My previous posts have been reasonably lengthy and the content deliberately natural with the intention of providing helpful hints and tips that I believe will help your business deliver incremental gains.
This week’s post is intentionally short because the topic and certainly my opinion will not be shared by all and I battled with myself not to write a lengthy piece trying to sell or justify my thoughts.
Much of what I’m about to write about will be completely foreign to agents trading inside the M25 corridor and certainly those trading in central London. In these locations a let only renewal fee is an additional, albeit slightly reduced ‘tenant find/let only’ fee. In other words - the landlord may pay 9% of the term on moving the tenant in but should that same tenant remain in the property for a second or third term, then the fee will still be due but on a sliding scale, maybe 7% term 2 and 5% term 3.
Outside of the M25, In my experience ‘renewals’ are charged very differently. If the landlord wishes to extend the fixed term, then the majority of agents prepare a new tenancy agreement for an ‘admin’ fee which ranges between £50-£150.
In addition, because we charge for the fixed term period, most savvy landlords will only agree to a 6-month tenancy in the knowledge that it reduces the cost.
Let’s very simply break this down using some key stats from ARLA
The average tenancy in the UK is 20 months.
An average rent of £959
An average let only fee to be circa 9%.
A 6-month tenancy at 9% would be a £517 fee. Add in 2 renewal charges at £50 over the remaining 14 months and you have a total income of £617.
Breaking it down further, the total amount of rent charged over the 20-month tenancy would be £19,180, meaning the total fee charged would be 3.2%. Those agents who charge 50% of the first month’s rent are even lower.
Why do agents who are only able to charge ‘admin’ fees offer let only landlords renewals?
In many cases, the £50 admin fee doesn’t even cover the cost of numerous conversations between the involved parties, the preparation, printing, and posting the tenancy agreement plus all the chasing up of the signed documents.
What’s the risk of not offering renewal?
-The tenancy goes periodic and the tenant leaves earlier than they may have done should it have been a renewed fixed term? Great, you can re-let it earlier earning a ‘proper’ fee. If each tenancy ends 4 months earlier (month 16) then over the landlord lifetime it would give you an extra 2 fees.
- The tenant leaves without you knowing and the landlord lets via another agent? Firstly you should have a process whereby you periodically check in on the landlord (maybe disrupting if rents are increasing). Secondly, if you protect the deposit you should be aware. Lastly, if the landlord thinks that little of your service that they let via another agent, they would have done so at the end of the tenancy even if you did renew.
-Your competitors offer renewals and you lose instructions? Out of all of the reasons landlords have not instructed me in the past, failure to offer a renewal has never been one. Landlords instruct on trust, confidence, compliance, communication, transparency, and your product offering.
Lots of people will challenge this and they have every right, I understand that you may want to offer the best service, or give your tenants more security and that’s very honourable. But commercially it just doesn’t make sense (in my opinion) and whilst many might say they did, I don’t believe many of us set up businesses not to make money.
Read the first blog in the series here: Lifetime value of a sales customer vs lettings customer
Read the second blog in the series here: A simple script to help generate more revenue from lettings
Read the third blog in the series here: A very popular question with a very unpopular answer!
Read the fifth blog in the series here: Do you grade your stock?
Read the sixth blog in the series here: Does one size fit all?
Read the seventh blog in the series here: How can you get landlords instantly?
