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These are turbulent times for letting agents; traditional operators face multiple challenges associated with a chaotic housing market, increased legislation and growing online competition. Added to this, plans to ban letting fees charged to tenants in 2019 are likely to narrow the profit margins of some letting agents even more. And now new research highlights what many already predicted – an increase in landlords selling up.
Several recent studies have produced evidence that the number of buy-to-let landlords existing the sector is on the rise. According to a joint report by Reapit and Dataloft, a residential property market intelligence consultancy, the lettings market is seeing substantial activity and a rise in tenant demand, yet supply has declined by 6.9 per cent.
Following the implementation of the higher levy on stamp duty for second homes in 2016, the supply problem has been compounded by the withdrawal of landlord mortgage tax relief, which has been phased in since April 2017. This, many argue, along with a raft of tax and regulatory changes, is encouraging landlords to either sell up as their profits start to decrease, or hike up rents.
In the face of tighter margins for landlords choosing to remain in the private rental sector (PRS), opting for self-management might seem like an attractive and cost-effective solution to counter dwindling profits.
However, with a host of regulatory changes to keep track of, landlords will increasingly be required to take a more professional approach to renting a property. They will need to ensure that they have a sound understanding of how legislation can affect their business and impact upon both them and their tenants. For good letting agents, this situation presents an opportunity.
The majority of landlords only own one or two properties and many of them are ‘accidental landlords’ with full time jobs and little time to spend on managing their rental property. Add to that the fact that tenants stay longer in properties that are fully managed by a letting agent, minimising any void periods, and that tenants often prefer to deal with letting agents, rather than landlords, and it is not hard to see the value that a good letting agent can add to the buy to let experience.
But in a PRS characterised by a decreasing supply of landlords, how can letting agents attract new landlords and retain existing landlords?
Paul Shamplina, Director at Hamilton Fraser and founder of Landlord Action, has over 25 years’ experience acting for landlords and letting agents. In his recent webinar for Right Move, Paul provided some tips for letting agents looking to succeed in today’s challenging climate and explored how they can attract new landlords and retain existing landlords.
It is vital for agents to get under the skin of landlords, both existing and prospective customers. Why do they want to be a landlord? They may for example be an accidental landlord with only a lukewarm desire to be a landlord, or a pension landlord looking to use their buy to let as a long term investment. What keeps them awake at night? The chances are they are most concerned about issues such as late / non-payment of rent, funding property maintenance and repairs, void periods, tax changes and complying with legislation. Take the time to talk to landlords, ask them questions, listen and empathise with their specific circumstances. There has been a lot of new legislation recently, yet many landlords are still failing to protect their tenant’s deposit (which became mandatory over ten years ago). Identifying a landlord’s motivations and fears will help you to tailor your messaging more effectively to their needs, which in turn should increase both customer retention and recruitment.
Whether you are retaining existing customers or attracting new landlords to contact your company, it is vital that you are up to speed with what is happening in the PRS. Subscribe to websites such as rightmove and landlordzone to ensure that you understand what is happening in the market. You also need to have at your fingertips information for prospective clients on how quickly you are renting out properties and what they can do to increase the potential yield and market for their specific rental property. Nurture a relationship with your local newspaper so that you are the ‘go-to’ letting agent when it comes to an expert view on the local rental market. Network at industry events. Write blogs for your website and social media. Attend landlord meetings and local council forums. Investigate affiliate businesses with whom you can partner up with mutual benefit to both parties. Offer free seminars for landlords to attend in order to educate them. Above all, remember that landlords recommend other landlords; word of mouth is probably the most powerful tool of all.
It is an accepted fact that recruiting new customers is much more costly and time-consuming than retaining existing customers. Turning let only instructions into full management should therefore be a priority strategy for letting agents looking to maximise their income in turbulent times and retain existing landlords.
If you have invested time to understand your client’s rationale for being a landlord, have a clear sense of their specific concerns, and a solid understanding of the PRS, you will be well-placed to make the most of any opportunities to upsell. For example, an accidental landlord who has inherited a property, who has a full time job and a young family, may think they can get by with a let only arrangement, thus paying a lower fee, but may not have thought about the reality of how to manage non-payment of rent and void periods, let alone how to comply with increasingly stringent legislation. For this type of client, who is time poor, the letting agent should focus on the time and potentially money that could be saved with a full management service. Would this customer want to receive calls at 4am from their tenant who has lost their keys?
Clearly, effective management of ‘the switch’ from lettings only to a fully managed service is crucial to its success. Careful consideration of staff incentives and commission time-frames is vital, to ensure that they are aligned with the overall objectives of the agency.
In an increasingly competitive climate, if you want to attract new landlords and retain existing landlords, it is essential to ensure that your management service stands out. What can you offer that your competitors do not? Some areas to consider are:
What online access do you provide to landlords to help them keep up to date with the management of their property?
- Do you offer regular inspections with detailed reports including photos and video evidence of the condition of the property (reporting is very important to landlords who opt for the fully managed service)
- Do you provide a dedicated account manager?
- Do you offer rental insurance in case the tenant defaults with the rent?
- How quickly will the landlord receive their rent – is your accounts system up to scratch?
- How detailed is your referencing – do you keep up to date with the tenant’s potentially changing circumstances?
- What check out service do you offer – when the tenant vacates, do you deal with inventory and handling any potential deposit disputes?
- Do you offer at least two testimonials from other landlords who are happy with your service that prospective landlords can contact?
To answer these questions you will need to think for yourself about what is realistic for your area – it is no use winning an instruction but not being able to rent the property. Take into account other stock in the area that you are competing with when quoting likely rental yields / the time it will take to find a good tenant. Make sure you have reassuring, realistic responses ready and waiting to the following questions:
1. How much rent can I get for my property?
2. How quickly can you rent it?
3. Do you have tenants waiting to move in quickly?
4. How much do you charge?
5. What specifically is included in your fully managed vs let only service?
When it comes to retaining existing landlords and attracting new landlords, it is important to have an ‘elevator pitch’ up your sleeve; some useful USPs that you can convey quickly when time is short and the stakes are high. Here are some examples which you can tailor to your business:
1. We have knowledge of the area and can achieve the best possible rent with good quality tenants (include some anecdotes about the area, tailored to the landlord in question, for example local schools, transport links etc)
2. We understand void periods affect landlords’ cash flow, our average void period is just xxx (it is up to you to ensure this is low and therefore a USP)
3. We are members of a redress scheme such as the PRS (this means we have an escalated complaints service)
4. We have Client Money Protection insurance such as Client Money Protect, which means that, should anything happen to us, the you will get your money back
5. Our fees for let only are xxx, this will include xxx, but for only an extra xxx % or xxx amount a month, we will take care of the property on full management. You will need to research your local market, set your pricing competitively and explain what this includes. Remember that it is tax deductable. If your landlord works full time this makes total commercial sense but it is up to you to show them how.
6. Make sure that your landlord is aware that there are now over 150 rules and regulations involved in renting your property out. It is up to you to understand your landlord and explain why, for them, self management would be hard and that they risk, for example a £3000 fine for failure to comply with Right to Rent legislation alone
7. Explain exactly what your full list of services entails – for example tenant referencing, tenant correspondence, compliance with government rules and regulation …
8. Have you mystery shopped? Take the time to research your competitors so that you can identify your own distinct USP
9. Explain that you carry out regular inspections to make sure the property is in good condition and that you will deal with any repairs and disputes on the landlord’s behalf
The bar has been raised for all stakeholders in the PRS. Landlords and letting agents must ensure that they conduct themselves in an increasingly professional manner in line with the expectations and legal obligations that now apply to them. Good communication is the most important element of the landlord / tenant / agent relationship. The Property Redress Scheme, a government-approved organisation that deals with escalated complaints made against property agents, ranks a lack of communication high among the reasons for a complaint. Many landlords complain that letting agents are very attentive when agreeing the initial let, but less so when there are problems further down the line. If there are issues, communicate them early to your landlord and, if they have landlord insurance, help them to make a claim if necessary.
If you would like to brush up on PRS legislation for agents, you might be interested in attending the HF training academy. Our first course, ‘Legal update and compliance’, is aimed at letting agents of all sizes. The next workshop will be on 13th December.
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Property Redress Scheme is approved by Government under the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015