Agent Property Sharing Systems Cost You Money

Published on 06/08/2007 in Buying Process

More Choice, But At What Cost

Five years ago we gave someone in a hut in Manilva 1,000 Euros cash to reserve an off plan property.  We then went back to England and happily sent over a few more thousand euros.  Looking back we must have been totally mad to trust this person in the hut.  We didn’t do any proper checks and just took their word for it that they would actually build our apartment.

We were lucky.  They did.  In fact, it’s the worry we had at the time about where our money was going and whether they were actually doing anything with it that led to us to create Eye on Spain.

At the time though we just didn’t know any better.  It was a good apartment at an excellent price and the opportunity seemed too good to miss.  We took the risk and it’s (more or less) paid off. 

Now, move the clock forward to three years ago and we land at Malaga airport with two two-year-olds in tow ready to start our new life and business in Spain.  What we didn’t realise at the time was that we would be getting involved with a very complicated market full of often desperate agents.  But the benefit being that through our close association with so many agents we learnt a lot about the systems they had in place, particularly the working relationships between agents and the property sharing systems many of them use.

It’s these systems that I want to discuss today.

Before we came out here “MLS” meant absolutely nothing to me.  If you don’t know what it stands for it is “Multi Listing Service”, examples being the “IN Network”, “Infocasa”, etc.  There are various but these two seem the biggest on the Costa del Sol.

MLS systems are used to enable agents to share properties amongst each other.  So for example, if you wanted to sell your property in Spain you could pop into an agent that is part of an MLS system and list your property for sale through them.  It means that all the other agents on the same MLS system will have access to your property details and be able to sell your property too, although via the original listing agent.

Still with me?

The idea behind it is that each member agent has many more properties on their books than they would normally have by themselves, giving their prospective buyers a greater choice.  On the sale of a property, if the original enquiry came through one of the member agents and not the original listing agent, then the listing agent and the “sales” agent split the commission.  If the original listing agent sells the property by themselves then they get to keep all the commission.

Not all MLS systems are created equal.

If the agent you use is part of an MLS system they will normally display this fact on their website.  Some systems, such as the IN Network, actually expect their members to abide by their “code of conduct”.  This means that if you have a complaint about a member agent you could take it up with them, although finding the organisation’s contact details to make your complaint to seems to be very tricky at times (a note for the IN Network).

Other systems such as Infocasa seem to leave more in the hands of the actual agents and they don’t get involved at all.  They supply the system and the agents use it. 

There are other networks out there but I haven’t looked into them all.

The benefits.

The main benefit from a buyer’s point of view is the greater amount of properties available to search through with their chosen agent.  We all want choice.

The benefit from a seller’s point of view is that their property will get a much greater exposure than would be possible through one or two local agents.  Great, more chance of getting it sold.

The main benefit from an agent’s point of view is the same as for the buyer but also that the agent may be more able to sell the property as it will have a far greater reach than it would normally have.  More choice, more customers.

But these systems are flawed.

MLS systems seem a good idea in principle, but in my opinion they are hugely flawed.  MLS systems may have worked well before but I don’t for one minute believe they are the future.

Why?

Because no one wants to pay more for a property than they really should.  If agents are sharing commissions then there is something wrong here, there is obviously too much money floating about.

Some MLS systems effectively add over 9% to the desired selling price of a property in Spain.  That’s just outrageous.  If I want 200,000 Euros for my property then on an MLS system it could effectively be listed at 218,000.  18,000 Euros in commission seems an awful lot of money!

But the real killer is that if as a buyer I went to buy that property through an MLS agent, but not the one who originally listed it, then the two agents split the commission.  9,000 Euros each.  And one has taken 9,000 Euros for simply listing the property.

Personally I would rather be buying the property for 209,000, saving the 9,000 Euros and we would all be happy.  This seems the best deal seeing as though as a buyer I would still have to pay up to 13% on top of the price for taxes and fees.  For a selling price of 218K Euros, taking 13% taxes and fees leaves a final “cost” of 246K Euros, whilst at 209K Euros the final cost would be 236K Euros….a saving of 13,000 Euros!!

But apart from the high commissions of MLS systems, there is another major flaw….

Lack of local knowledge

When I first started getting to know the way agents work on the Costa del Sol I was totally amazed at how an agent in Fuengirola could be selling a property at the other end of the coast in Manilva!  To be honest that agent actually knew very little about the Manilva area.  He was “selling Manilva” as the prices were lower in those days but he really didn’t have a clue about the area.

It’s all very well having thousands of properties in your database but are each of the agents selling those properties sufficiently knowledgeable to sell in those areas?

Probably not.

Now begins the argument for local agents.

I would always advise that if you are interested in buying a property in a specific area then talk to some of the local agents.  They will know the area really well and will probably give you the best advice.  An MLS agent not based in that area may sell you a property in your chosen area but they will probably not be the best qualified to do so.

If you don’t know where to buy then don’t use an MLS system to find somewhere to buy as you will most likely be guided by price.  Remember you are not just buying a property but a lifestyle.  The area matters A LOT when buying in Spain, we’ve lived in enough properties down here now to know that.

Research areas, ask on Spain forums for people’s opinions, etc, then…. 

Get a discount

The following applies to MLS estate agents in Spain and developers in Spain.

The Spanish property market is a tough place for agents and sellers at the moment, that’s nothing new.  But what many people seem to be forgetting is that it’s a good time to negotiate a discount….on the property commission.

If you’re buying a resale property for example, and you know that that agent has it listed on the MLS system, if he listed it and he sells it he gets all the commission, he doesn’t need to split it.  However, this is where you should step in and ask him to split the commission with you!  There’s a lot of money at stake so any reduction in the commission will be most welcome.  Remember, you will be paying tax even on the agent’s commission so haggle hard!

Also, if you buy direct from the developer they will sell you a property at the same price that you would buy it through an agent, the only difference being that the agent would take a 3, 4 or 5% commission on the sale.  It’s time you bagged that commission, so haggle hard!  We know people who have negotiated discounts with developers by buying direct, so it is possible.

Looking ahead

With the way the market is at the moment I can’t see MLS systems working all that well any more, they really favour the agents more than the buyers, for that reason alone I think MLS systems have had their day.

I think we will see a shift towards more personal relationships developing between agents with a focus on keeping commissions as low as possible and improving customer service.  I think we will also be seeing a lot more “personal shoppers” joining in who, for a fee, will help you find your ideal property.

Happy house hunting

I hope you’ve been able to gain an insight into the way that many agents are part of MLS systems in Spain.  If you’re house hunting in Spain I hope you take some of the points here to get yourself the best property in the best area at the best price.

Good luck.

Written by: Justin Aldridge

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Comments:

Marcus said:
25 June 2012 @ 17:48

Ironically for this post, MLS networking is the way forward on the Coast now, with hundreds of agents working together to try and help each other stay afloat by matching buyers with sellers more easily, and no 9% comms in sight!


George said:
31 January 2012 @ 16:03

What are the best MLS systems on Costa Brava?


Simon said:
08 October 2010 @ 08:23

5% may be a lot, but it is necessary in my opinion because of the nature of the Costa del Sol. Speaking as an agent, it is unusual that we would have both the buyer and the property, normally we have to either source the property from another agent, or the client comes to us from another agent - sometimes there may be further commissions to pay as introductions to client introducers in the UK. A system that allows us to see other suitable properties in the area and to showcase our own listings is invaluable.
Employed estate agents in the UK usually have a basic salary of around 12k and have to work their socks off to earn an average wage, relying on reasonable volumes of properties being sold to make up their commission which is a % of the +/-1.5% their firm receives. This format wouldn't work in the Costa del Sol, certainly not these days - property sales are scarce and those of us that are still left here are struggling to keep afloat - we need to earn a reasonable amount when we do sell a property.

No one agent is ever going to have all of the properties on their books and all the buyers coming to them. Viva tried it by charging 2% thinking that they were big enough to corner the market but failed miserably. Any agent that charges less than 5%
is not going to be able to work with any other agents, and will have problems recruiting staff to sell on a reduced commission as they can get better going elsewhere or doing it on their own.



AMLASpain said:
25 May 2008 @ 09:04

A recent article in eyeonspain.com prompted me to write this article as reading the aforemetioned piece highlighted many of the mis-conception that have grown up in Europe regarding Multiple Listing and the inherent benefits to both clients and agents.

The first mis conception is what MLS actually is. Multiple Listing is a form of Agency contract. The most common agency contracts that you may have come across in the UK are sole agency and open agency, where the vendor, (seller) enters into a contract with an agent to sell their property under various terms and conditions. In the same way, a Multiple Listing Agency contract gives the listing agent the right to market the property through other co-operating agents as well as to the public in general.

A listing contract is a form of employment contract between the owner and the listing agent. The terms and conditions of the contract relate solely between the two parties. This includes the commission that the vendor, (seller) is willing to pay the agent for producing a buyer for the property.

“Some MLS systems effectively add over 9% to the desired selling price of a property in Spain. That’s just outrageous. If I want 200,000 Euros for my property then on an MLS system it could effectively be listed at 218,000. 18,000 Euros in commission seems an awful lot of money!”

In the above quotation from the eyeonspain article, any organisation that imposes a commission outside the terms of the listing agency contract is acting as an agent and not as an MLS. The MLS service provider may charge a fee to the agent for use of its database and allowing them to list their properties on it, but does not charge any additional cost to any member of the public using the service. Any website or service provider that does this is acting in the capacity of an agent and should not be considered an MLS.

In relation to the two systems quoted, I can state as fact that ‘Infocasa’ does not impose additional fees to potential buyers and as far as I am aware the IN Network is now operating as a single agency.

One of the other points mentioned in the article was that having two agents involved in a single transaction was at the detriment to the buyer. This I would suggest is one of the main benefits to an individual looking to purchase a property in Spain.

Having travelled to Spain to purchase a property under a decidely different legal system I find it a distinct advantage to have an agent acting seperately for the interests of the buyer, rather than relying on the information from an agent who has a contractual obligation to the seller and a financial interest in completing the transaction.

The main source of problems in property transactions in Europe arise due to the direct conflict of interest that a ‘one agent’ transaction occurs. Who’s interests does the agent act for in such a transaction? In a mature MLS property market such as the USA, single agent transactions, whilst rare, do still occur. When they do however, they are governed by much stricter rules to avoid the conflict of interest. In Spain, I would suggest, that having an agent act for your interests, seperate to the agent contractually obligated to the seller helps avoid conflicts and provides avenues of direct responsibility.

Ideally, a prospective purchaser should sign a Buyer Agent Agreement outlining the agents responsibility to the purchaser and the terms under which the purchaser agrees to pay his fee. This fee is usually negated by the sharing of the listing agents commission, but can be seperate.

The agent acting for the buyer then has the responsibilty of finding the most suitable property for the client and negotiating the best possible price for his client seperate from any responsibily or contractual obligation to the seller. Surely this is a much better scenario than being left to the control of a single conflicted agent.

It is not surprising that the article tries to criticize this system. In the UK, property transaction have always been governed under the one agent system with responsibility being thrown onto the buyer, not only in terms of the ‘Caveat Emptor’ rules or ‘Buyer Beware’, leaving sole responsibility on the buyer for determining any defects in the property. But also in terms of determining whether they are purchasing the property at the best possible price.

Another major benfit of a Multiple Listing Service is the ability to make direct comparisons of price against the available property on the market. This helps highlight any single property that may be overpriced as well as providing a choice of altenative comparable properties for a purchaser to choose from.

In conclusion I would say that the problems lay not within the way Multiple Listing Agency works, but in the understanding of what Multiple Listing is and how to decipher what is and what is not a proper Multiple Listing Service. It is also a matter for a prospective purchaser to decide under what conditions he or she wishes to enter into a property transaction and what level of responsibility they want to take themselves, or defer under contract, to an agent.

I believe that the underlying problems to be found in the system however, lie more in the non-regulatory nature of the market than anything else. With European harmonisation of contract law now in force, maybe a European wide directive imposing standard binding agency contracts would go some way to addressing the issues.



valeron said:
07 August 2007 @ 12:05

Very interesting article. We are just coming to the same conclusions about MLS. We advertised an off-plan property but took ages to get a buyer and when we the agent's commission was more than our profit! It also appears that less agents are using MLS.
P.S. Found info from your lawyer very useful,too
Val



landsker said:
07 August 2007 @ 08:40

Even without commission sharing, the level of agent's fees on the coast, is truly horrendous.
As far as I know, there are only a couple of agents locally who charge less than 5%.
5%!!!!!!
That's outrageous. In the UK, my daughter and son-in-law have just sold, STC, their house in Nottinghamshire, (hardly a property hotspot), and the agent, part of a large chain, will charge just 1.5% + VAT.
Even in London I understand that 2 to 2�% is the norm.
Agents on the Costa del Sol have made easy money for too long on the backs of people hooked on the "dream", who don't know/care/are told about the hidden costs involved. It's time for a shake-up and the current property slowdown/slump, may just see a culling of agent's ranks and the introduction of some meaningful competition!
Dishonest marketing is rife and top of the heap in this respect must be VIVA Estates, with their much trumpeted 2% fee which encouraged many vendors to list solely with them. Now their commissions have risen again to the Costa norm and guess what - those who listed at 2% aren't getting any viewers. Surprise, surprise. As a salesperson/agent why show a property at 2% when there are loads which will get you your slice of 7�% ?



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