same three agents at £2,817pcm
  • today - sale price cut to £1.085m and rent cut to £2,665 pcm

Implied value of flat under PRA regime at 60% LTV and £2,665 achievable rent?

£668k. 

Ruh roh!

 

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19 minutes ago, Patient London FTB said:

Wonder which way this one jumps? Up for sale and up for rent, with three different agents

For sale at £1.085m http://www.rightmove.co.uk/property-for-sale/property-43049079.html

For rent at £2,665 pcm http://www.rightmove.co.uk/property-to-rent/property-63177404.html

Timeline seems to have been: 

  • late July 2016 - put up for sale with a single agent at £1.2m
  • early Sep - put up for sale with a second agent at £1.2m
  • mid-Sep - price cut to £1.125m
  • late Sep - put up for sale with a third agent at £1.125m
  • mid-Nov - put on the rental market through the same three agents at £2,817pcm
  • today - sale price cut to £1.085m and rent cut to £2,665 pcm

Implied value of flat under PRA regime at 60% LTV and £2,665 achievable rent?

£668k. 

Ruh roh!

 

I assume they wouldnt let it at lower than they could afford to. So i assume they bought in for less than or equal to 675k.

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