Is this an Estate Agent rip off?

[koolforcats]

My MIL is selling her late brother's house for an asking price of £300k with an agent fee of 1%. All fine so far. However, when she came to sign the contract the agent suggested that as an extra incentive for them to sell it, for every £1000 over £300k, they'll take 10%. I've never heard anything like this. Surely if the fee is 1%, that's what it should be regardless of the price achieved? Does it mean they won't try very hard to sell it if she doesn't accept their proposal? I can't help feeling cynical here and I don't want her to be taken advantage of.

Estate Agents can be very sales driven people and this sounds as though it's an incentive for them to perform. I would suggest she negotiates for say 5% over £300k and 10% over £325k.

Thanks queen. It's cheeky though isn't it?

Provided that the extra % is in the excess it makes perfect economic sense for your mil.

If the estate agent sells at 10% below asking price he makes only £200 less but if he sells for 10% more he makes £3,000 more.

Thereby creating a big incentive to push the property at a higher price.

From a sellers perspective this is good. The alternative is the EA will sell to the first person who walks through door offering near to asking price.

I think this approach is recommended in freakenomics or similar

www.nachi.org/forum/f11/exerpt-freakonomics-book-regarding-real-estate-agents-57929/ this is an extract from Freakanomics which explains that on a flat commission rate the estate agent isn't really incentivised to get the best price. Good enough will do. The key bit is at the end of the text but basically if they get an extra 10 grand for your house by holding out for the best offer possible (lots of marketing and viewings work for them) 1% of that is £100 so hardly worth their while.

We asked our estate agent to put in a clause like the one you have described above. 10% does seem quite high though ours was something like 5%.

Yes it's a rip off because the estate agents also set the property value, so it is in their interest to undervalue it and then get offers over the asking price, earning a higher commission. I would get a least 3 estimates, and see what other estate agents value the house at.

Oh yes I remember that freakanomics article. Thanks all!

Bloody hell, no much wonder EAs get such a bad reputation. That stinks. It's almost like bribery to me. They should be doing their JOB to the best of their ability. I wouldn't have anything to do with a company that suggested this.

Sliding scale commissions are quite common in the south east - if you've had multiple valuations and are comfortable with the asking price then it should be a win- win.