Estate Agents Commission – are YOU paying too much???

Estate agents in Tenerife are commission based, most people are aware of this. What may come as a shock though is that this commission is not fixed at any level and there is no-one imposing a maximum amount.

The way it works is like this: A seller approaches an agent and asks them to market their property. The Tenerife Estate Agent asks them how much they want back – the return to owner (RTO) price. In this example lets say they want 300,000€

The estate agent then markets the property via their websites and to their agents/introducers in the UK, but first they have to add on their cut – their commission. The normal amount in Tenerife is 5%. So, in this case the agent will market the property at 315,000€. When it is sold the former owner receives their 300,000€ and the agent is paid their commission of 15,000€ – or at least thats what should happen….

Unfortunately many estate agents in Tenerife have gotten greedy. They look at the price the owner wants, calculate their 5% commission and then decide “Actually, lets put it out at 345,000€, its a nice property and if no-one enquires at that price, we can always drop it down a bit later.”

This is not only greedy, it is completely unethical. Now an agent may counter this by saying:

“But if the buyer wants to pay that price for a Tenerife property, then that is what it is worth, so what is the problem?”

Well the problem is it is dishonest. It is dishonest because their commission is not transparent, it is not documented, it is not open to scrutiny by the buyer. We ask why? Why not be honest, open and upfront about what you are being paid? Be honest about how much money you are taking off the buyer, because that is where all their commission comes from – the buyers own pocket and that is why the buyer should be made aware of exactly how commission works for estate agents in Tenerife. They should know how much they are paying for the property and how much they are paying in addition for the estate agents “service”.

There are many ways to spot this scam, even if you are not an experienced buyer. One of the first checks should be the estate agents website. Look for links on the homepage such as “Working with us” “UK agents wanted” “Affiliates” or “Collaborators”. This tells you that they are actively seeking other agents to introduce clients to them. Sometimes they market to agents in the UK and Ireland, many of them work with other estate agents here in Tenerife. Whilst working with other introducers and agents may appear to be a legitimate business activity, the downside to the buyer is that their estate agent is then under intense pressure to increase the overall commission. The Agent in the UK or the agent in Tenerife who introduces business to them wants their cut and they want this to be a decent amount of money. If they cant get it off one Tenerife estate agent they will take  their clients to another who WILL pay them more commission. So inevitably, the commission goes up. Sometimes by 2.5% to pay the agent, other times they will simply double the added on commission. These increases commissions will apply to those clients who are introduced by another agent and those client who go to the estate directly as they can only offer one price for a property on their website so they have to offer the price which covers the commission payments.

The more an estate agent in Tenerife pays his introducers, the more clients his introducers are likely to send him. Ironically, with this commission model, the worst estate agents in Tenerife, with the highest property prices end up with the most clients because they pay the most commission to introducers. Meaning their clients are paying more than everybody else for the same properties.

One simple way of checking if you are being ripped off is by checking the purchase price stated on the purchase contract. As obvious as this sounds, most clients don´t ever see this price because they don´t know to ask. This scam works through a process called “Black Money”

Black Money is a method of buying property in Tenerife where a proportion of the money paid to the seller is not declared. This is done to reduce the amount of capital gains tax the seller has to pay. For example, the seller of a 300,000€ property wants 225,000€ declared at the notary and the other 75,000€ paid “under the table” – not declared to the authorities. Another 15,000€ will be added on for the estate agents commission.

• Total Price to the buyer – 315,000€
• Declared Price – 225,000€
• Black money – 75,000€
• Agents commission – 15,000€ (5%)

Property in Tenerife has been bought and sold like this for decades and an estate agent may try and convince you “it is absolutely normal”,  “it is a legitimate way to purchase” – It is not, it never has been and it never will be. In the past, the authorities have “turned a blind eye” to this practice, but not anymore. There are three very good reasons to walk away/decline/simply refuse to be involved in any property deal involving black money:

1. It is illegal, why help the seller break the law?
2. There is no advantage to the buyer, in fact you are effectively purchasing somebody else´s tax burden
3. It is a fantastic way for an estate agent to steal money from you using the “black  money” as cover

All very important reasons to stay away from these kinds of deals and the agents who offer them. In the example above, since there is going to be a discrepancy between the official purchase price (225,000€) and the real price of 315,000€ (300,000€ + 5% commission) what is to stop the agent simply adding on whatever amount they feel like? They could tell you that instead of 75,000€ black money, the owner actually wants 125,000€, boosting  the purchase price to 350,000€. By moving these numbers around, as long as you are going along with a black money purchase you are leaving yourself wide open to being ripped off.

Worse still , you are making it very easy for the estate agent to deceive you. Dont allow “black money” “undeclared money” “money under the table” or any other rubbish like this to form any part of your sale. Not only is it tax fraud, financially, it is in your worst interests – when you come to sell on at some point in the future, YOU will be paying the capital gains tax that the previous owner should have paid and it is a fantastic way of allowing the estate agent to rip you off.

We see this all the time when we arrange mortgages for clients. We are given a sale price of 200,000€ which we base the mortgage on, then later we are told “Actually the price on the contract is only going to be 180,000€” We know immediately that the other 20,000€ is going straight in the estate agents pocket and we know full well that the buyer is not aware of how much commission they are paying the agent.

Be suspicious, question everything, don’t accept excuses when buying. One big problem is that a lawyer will almost never tell you about this if it is happening to you. They presume that you know and it does not form part of their job to make you aware. So what can you do to level the playing field? How can you safely buy property in Tenerife?

Buying safe is actually very easy and you can save money at the same time!

The service we offer on our homepage covers all aspects of these scams. If you choose to use our service when you buy, we will check the real price. If the agent wont tell us, we will find out from the seller or from the lawyer. Failing that, we will see the real price on the purchase contract before you sign at notary. Or, if we are arranging your mortgage, we will inform you immediately that there is a discrepancy between the price you are paying and the amount the owner is receiving. If the estate agent will not comply with our transparency requirements – we will recommend you do not purchase through them.

The biggest difference between us and an estate agent in Tenerife is that we only represent you, the buyer. We only look after your interests. We will tell you if and when to pay a reservation, if and when to pay a deposit. We will arrange a completely independent lawyer – independent from your estate agent and we will closely monitor everything your estate agent says and everything your estate agent does. If we think they are lying – we will tell you.

We believe that 5% commission back to an agent is more than fair and more than enough for you to have to pay. There is no excuse and no reason to charge more than this and any agents that we contact on your behalf will be fully informed in the first instance of these terms.

We will negotiate half of the commission on any sale where you make use of our services and we contact the agents on your behalf. This will be fully declared to you, you will receive a breakdown of exactly how much commission we earn and how much your agent makes before you sign.

Of the 2.5% commission, we will pay 50% of the bill for the services of an independent lawyer up to 750€ We will also reduce your mortgage broker fee by 50%, up to 500€, if you require a mortgage for your purchase.

So, you gain the safety of a third party overseeing the sale, you have an independent lawyer of your choosing at half the price you would normally pay and you have the benefits of independent, whole of market advice if you require a Spanish Mortgage – again at half the price.

We have tried to make this as beneficial as possible to potential buyers by reducing your costs and increasing your protection throughout the sale. We hope we to make your property purchase as transparent as possible and reduce the likelihood of you overpaying to zero.

Feel free to leave your comments on any aspect of this article, the service we provide and the benefits we offer. If you have purchased property in Tenerife before, we would like to know about your experiences. Were you given all the information? Did you agent tell you how much commission you were paying them? Did you have a good or bad experience? We value your opinions and appreciate your feedback!

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