More Choice, But At What Cost

Five years ago we gave someone in a hut in Manilva 1,000 Euros cash to reserve an off plan property.  We then went back to England and happily sent over a few more thousand euros.  Looking back we must have been totally mad to trust this person in the hut.  We didn’t do any proper checks and just took their word for it that they would actually build our apartment.

We were lucky.  They did.  In fact, it’s the worry we had at the time about where our money was going and whether they were actually doing anything with it that led to us to create Eye on Spain.

At the time though we just didn’t know any better.  It was a good apartment at an excellent price and the opportunity seemed too good to miss.  We took the risk and it’s (more or less) paid off. 

Now, move the clock forward to three years ago and we land at Malaga airport with two two-year-olds in tow ready to start our new life and business in Spain.  What we didn’t realise at the time was that we would be getting involved with a very complicated market full of often desperate agents.  But the benefit being that through our close association with so many agents we learnt a lot about the systems they had in place, particularly the working relationships between agents and the property sharing systems many of them use.

It’s these systems that I want to discuss today.

Before we came out here “MLS” meant absolutely nothing to me.  If you don’t know what it stands for it is “Multi Listing Service”, examples being the “IN Network”, “Infocasa”, etc.  There are various but these two seem the biggest on the Costa del Sol.

MLS systems are used to enable agents to share properties amongst each other.  So for example, if you wanted to sell your property in Spain you could pop into an agent that is part of an MLS system and list your property for sale through them.  It means that all the other agents on the same MLS system will have access to your property details and be able to sell your property too, although via the original listing agent.

Still with me?

The idea behind it is that each member agent has many more properties on their books than they would normally have by themselves, giving their prospective buyers a greater choice.  On the sale of a property, if the original enquiry came through one of the member agents and not the original listing agent, then the listing agent and the “sales” agent split the commission.  If the original listing agent sells the property by themselves then they get to keep all the commission.

Not all MLS systems are created equal.

If the agent you use is part of an MLS system they will normally display this fact on their website.  Some systems, such as the IN Network, actually expect their members to abide by their “code of conduct”.  This means that if you have a complaint about a member agent you could take it up with them, although finding the organisation’s contact details to make your complaint to seems to be very tricky at times (a note for the IN Network).

Other systems such as Infocasa seem to leave more in the hands of the actual agents and they don’t get involved at all.  They supply the system and the agents use it. 

There are other networks out there but I haven’t looked into them all.

The benefits.

The main benefit from a buyer’s point of view is the greater amount of properties available to search through with their chosen agent.  We all want choice.

The benefit from a seller’s point of view is that their property will get a much greater exposure than would be possible through one or two local agents.  Great, more chance of getting it sold.

The main benefit from an agent’s point of view is the same as for the buyer but also that the agent may be more able to sell the property as it will have a far greater reach than it would normally have.  More choice, more customers.

But these systems are flawed.

MLS systems seem a good idea in principle, but in my opinion they are hugely flawed.  MLS systems may have worked well before but I don’t for one minute believe they are the future.

Why?

Because no one wants to pay more for a property than they really should.  If agents are sharing commissions then there is something wrong here, there is obviously too much money floating about.

Some MLS systems effectively add over 9% to the desired selling price of a property in Spain.  That’s just outrageous.  If I want 200,000 Euros for my property then on an MLS system it could effectively be listed at 218,000.  18,000 Euros in commission seems an awful lot of money!

But the real killer is that if as a buyer I went to buy that property through an MLS agent, but not the one who originally listed it, then the two agents split the commission.  9,000 Euros each.  And one has taken 9,000 Euros for simply listing the property.

Personally I would rather be buying the property for 209,000, saving the 9,000 Euros and we would all be happy.  This seems the best deal seeing as though as a buyer I would still have to pay up to 13% on top of the price for taxes and fees.  For a selling price of 218K Euros, taking 13% taxes and fees leaves a final “cost” of 246K Euros, whilst at 209K Euros the final cost would be 236K Euros….a saving of 13,000 Euros!!

But apart from the high commissions of MLS systems, there is another major flaw….

Lack of local knowledge

When I first started getting to know the way agents work on the Costa del Sol I was totally amazed at how an agent in Fuengirola could be selling a property at the other end of the coast in Manilva!  To be honest that agent actually knew very little about the Manilva area.  He was “selling Manilva” as the prices were lower in those days but he really didn’t have a clue about the area.

It’s all very well having thousands of properties in your database but are each of the agents selling those properties sufficiently knowledgeable to sell in those areas?

Probably not.

Now begins the argument for local agents.

I would always advise that if you are interested in buying a property in a specific area then talk to some of the local agents.  They will know the area really well and will probably give you the best advice.  An MLS agent not based in that area may sell you a property in your chosen area but they will probably not be the best qualified to do so.

If you don’t know where to buy then don’t use an MLS system to find somewhere to buy as you will most likely be guided by price.  Remember you are not just buying a property but a lifestyle.  The area matters A LOT when buying in Spain, we’ve lived in enough properties down here now to know that.

Research areas, ask on Spain forums for people’s opinions, etc, then…. 

Get a discount

The following applies to MLS estate agents in Spain and developers in Spain.

The Spanish property market is a tough place for agents and sellers at the moment, that’s nothing new.  But what many people seem to be forgetting is that it’s a good time to negotiate a discount….on the property commission.

If you’re buying a resale property for example, and you know that that agent has it listed on the MLS system, if he listed it and he sells it he gets all the commission, he doesn’t need to split it.  However, this is where you should step in and ask him to split the commission with you!  There’s a lot of money at stake so any reduction in the commission will be most welcome.  Remember, you will be paying tax even on the agent’s commission so haggle hard!

Also, if you buy direct from the developer they will sell you a property at the same price that you would buy it through an agent, the only difference being that the agent would take a 3, 4 or 5% commission on the sale.  It’s time you bagged that commission, so haggle hard!  We know people who have negotiated discounts with developers by buying direct, so it is possible.

Looking ahead

With the way the market is at the moment I can’t see MLS systems working all that well any more, they really favour the agents more than the buyers, for that reason alone I think MLS systems have had their day.

I think we will see a shift towards more personal relationships developing between agents with a focus on keeping commissions as low as possible and improving customer service.  I think we will also be seeing a lot more “personal shoppers” joining in who, for a fee, will help you find your ideal property.

Happy house hunting

I hope you’ve been able to gain an insight into the way that many agents are part of MLS systems in Spain.  If you’re house hunting in Spain I hope you take some of the points here to get yourself the best property in the best area at the best price.

Good luck.