Save money on agency commission
‘C'mon. Let's get those costs down!'
Contrary to popular belief, most houses in France are not sold through estate agents. In fact less than half of the 600,000 annual property sales are handled by agents with the remainder arranged either privately or by the notarial profession. This compares poorly with the U.K. and the U.S.A., where over 90% of sales are arranged by estate agents. As a consequence of the lower market share, estate agent's fees of course are far higher in France (between 6% and 10%).
The question of ‘who pays the estate agent?' should be borne in mind by anyone buying a property in France. Why? Because if the price for the property includes an estate agent's commission of 10%, then the buyer will be paying purchase duties on the agent's commission as well as on the property itself. Not a pleasant state of affairs.
For example:
Suppose the property sale price was 1,908,000 euros, including an agency commission of 108,000 euros (6%) paid by the owner. The buyer would be paying purchase duties of 93,300 euros (4.8%) on the gross cost. If the agency commission was paid by the buyer as a separate item, the sale price would be reduced to 1,800,000, with purchase duties of 88,020 euros. A saving of 5,280 euros!
Prior to 1997, it was the accepted state of affairs in France for the buyer to take these extra costs on the chin. Unless the seller's estate agent was also formally retained by the buyer, with written instructions to find a suitable property for a fee. This of course created a contract between the buyer and the estate agent under which the sale commission could be paid, but required the buyer to go through the highly artificial process of signing an agency purchase mandate (‘mandat de recherche'), usually after the purchase had been agreed. This irregular process was pursued by those ‘in the know', normally as part of securing a deal.
In 1997 the revenue authorities in France recognised the unfairness and the law was changed to allow the buyer to pay the agent's commission, without going through the contrived process of formally instructing the estate agent himself.
However, today, some estate agents are still not keen on structuring their sales in this way, and disclosing their commission. This is probably because some buyers have been known, late in the deal, to haggle on the price agreed in principle between the parties. The buyer gambles that the agent would probably take a reduction in his generous commission, rather than lose the sale. So for this reason, as well as the natural reluctance to disclose his ‘drink' to anyone, the agency practice of concealing the commission continues in various parts of France. And, unless the U.K. buyer is careful, he will find himself paying over the odds in purchase duties.
So what should you do during the bargaining process to ensure that you don't get stung?
First, check the contract. If the amount of the agent's commission appears somewhere in the document, make sure it includes the words
‘Commission de l'agence immobilier à la charge de l'Acquéreur.'
In which case everything is fine and you will be paying duties on the net price received by the seller. If there is no mention of the agency commission anywhere in the contract, and it hasn't been factored into the deal in any way, then it is likely that that the owner will be paying. This is when you should make it clear to the estate agent that you want his commission to appear as a separate item on the contract, payable by you as purchaser. As is your legal right.
Also remember that the huge commission in a French property sale gives the agent a substantial interest in completing the deal. A French estate agent does not get paid until the conditional clauses in the purchase contract are satisfied and the deed of sale is signed. If the buyer changes his mind, and decides to withdraw from the purchase (thus forfeiting his deposit), then the agent won't get paid. So think carefully before you decide, for whatever reason, to do this. There have been cases where the seller has been funded by the estate agent to force the buyer to complete the purchase, if necessary through the court - just so he can get his commission paid!
Philip Winter-Taylor
Advice for property in France
Tel: 01233 666968
Email: wintertaylors@aol.com
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