[Editor’s note: Originally published on KWMayfair]
- No MLS.
- No buyer agency.
- No individual branding–everything is done in the name of the company and the company owns the customer relationships.
- No independent contractor status. You either form your own company or you are on a salary.
- No professional licensing or regulatory authority.
- No RESPA.
- Average commission is around 1.5%.
- Solicitors (lawyers) are heavily involved in every transaction. They are responsible for the paperwork and closing process.
- The average age of a REALTOR in the US is 59. Average age of a property professional in the UK is mid 20s.
- The typical company size is 2-6 people.
As you can see, there are some major differences between the way real estate works in the US and the UK. First of all, we don’t call it “real estate” in the UK–we use the word “property.” Also, real estate companies are “estate agents,” and when Brits refers to an estate agent, they are usually referring to a company, not a person (although it can be interchangeable). The salespeople are “sales negotiators” or “lettings negotiators.” Confused yet? Just wait. 🙂
There are some important cultural differences to note in the UK. First of all, entrepreneurship is not embraced in the UK the way it is in the US. In fact, entrepreneurship is actively avoided by most people. British culture is generally risk-averse and skeptical, so launching-out on their own is not something most Brits would ever consider.
People in the US are usually congratulated for leaving 9-to-5 jobs to work for themselves (in real estate, and other fields). The most common reaction you get from British people when you tell them you have left your job to start your own business sounds like, “What is wrong with you? There must be something wrong with you. Why can’t you keep a proper job?”
It may sound daunting, but we’re here to change some of those things and we’re already succeeding.
There are some fundamental differences to the recruiting side of the business as well. For example, hiring experienced agents in the US is the fastest way to build your company revenue at Keller Williams. It doesn’t necessarily work that way in the UK.
Why do we like to hire experienced agents in the US? First of all, they took the entrepreneurial leap at some point and understand they will be working in a 100% commission environment. Secondly, they bring a book of business (database, listings & buyers) with them when they join us.
Well, those things don’t usually apply in the UK. With the exception of the company owners, most of the people drawn to the property business are interested in salaried jobs. The prevailing business model in the UK property business is not entrepreneurial. Not even a little. Plus, recruiting salaried employees means they usually have pretty stiff non-compete and non-solicit clauses in their employment contracts. Even without a non-compete or non-solicit clause, the company’s previous clients are usually off-limits due to European Union Data Protection laws.
Opportunity: Introduce a new way of thinking about the business in which the high-performing negotiators and managers see the benefits in building their own businesses instead of building someone else’s business.
All the negotiators (salespeople) are paid salaries in the UK.
In the United States, almost all real estate agents are paid commissions from their sales. There are a few exceptions (like on large agent teams), but commission-based compensation is generally how it works. A seller lists a house for sale with an agent, and when the house sells the agent collects a commission.
In the UK, almost all negotiators are paid a salary with small bonuses for completed sales and lettings (rentals). The salaries are generally low, as well as the bonuses. A new negotiator usually makes a basic salary around £15,000 to £20,000 with a 10% bonus on completed sales. A seasoned negotiator can command a salary between £30,000 to £40,000 plus bonuses. The commission bonuses are capped and they reset ever year, so there are extreme limits to how much a negotiator can make in a year.
For example, I spoke with a negotiator when I first arrived in London who generated about £600,000 (USD $1,000,000) in fees for his company last year. He took home about £120,000 (USD $200,000). That means the company made about USD $800,000 from his efforts last year. Granted, they provided some basic tools, marketing and support, but seriously?! That’s a lot of cheddar to leave on the table.
After explaining how Keller Williams works and doing some quick math, we figured out the negotiator would have made about USD $600,000 MORE last year if he had been working with Keller Williams. His response to that was, “That’s great and I really like the Keller Williams business model, but what’s the basic salary?”
I do not find myself speechless very often, but I didn’t know what to say here.
I don’t blame him for asking that question, though. I have heard it dozens of times. The idea of working in the property industry without a basic salary is completely foreign over here. The only compensation conversations they have ever had in the property industry follow the prevailing employer/employee model of a basic salary plus bonuses.
Opportunity: Teach the high-performers that our compensation model is a much better financial option for them.
No licensing or regulatory authority.
Every US state requires a real estate license in order to become a real estate agent and help people buy and sell homes. Each state has different laws and a different regulatory authority. Some states have reciprocal agreements with each other to make it easy for their licensees to work in each other’s states, and some are very isolationist with no reciprocal agreements.
On the other side of the pond, there is no licensing required for estate agents. Would you like to be an estate agent? Great! Print some business cards and you’re good to go. As you can imagine, consumers are usually smart enough to weed out the jokers. Usually, but not always.
The ease at which someone can “enter” the property business in the UK creates some interesting advantages (e.g. I can hire a great salesperson today and she can sell homes with KW tomorrow) and some interesting challenges (e.g. the level of professionalism can be quite low because there is no barrier to entry).
Opportunity: We have ability to hire great people very quickly without licensing and regulatory delays.
There is nothing similar to RESPA in the UK. While that is great in some respects, it also means we have a responsibility to our clients to explain how our professional relationships work. We are not legally required to disclose any joint ventures or marketing agreements, but we will. Transparency is a big part of our duty to our clients and does not exist on a large scale in the UK right now. The KW difference will show up in dozens of little ways in the UK, and this is one of them.
Opportunity: We get a chance to show our clients that we disclose all of our professional relationships so they understand where we make money. That way, they know there’s no funny business. Trust starts with honesty.
Multiple Listing Services are not things here.
There are about 900 Multiple Listing Services (MLSs) in the US. These are the databases where competing agents share property information so they can cooperate with each other to get the homes sold. If I have a buyer for your listing, I can help that buyer purchase your listing and earn a portion of the commission. High five!
Agent cooperation in the UK happens, but it is not the norm. There is usually only one agent in each transaction, and that agent represents the seller. “Buyer agency” as we know it in the US doesn’t not exist on a large scale in the UK. There are some fledgling efforts to make buyer agency a standard part of the industry and some agents have been able to successfully charge buyers fees to create buyer representation, but these are not widely used practices right now.
Opportunity: Representing buyers is a big focus of our efforts right now. We believe buyers deserve professional representation as much as sellers and making buyer representation the norm is a top priority.
Commission rates are low, but property prices are high.
Commission rates in the US are always negotiable and have historically averaged around 5-6% of the sales price when you look at the data from the past few decades. Commission rates in the UK are much lower (1.5% is the average across the UK in the current market environment). That might seem low, but the median sales price in the UK–especially in London–is much higher than the median sales price in most parts of the US. Plus, the listing agent is usually the only one earning a commission in a transaction.
The average sale price for a single family home in Central London in 2014 was just under £1,500,000 (USD $2,400,000), so 1.5% isn’t so bad when you look at the total dollars. Just like in the US, we will charge a full commission in the UK (2% is our standard) and provide superior service and marketing in exchange for our professional fee.
Opportunity: We are shifting the conversation from “cost” to “net pounds.” When we show sellers that we will net them more total money in a transaction, the size of our fee will become irrelevant.
Company branding is the only way it happens. The dependent business model is king.
If you visit any estate agency website in the UK, you probably won’t learn much about the individuals who work there. It is difficult to find contact information for an individual because the philosophy is, “It’s all about the company.” The company wants to control all of the communications between their employees and their customers and the company does that with one main office phone number and a series of generic, company-controlled email addresses (email@example.com, firstname.lastname@example.org, etc.)
Individual branding isn’t how the industry works in the UK because the prevailing business model is company-centric. We know that when consumers are given a choice, they will choose an individual over a brand. After all, a company doesn’t exist without its people, right? What consumers want is a level of service and expertise and those things are delivered by individuals. Our job is to enable our people to deliver a high level of service and professionalism so their clients are thrilled with the experience and refer their friends and family members. This is business-building 101.
Opportunity: By teaching our people how to brand themselves, we will be giving consumers a choice. We are confident consumers will choose high-levels of customer service and professionalism every time.
We are always excited when we enter new markets and get to learn new things. It has been a great experience to see which parts of our business model need to be adapted to the local market, and which parts are going to shake things up when we implement them. Introducing a new way of thinking about the property business has been humbling and educational, and we are very encouraged with our progress so far. These are exciting times in London!
Flickr Photo Credit: gavjof