What’s wrong with the property agents in France?

property agents in franceProperty agents in France are having to deal with  big problem. Almost 50% of the real estate transactions in France is done ‘entre particuliers’. This means that buyers and sellers find each other, negotiate and close the transaction without the intervention of a professional realtor. Only the signing of the contracts is, of course, done at the notary’s. In any case 50% private sales is a lot more than in neighbouring countries, where the involvement of a property broker is standard practice. In the Netherlands, for instance, only a few per cent of the deals go through without an agency. How can we explain this difference?

Property agents in France – a high price

The most important reason for bypassing the property agents in France is the high prices they charge. Lately there is a bit of a shift downwards under pressure from the market and the Internet, but for a long time you had to pay the ‘agent immobilier’ at least 6%. A broker in Burgundy, with an average home price of 200,000 euros could collect 12,000€ per successful transaction. If he’d sell one house per month, he’d make a turnover of almost 150.000 euros a year. Even in these difficult times, there are still brokers who refuse to go below 6%. In regions such as the Côte d’Azur and Biarritz, where many houses cost more than a million, one successful sale nets 60,000 euros. Not bad!

Cause and effect, and cause

There are several reasons why property agents in France ask such a high commission. First, property agent has high costs. At least, he used to. Before the rise of the Internet, a property agent needed an office, preferably in a prime location where many shoppers pass the shopwindow presentation, a secretary to pick up the phone while the boss was in the field. And an expensive car to comfortably cover a lot of ground for house visits.

The second reason is the competition. Property agents in France never managed to join forces. Rather than colleagues, they have kept on behaving like competitors. In the Netherlands it has always been quite common for brokers to keep each other informed of all new homes coming available in the region. This way, seller needed to hire just one single broker to reach all prospective buyers in the network. Nowadays, with the national real estate site Funda.nl, the market has become a 100% transparent. So there is even less reason to use more than one property agent.

Property agents in France have a chance of one in four of selling

In France, realtors always refused to sell each other’s homes. Each broker keeps his cards close to the chest and sells “his” houses only to “his” customers. An owner who wants to reach more buyers for more chance to sell his house, will have to confide his property to several brokers. But that’s a double-edged sword, because ultimately only one agent can sell the house and earn the commission. So if every house is for sale with four agents, the other three will not make a penny. Still, each broker has to invest money, time and energy in the property. Pay for advertising, organise visits, make photos, write a description, have translations made… all wasted if a competitor sells the house. It stands to reason that if a broker sells only one in every four houses and gets 6% commission on that one successful sale, then on average he earns just 6% : 4 = 1.5% commission on each house in his portfolio. Exactly the amount his Dutch colleague earns with four times less investment of time and energy.

Price Fixing

The property agents in France are trapped. They can’t lower their 6% commission, because with a 25% succes rate this will bankrupt them. On the other hand, they can’t attract more customers by lowering teir price. There is an unwritten law that you do not drop your price below 4%. If you do, you are in trouble with your peers. Members of Real Estate Agents franchises who do it anyway, such as Immo 4%, are being snubbed and even actually slandered (“impossible to do a good job for that price”).

Change the system!

If only everyone would decide to put his house for sale with just one real estate agent. You don’t need to sign a ‘mandat exclusif’ because you may want to sell to a neighbour or passer-by, but at the lowest possible commission. That does mean that three out of four agents will be redundant. But what is happening now, is that buyers and sellers of real estate help pay to preserve a surplus of brokers. Now what’s the point in that?

Exclusive, but not too expensive

An alternative may be to indeed offer your broker an exclusive mandate. For example for 3% with a duration of six months. While agreeing in writing that you yourself have the ability to market your home privately, and that if you find the buyer yourself, the broker only gets 2 % for organising the transaction. Of course, in that case you should choose your broker carefully, preferably using a local firm, not belonging to one of the big brands. The privately owned companies score much higher in service and quality.

The more people do this, the closer we may get to the Dutch system, with less brokers, lower commissions and thus lower real estate prices.