Why are Spanish estate agents so expensive?

It may be a couple of days before Christmas but still working and we have just listed a very nice villa in Sierra Cortina overlooking Benidorm.

However I am still surprised that many clients (sellers in this case) who are accustomed to UK estate agents' commission of 1 to 3 % often express shock at the amounts charged by Spanish agents. Our own commission rates vary between 3 and 5% which may seem high: believe it or not, we're cheaper than many of our competitors. Commissions as high as 10% are still common.

To understand the different environment of Spanish property, you need to understand the economic forces behind an estate agency. In essence, there are two: the drive to profit, pushing rates up; and the pressure of competition, pushing them down.

The upward force
While the basic job of the UK and Spanish estate agent is the same, in practice they are vastly different.

First, the Spanish move house less frequently than the British. So the volume of transactions is smaller. Secondly, the Spanish population is dispersed over a much larger area than the British. We take properties on within about a 100km radius of Alicante, sometimes more if it is a special property – but in practice it can be about an hour's drive. As a result, accompanying buyers on viewings is vastly more time-consuming than it would be in the UK.

So: fewer transactions per annum, and more time spent on each, with both buyers and sellers. Against this, the overheads of a Spanish estate agency may well be much the same as in the UK. As we are involved in international sales, indeed, our costs are higher as we advertise both in Spain and abroad, increasing the overhead.


More work drives up overheads
In addition, the Spanish agente has an advisory role that goes way beyond the function of a UK estate agent. In the UK, once the agent has obtained an acceptable offer, he will pass the matter to a solicitor. Apart from periodic checks on progress, his role is over. But here in Spain we have no real equivalent of a solicitor. As in other Continental countries, the notary is the person responsible for giving ultimate legal effect to the sale and purchase. The notary is also required to give legal advice – but he does so in an objective and informative way, rather than espousing the cause of a buyer or a seller.

Spanish law requires estate agents to adopt an advisory role. Many of our professional colleagues keep this to a minimum. However, we believe that this is an opportunity for Ultimate Homes, rather than a gap. We prepare contracts in bilingual format, guiding buyers and sellers through the preliminary legal formalities. Obviously we are aware that we have conflicts of interest, but we try to steer our way through them, making sure that both sides are aware of what is involved and telling them that they are perfectly entitled to get impartial legal advice from a third party if they wish.

All of this takes time and expertise. We do it for no additional remuneration – it comes from the commission we charge.

The downward force – competition
Obviously there is a ceiling to the amount an agent can charge. If one agent were to charge 50% where others charge under ten it is unlikely he would get much business. But I have to say that the price competition among Spanish estate agents does not appear so strong as to force rates down.

Where a seller gives his property to a number of estate agents – as is usually the case - there can be price competition among the respective estate agents. Since properties are advertised at a commission-inclusive price, it follows that the agent with the lower commission will advertise the property at a lower sale price than his competitors. It pays for buyers to shop around.

However, this does not seem to occur as much as you would expect. At the lower end of the market we are currently charging two thirds of the rates charged by our competitors. But there is no evidence that this price differential is bringing more buyers or indeed sellers. People seem to be remarkably accepting of the rate charged, regardless of its level. As a result, the downward force of price competition is less strong than you would think.

In a nutshell: Spanish estate agents by and large are more expensive than UK ones because they have more to do, with less transactions in number, than their UK counterparts, while suffering similar overheads. And it is likely to stay that way so long as price competition remains weak.

My thanks to Anthnoy at MCM Dordogne Property, estate agents in the Dordogne, France, for the inspiration to write this article.