Fair Competition Among Real Estate Agencies is Debated
Volume XXI, Issue 24
The French Competition Authority (Autorité de la Concurrence) received a request for an opinion on the competitive situation of the French real estate brokerage market from the Minister of the Economy and Finance last July. It submitted its conclusions on Wednesday, June 7th.
The verdict? They declared that the fees charged by estate agents are excessively high and that reform of the profession is long overdue. In its recently published report, the agency states that the regulatory framework for estate agents was established over 50 years ago and is in need of an overhaul due to advancements in technology and improvements in consumer protection.
The agency acknowledges that while there has been significant growth in the number of other intermediaries involved in the selling process, they are all required by law to operate as authorized estate agents, who hold a monopoly on the sale process. However, property owners also have the option to sell privately, typically through online portals.
The rise of independent commercial agents has led to a decrease in salaried employees within estate agencies, with more agents working for a share of the sales commission paid to the estate agent. They don’t cite the reason, but I suspect that because there is no MLS in France, there is a greater need for agents who protect the buyer rather than the seller. In addition, if the agents are salaried, clearly they will not work as hard to make the sale!
In 2022, the Authority found that the average commission rate in France was 5.78% of the sales price (including the Value Added Tax), compared with nearly 4% in the rest of the European Union. It, therefore, calls for a reduction in these commissions and considers that if the commission rates charged by intermediary professionals in France were brought down to the European average, an annual gain of nearly three billion euros could be generated for the benefit of the households (at the cost of the agents and agencies). The report also highlights that the level of fees varies based on the property’s selling price. Higher percentage fees, averaging 9.5%, are applied to lower-value properties, while fees for luxury properties average 3.8%. (This is logical to me since it can be even more work to sell a property of lesser value!)
The average commission received by estate agents amounts to €12,463. For lower-end properties, the commission is around €5,000, whereas, for top-end properties, it can reach nearly €27,000. Given the variation in property values across the country, estate agent fees differ significantly by geographic area. Of concern to the competition authority is the fact that despite changes in the supply side of the market, estate agent fees have remained as high as they were in 2010. Furthermore, estate agents in France have the lowest profitability in Europe, primarily due to their heavy reliance on performance-based payment.
Unsurprisingly, the agency concludes that the profession is excessively regulated and protected, and that some relaxation of the market is long overdue. It draws on the experiences of countries such as the United Kingdom, Spain, and the Netherlands, where there are fewer barriers to entry into the profession.
As an example, I was never able to acquire the license personally because the requirements are so stringent. Our company is licensed, thanks to my French partner who was able to easily acquire it after many years of my unsuccessful attempts, even with so many years of experience.
The Fédération Nationale de l’Immobilier, the Syndicat National des Professionnels Immobiliers, and the Union des Syndicats de l’Immobilier have jointly released a statement in response to the opinion of the French Competition Authority. According to them, the services offered by real estate professionals go beyond mere mediation in transactions. They emphasize that their role involves providing comprehensive advice and support throughout the entire process until the deed is completed. Although their fee is contingent on the completion of the transaction, it encompasses the entire scope of their services. They assert that their highly competitive industry ensures the best price and the freedom to choose the intermediary or service provider. They highlight a customer satisfaction rate of 92.8%.
The unions also criticize the Competition Authority for targeting the Hoguet Law, which primarily serves as a consumer protection measure by imposing regulations and requirements on real estate professionals. They argue that dividing the transaction process, as suggested by the Authority, would not lower property prices. On the contrary, they believe it would disrupt the market and harm consumers without considering the importance of a comprehensive service. The unions conclude their press release by stating their determination to defend secure access to housing through regulated professionals in the best interests of consumers.
The Competition Authority, considering the availability of market price information for consumers and robust consumer protection laws, recommends limiting the monopoly of estate agents to the final stages of buyer selection and negotiation. Other aspects of the process, such as property valuation, advertising, arranging visits and surveys, or preparing the sale contract, could be handled by estate agents or other intermediaries with separate fees. The agency does not provide specific details on the practical implementation of these recommendations.
In addition, the authority proposes enhancing transparency in fee information displayed in sales advertisements and improving the information available on properties for sale. It suggests allowing notaries to advertise properties for sale in their office windows.
Furthermore, the authority suggests reducing the professional qualification and experience requirements for becoming an estate agent. They believe that implementing these changes would increase market competition and lead to a decrease in fees.
It is important to note that the agency did not assess the quality of services provided by estate agents, which many commentators argue needs improvement. Instead, the agency relies on the belief that increased competition in the market would naturally drive higher standards.
OPINION: As long as none of these organizations and agencies think to create a real Multiple Listing Service* (MLS), as we have in the U.S., their attempts at regulating the commissions will never allow the industry to find its own natural balance. The MLS serves a very important purpose to “level the playing field,” but it’s a concept that is totally foreign to the French and European culture. It will never happen in France!
We’re not complaining…because the fact that it doesn’t exist in France has given us a very important job: to protect the buyer!
*MLS.com® is a free listing service to search and find real estate listings for sale by Realtors® and other realty professionals that are members of your local MLS Multiple Listing Service. MLS.com® also features foreclosures, new construction, international properties and real estate classes. Find homes for sale, new homes and resale homes, new construction, acreage, lots, land, commercial properties and investment properties. MLS.com® is independently owned and operated and is not affiliated with any of the over 900 local MLS systems. On MLS.com® you can list your properties and reach our global audience.
The Adrian Leeds Group®
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