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Tips to navigate the post-letting fee world

Wednesday, December 05, 2018

*Note that for the purpose of this article we will distinguish ‘letting’ from that of ‘property management’ as understood in the New Zealand context.

From 12th December, letting fees will be 'abolished'.

By now, you should have received communications from your property manager explaining if and how you will be affected. Many have already advised their new fee structures to help their landlords plan for upcoming expenses.

Abolishing the letting fee merely shifts the pendulum of liability from the tenant to the landlord. It does not, in and of itself, diminish the commercial value of a professional letting service. Someone still has to pick up the tab. And from 12th December, that ‘someone’ is the landlord.

On the surface, this is an added cost to the landlord. Naturally, we expect there to be some degree of grumbling and discontent. That said, the good news is that letting, as a professional service, will now be vetted and regulated by the market. Over time, market competition would see to it that the good letting agents thrive while the underperforming ones bow out. "From the landlord's perspective, they are really going to want to see what they are paying for," say Huw Evans, Barfoot & Thomspon Property Manager (Ponsonby), "Agencies that provide good service will have nothing to fear because they can justify the cost. Those owners who do not feel that they are getting valuable service will soon drop off, change agency or let themselves. From our point of view, 2019 is all about maintaining and exceeding service standards in the property management and letting industry."

Professional letting service also allows you to leverage off of your agent's local knowledge and market experience. "We have the experience of letting hundreds of properties a year rather than just one." says Huw, "That gives us a good knowledge of the entire spectrum of the property market. Having exposure to so many tenants over the years also give us a good instinct of who would be a suitable candidate."

Paying for a service is just part of doing business. That said, you would still want to make sure that you are getting excellent value for your money. Transparency and prior knowledge are fundamental for you to do just that. Here are some tips to prompt you towards making a more empowered decision in this space:

  1. The fee: Ask your property manager for a copy of the new fees structure. Best to do it now even if you do not have a current vacancy to fill. Note that several of our property management partners have signalled that they will cease to use the term ‘letting fee’ altogether to avoid confusion.
  2. The fee structure: What does the fee comprise of? Is it subsumed into the overall management fee (e.g. as an increased percentage) or is it a separate fee altogether? Will there an additional administrative charge? If the letting agent is also your property manager then would it be possible for the letting service to be cleaved out from the management contract or must the property be let through the property manager? How is the fee charged (per let or per year)?
  3. The letting service: Request a schedule of work from your letting agent so that you know exactly what services will be performed. For example, does the service include performing a mandatory credit check on all applicants? Is there any additional cost to credit checking and how does this cost compare to your discounted credit checking fees through the APIA? Does your letting agent ask for landlord references and are these references being followed up? What questions will your letting agent ask the referees? How will the agent handle first-time renters (with little/no reference and/or credit history)? Will your agent organise the marketing of the property? Will photos be professionally taken? Is there any scope for you to negotiate more/less work to be performed and have the fees be reflective of the new schedule? How hands-on/hands-off will you be?
  4. Tenant interface: How will the open homes be conducted? Will your letting agent proactively highlight certain features of your property to make it more desirable to tenants? Will there be any other value-add service to increase inquiries/leads? Have you reviewed a copy of the standard tenancy application form and agreement? Do these documents give you adequate levels of information?
  5. Record keeping and transparency: How much visibility will you have over the letting service. Will applicants’ background and merit/demerit details be disclosed to you? Will you be shown call logs of reference checks?
  6. The letting agent: Who will be performing the actual letting service? Are you engaging an agent or an agency? What is the agent’s track record (e.g. experience, local knowledge, average property downtime compared to the market, average length of tenancy, level of rents achieved compared to market)? Does the agent/agency present herself/itself as a suitable extension of you, the landlord (e.g. if you have a zero tolerance to rent arrears, what is your letting agent doing to front foot that preference to all tenant inquiries? Is he giving tenants the correct impression from day one?) Overall, are you confident that you are going represented in the best light? "Effective communication and a readiness to have candid and tough conversations with landlord clients are essential to being an excellent letting agent," adds Huw. "A number of people approach us in recent times have been disgruntled with their properties being left for a number of weeks with no feedback (good, bad or ugly) from the letting agent as to why they are not renting. In this market, we aim to have properties rented within seven days of listing. If that is not happening then we front foot the issue with our landlords and talk about lowering rent expectations and/or better presentations. These conversations are not always easy but they have to be had." 
  7. Protection: Does the agent/agency have appropriate indemnity insurance in place? If so, how will that insurance provide you, the customer, with assurance and protection? Does the agency have broader policies and standards pertaining to the act of letting? How will individual agents be held accountable to these standards? How will your complaints be handles and who will they be escalated to?
  8. Outcome: Once you grant the agency, how much control do you have over the letting outcome? What happens if you and your letting agent disagree over who to rent the property to? Would the agent’s liability be curtailed if you insist on letting to a certain tenant against advice?
  9. Handling of money: Is there a mandatory minimum of bond to be collected? Who is, ultimately, going to set the rent? Who will be doing the collection? Who will be lodging the bond? Will you receive any paperwork demonstrating the appropriate handling of the bond and rent? How will the letting service fee be paid/deducted? When and how will you be paid?
  10. The nitty-gritty legal stuff: If you are using the letting service of your property manager, will the overall management agreement change from 12th December? If so, have you been given the new wording? Does the agent sign new tenants up for fixed-term tenancies? If so, how long? "Typically at Barfoot & Thomspon we sign tenants up for 12-months fixed term to give landlords certainty of income and tenants security of tenure," says Huw, "if it is shorter, it would be negotiated from the owner's point of view and stated clearly to tenants. We can go up to 18 months but we generally don't because life can change a great deal in 18 months." 

Overall, we are not terribly concerned about letting fees as an additional cost for landlords. Anecdotally, most APIA members accept that it is simply the cost of doing business and bringing New Zealand in line with many other countries. That said, we are wary of the inherent vulnerability for consumers of any new market (which is what letting is going to be from 12th December). Fundamentally, leaving anything to the natural forces of the market gives everyone the ability to exercise their freedom to contract with any party. The suggested standards above are pitched fairly high. They are drafted with the ‘ideal scenario’ in mind and may not be to everyone’s taste. Our feeling is that if you are paying for a service, you may as well get the best. Otherwise, how is that any different to you letting the property yourself?


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