March 27, 2014
Property gossip August 2016

This article is based on the feedback received from buyers, sellers and the experiences of our staff.

Methods for selling a property include sale by Private Treaty, Sale by Auction, Sale by Formal Tender and Sale by Informal Tender.

What is Sale by Informal Tender?

The process known as ‘For Sale by Informal Tender’ will generally mean a guide price being stated with written offers invited (sealed bids) subject to a closing date. Offers are opened at the same time although the vendor is not committed to accepting the highest, or any, offer. The offer is not binding and on acceptance of any offer the transaction proceeds subject to contract.

Sale by Informal Tender can be useful when competition for a particular property is strong or where a closing date is required.

In certain situations the method could well be the best route to go although we are often being asked why buyers are currently expected to pay the estate agent fee – a finder’s fee / introduction fee – when traditionally the seller pays the estate agent.

If we go back to a time when the market was more evenly balanced your typical estate agent would conduct their marketing over a period of 4-12 weeks during which time they would expect to agree a sale somewhere between 90% – 100% of the asking price. In such a market the idea of asking the buyer to pay a fee would pose the question of “why buy a property through an agent charging me a fee when there are plenty of other properties for which I would not need to pay a fee?”

Of course over the past 12 months the London housing market has been anything but balanced, instead we have seen huge demand with prices in some areas rising at a rate many have never before experienced. Having missed out on several properties buyers are often prepared to do whatever they can, which is within their power, to become the successful bidder on the next one. This is why sale by informal tender, with the buyer paying a fee to the estate agent, has been possible.

Clearly not very popular with buyers! But does it mean that sellers using an agent who charges a fee to the buyer will end up with the best buyer, in the best buying position who will pay the best possible price? Maybe, but maybe not!

Who wins – the buyer, the seller or the estate agent?

A buyer will no doubt have a ceiling on what they can afford to spend, borrow and/or be prepared to pay. Therefore regardless of whether or not the buyer needs to factor in a finder’s fee they will most likely arrive at the same figure when it comes to calculating their maximum spend. From a seller’s perspective if the estate agent is charging a higher fee to the buyer compared to the rates usually offered to the seller then could the seller be the one losing out?

Example A

Buyer with maximum purchase spend of £450,000:- 2% + VAT of £450,000 = £10,800, when subtracted leaves £439,200 as their maximum offer to the seller.

Example B

Seller paying fee of 1.25% + VAT on sale price of £450,000:- 1.25% + VAT of £450,000 = £6,750, when subtracted leaves £443,250 to the seller.

Even if an estate agent is charging the buyer a fee which is similar, or the same as, what the seller would have been paying, could the seller still be missing out? Feedback received over the past three months would indicate a growing number of buyers refusing to view property that will potentially mean them having to pay a fee. In fact when taking new enquiries we are often asked questions such as “before I go any further are you selling this property sale by tender?” or “before I book to view this property are you charging buyers a fee?”.

Some of these people are cash buyers, or buyers with a very high deposit – the type of buyers both sellers and estate agents want through the door. Whichever way you look at it a seller would certainly want the best buyers to be viewing their property and by having the widest audience available the seller will most likely achieve the best possible outcome.

Splitting the difference?

There has been talk of estate agents splitting the fee between the buyer and the seller but could this pose a different problem altogether?

Is it perhaps one thing to charge the seller a relatively small administration fee for drawing up the informal tender agreement, whilst charging the buyer a finder’s fee, but then something totally different to charge the seller a fee to find a buyer, whilst at the same time charging the buyer a finder’s fee to be introduced to a property? In such a situation who becomes the client? Who should the agent be working for?

Once a sale price has been agreed the job of the estate is by no means over. They will need to maintain regular communication between buyer, seller, solicitors, mortgage brokers and anyone else involved, whilst all the time being party to any further negotiation talks using their experience and expertise acting in the best interests of the fee paying client.

We have found seller feedback of particular interest. Aside from the prospect of missing out on some buyers, and/or potentially being worse off as a result of a high fee being charged to the buyer, many feel it is simply unfair to apply a charge to both parties. Some feel that if the seller is the one receiving the service, expertise and advice then it should not be the buyer who pays for this and there should not be the possibility for a conflict of interest to arise.

The future of Sale by Informal Tender with buyers paying a fee?

It would not come as a surprise to see a degree of outside intervention whereby the finder’s fee charged to a buyer cannot be higher than would have been charged to the seller. Perhaps clearer information for buyers will be required to ensure they are fully aware of costs and procedures prior to arriving for a viewing – something else we was told within the feedback received.

If the concept of buyers paying the fee were to grow, and became the norm, then clearly every agent would need to adopt the same strategy; however this is doubtful. At some point the market will change and buyers will not find themselves so limited for choice. Indeed there are now more properties on the market locally than was the case at the end of 2013.

A local MP, Stella Creasy, has written about her campaign against “double charging” and through our membership with The Guild of Professional Estate Agents we understand that the Property Ombudsman intend to look into the matter.

As estate agents we all have our own ideas on how we can achieve the best possible result for our seller clients and as long as the agent is putting their client first at all times then they are doing their job properly. Listening to people, buyers and sellers alike, is in our opinion an important part of the job and will help any estate agent stay in tune with the market, which will in turn increase their chances of achieving the best outcome for their client.

Your views

We would very much like to hear your views on the current market and in particular about your experiences over the past 12 months. What are your views on estate agents? Have you refused to a view a property for any other reason than it not being what you are looking for? And would it bother you if buyers paying a fee to the estate agent were to become the norm?

Comments we’ve received

Hi Jenny,
Thanks so much for the link to the article sent. This was a really helpful article. I’m quite an advocate that more information  on this nature should be available by agents to FTB’s, having myself missed out because of some of the terminology used such as ‘Best and final’ etc (I thought this was just sales man speak 🙂
By sharing this information with FTB’s it makes you appeal as agent to visit, use and place trust in.
Hi Jennifer,
Having just read your article I wanted to let you know I was very pleased to see an estate agent taking a responsible and balanced attitude to sale by tender. I cannot understand why sellers are using this option as I have offered on a property under this process and the amount I offered was exactly the same – the seller would just have got less for their property. In terms of estate agents I personally don’t really consider properties by xxxxxxx xxxx or xxxxxx anymore as their fee is in excess of 2% – that’s almost stamp duty! I have heard other buyers say the same.
Understandably it is a competitive environment for estate agents, but as your article rightly said it won’t be like this forever and reputation is lasting! Of course it is understood by both parties that the estate agent needs to run a successful business, but this can be done in a way that is fair to both buyer and seller.
Thanks, i’ll comment on your article by way of encouragement.
To Jennifer Butler
I am not on facebook, but would like to comment on your interesting article:
We decided not to look at any properties which were SBT, after initially looking at one and deducting the introduction fee from the price we offered. Having agreed a fee in the traditional manner with our own estate agent for selling our house, we objected to being expected to pay another fee, which we didn’t negotiate, for buying somewhere else. Additionally, the introduction fee often has to be paid on exchange of contracts, and it can be difficult to find this high sum before completion of your sale and purchase.
I am very glad to hear that you are trying to raise the concern of this vicious trend of the estate agents who are unlawfully charging the buyers and tried to rob helpless vulnerable desperate buyers. The Government must fine these estate agent
Hi Jennifer,
My feedback on this is too long for a Facebook comment, and as someone who has spent the past 4-5 months dong nothing but search for houses in Leytonstone I have quite a strong opinion!
Firstly to caveat – your point in the article is of course correct that the market in E10,11 and 17 is/has been crazy, but as a buyer in this market vs 7 years ago when I last purchased a property, any sense of service or personal treatment towards helping buyers find a property has all but disappeared. Open days only, tender processes and introduction fees are just some of the examples of this.
As someone both buying and selling in East London, I have ended up having an offer accepted (finally) on a property that did incur a 0.5% introduction fee. As I didn’t enforce this on my own buyers I’ve obviously paid at both ends and feel that this is very unfair as well as impacting my budget – but can live with 0.5% to end the search! I have viewed properties demanding the full 1.5-2.0 % intro fee but only out of desperation towards the end of my search and did not offer on any – however I know many people who boycott certain agencies charging the tender fee, meaning they also wouldn’t sell via them in the future.
Another point is that at one point I actually reached out to some professional property search agencies to help me find somewhere (at the point I had had 13 offers declined!) – some replied saying they did not cover my search areas, but two flat out refused – having covered E10, E11 and E17 towards the end of last year and found many of the agencies to be practicing tender fees, putting properties back on the market after accepting offers, or general ‘unprofessionalism’ (their words not mine!)
So my feedback is vey negative, but I can see how this has been driven by the market and I am sure some people will pay, especially the cash buyers with no property to sell…
Anyway, I hope this may be helpful in some way!
I would not buy a property through Sale by Tender for the following reason. I’m not a cash buyer therefore I must consider how much I can borrow. If I have 100k to spend and I am attracted to a 25% LTV mortgage rate, then I can afford a property worth 400k. If I must tip the agent 10k and I only have 90k remaining for the deposit, then I can only afford up to 360k.
Hi Jennifer,
Thank you for writing this article, it was a very informative read and was good to see the subject of fees from both sides.
My boyfriend and I have just purchased a flat, we were first time buyers with a large deposit and a solid mortgage in place. We were the ideal buyers but like you said in your article we refused to view flats that were sale by tender as felt the fees were not just and added a cost to our property that we would be unlikely to receive a return on as by the time we sell our flat it is quite possible the market will have slowed down and the seller will be paying the fee again which means we would be losing out on thousands. Therefore the sellers had 1 less credible buyer viewing their flats on many occasion.
I definitely understand the market is at an all time high so can see why the fees have been moved to the buyers however I do not feel that this is good practice and as mentioned in your article will not end up making the seller anymore money.
Hi Jennifer,
In my opinion it is a question of how the system was originally set up as to who pays the fees.
In Germany, for example, the buyer is always paying for the estate agent’s fees and they are sometimes as high as 6% plus VAT!
Stamp duty in Germany can be anything from 3.5% to 6.5% of the value of the property, depending on the individual State you buy the property in. However, financing is a lot more affordable and currently interest deals of 2.5%, fixed for 10 years are not uncommon.
I am not surprised that these questions regarding the payment of fees and closed bids, for example, are being discussed in this current market.
As you know, I myself have only recently managed to buy a property through Trading Places and am observing the rapid price increase with a certain amount of disbelieve but also as a natural way of how the specific local market operates.
Leytonstone has been discovered as one of the last places to live / invest in London which hasn’t already seen insane price hikes.
I used to own a one bedroom flat in Finsbury Park 20 years ago and a similar property in Leytonstone is still £100,000 cheaper on average.
People use the internet extensively to conduct searches these days and Leytonstone is geographically as close to the town centre as, say Finsbury Park. One could argue, if you work near Liverpool Street or Canary Wharf, it’s even more attractive.
I imagine that sooner or later the intense price increase we are witnessing locally will level out.
Additionally, one can feel the knock on effect from Stratford where, as I understand, 30 or 40 newly built flats in newly built tower blocks, are being sold off plan at a property fair in Hong Kong in one day.
One only has to look at the kind of property Manhattan Loft Corporation is planning or the fact that Crossrail is being built to get an idea about the development over the next 5 to 10 years.
All this right next to the Olympic Park with its fantastic facilities.
E11 and E15 are the new Hackney.
So, to come back to the initial question, I think it is an open market and the market will regulate itself. If I were to sell a property in this market and the agent makes the buyer pay the fee, I would welcome this. I don’t believe that I would achieve a smaller realistic price because the people who have the money might even outbid themselves to be able to buy.
At the end of the day agents also offer different percentages when selling a property already and quite often their valuations vary greatly.
It’s a question for weighing up for oneself what is best.
In my view rather than talk about who pays the fees, the legal process should be sped up so gazumping will be stopped for good.
Hi Jennifer
Thanks for your email.
I have rather strong feelings about “sale by tender” – which is a misleading name. The practice of allowing an agent to recoup fees from the seller and buyer is fundamentally flawed – in whose best interests is an agent asking if they are taking money from both sides? Not to mention the fact that as a buyer, I struggle to see what they are doing to earn that fee.
I was asked to enter a sale by tender by xxxxxxxx two weeks ago – a sale on xxxxx Road. I exchanged emails saying I would not pay the amount and so no offer was made. I did however write to my MP to make my feelings known. It appears I am not the only one who believes this practice is wrong.
Interesting article.. Nice idea to publish bits like this on your website
Personally I think it is good for the seller, but I wouldn’t want to buy via sale by tender
It’s a sellers market at the moment and while people always have a ceiling,
I think this method works well
Dear Jenny
Thank you for your e-mail.
I am a recent first time buyer and no only too well the costs associated with buying a property.
Although I could have afforded the additional fees, I ruled out completely viewing properties which were sold by tender.  It was not just the fact that the bulk of the estate agent’s fees were being switched to the buyer, it was the percentage charged.  In addition and in comparison to the conventional method of marketing a property and offering viewings, it was our impression that sale by tender was a cheaper and quicker way for the agent to market, deal with viewings and offers and sell the property as less time would be spent (we had an admission from agent that this was so) and, therefore, the fees incurred were unreasonably.
Conventionally the seller would be upgrading and, therefore, would only pay the agent’s fees for selling their home.
With sale by tender it could be the case that if the buyer pays the fees and the seller is looking to upgrade then the fees would just form part of a domino effect, however, these fees do appear penalise first time buyers as they have nothing to sell.  First time buyers have great difficulty in raising funds already and, based on the 2% plus VAT charges I come across, they would need to stump up an additional £6,000.00 (on a £250k property), which is simply unrealistic for most.  It could also benefit buy-to-let buyers as they are more likely to swallow the charges bearing in mind the likely return they will achieve over the term of their investment.
I have written to my MP raising concerns and have also asked whether he would be prepared to raise a question in Parliament on this point as these charges will do nothing but hamper attempts to get more first time buyers on the ladder.  Personally, I think something should go on the statute book barring this fees.  However, my gut instinct is that those in power have no interest at all in dealing with the housing situation as they have vested interests.  Many on the front benches and their backers have their own portfolios and any attempt to help lower prices etc. would have massive effects on their own assets.
I hope you find the above helpful.