This is the second episode in our special Q & A Series. We break down how a BMV (below market value) deal is put together when an estate agent is involved.
Mark: So, second question is by Paul Holman and this one is let's say you do a BMV deal for an investor, who pays the estate agent’s fees and how is that put together? If the vendor pays and he or she is already going for a BMV and then they have to pay the estate agent’s fees isn’t a deal breaker. So, you're absolutely right, Paul, working with agents, unfortunately, does mean that you're going to have a sales fee to pay. So, if you do a BMV deal for your investor direct, the seller is still liable to paying a sales fee, and depending on the contract that they're on of course, but if they're on a sole agency contract they will still be liable to pay a fee to the agent even if you go directly. So, a good way to combat that is to offer to pay that fee for them, so that can be a deal breaker.
If you are going directly via an agent, so if you've gone to an estate agent, done the viewing and then you're negotiating the BMV deal to the investor, then really that seller is going to pay that agent’s fee. So, if they’re motivated and they need to sell, then they will accept that they still have an estate agency fee to pay. Now, you are going to come across situations where they do query it or ask for sort of for you to pay it or try and get out of it, what I would say is at the level that we’re going to be dealing with, on the most parts, estate agency fees are round about 1% plus VAT. Usually, there’s a minimum fee, probably round about, well, depending on where you are, up here it can be a minimum fee of about six, seven hundred pounds. A lot of places it might be a minimum fee of a thousand pounds.
But the point is if you're negotiating a real BMV deal and you're down at the 20, 25%, and you've taken into consideration all the different costs including your sourcing fee, stamp duty, et cetera, then that little extra thousand pounds is not going to be too much of a deal breaker for the investor. So, you may well find that the investor will be happy to pay that fee as part of the deal themselves. Like I say, I’ve answered it without going through the bullet points, but if the numbers are really tight for the seller, you can offer to contribute or even pay it. Now, you can either do this by lumping it onto the investor’s fees, what the investor is going to pay, but again equally it could work the other way. So, you might find that the numbers are so tight that if the investor pays it suddenly that BMV deal is quite as attractive anymore.
So, what you want to be doing is taking each deal as it comes, each deal is different. You need to approach them in an individual manner, and what you can do, which is a really good way, and this is quite something, this is what we did when I was in an agency, are you knock a bit off your fee. So, what you would if you've, let's say, got a 4K fee on the BMV deal and the seller’s estate agency fee is a grand, I would absorb that grand to get 3K for myself but to keep a happy seller and investor. So, you can play around with it in many different ways. The real key to making it successful is to ensure that the numbers stack up with all the different costs involved. So, the net BMV is going to be at a level that the investor is happy with.
And then as for how you play with the fee depends on the numbers in the deal, but hopefully, that give you three different ways to deal with a fee with an estate agent. So, hopefully, that helped.