I renewed my car breakdown policy the other day.  It should have been a straightforward matter but it was not.  I have been with one of the major breakdown services for many years and the renewal fee has crept up each year.  However, this year it was £286 so I decided to shop around.  To my astonishment I found that the same provider was offering exactly the same cover online for £147!

I rang them to buy a policy.  After what seemed like an eternity on hold, I got through to an operator and told him that I wanted to buy the £147 policy.  “Are you an existing member?” he asked.  “Yes” I said.  “Well in that case you can’t buy that policy, it’s for new members only.  Your renewal fee will be the figure quoted on your renewal notice.”  I asked him why an apparently reputable organisation charged existing customers twice as much as new ones.  He seemed flummoxed by the question and said that he didn’t decide the policy.  I asked him if I could re-join as a new member.  “No”, he said, “you would have to leave for at least six months”.  I told him that in that case, I would take out cover with his main competitor.  He seemed unperturbed about this and bid me a cheery goodbye.  In fact, I didn’t get round to arranging alternative cover for several months.  During this time, I received several letters asking me to renew my membership.  Several of the letters offered a much reduced headline fee.  However, on reading the small print, it turned out that this was for much reduced cover.

I mentioned my experience to a friend.  “Oh”, he said, “they did that to me years ago.  The way round it is for you to join one year and your wife the next year.  That way, you pay half as much.”  “What a crazy system” I thought.

I followed his advice and signed my wife up with me as a joint policyholder the following day.  Sure enough, the fee was £147.  When it came to the time to pay, I gave my credit card details and said that this was given for a one-off use and that I wanted to opt out of the automatic renewal.  “In that case”, the operator said “the price will increase to £197.”  I was flabbergasted.  This pricing model says that in their experience, there is a 50% chance that I will forget to cancel the auto-renewal next year.  If I do, they will charge me twice as much for next year’s membership.  This is the behaviour that I would expect from some backstreet Arthur Daly, not a leading UK institution.  But sadly, these sort of business tactics seem to have become the norm.

Over the past few weeks I have come across countless more examples.  My water board invited me to buy cover against the cost of a water leak under my drive for just £9 per year.  “What a bargain” I thought.  But then I read the small print and found that a condition of the offer was that I had to sign up a continuous direct debit authority for £96 per year.

So what has all this got to do with the way that we charge letting fees?  Well, quite a lot actually.  One of my quite large clients has been experimenting with a totally transparent letting fee.  The landlord is quoted a headline fee percentage and there are absolutely no extras.  No set-up fees, no admin fees, no check-in fee, no check-out fee and not one penny of mark-ups on gas safety certificates, inventories, building works or anything else.  He did it because he felt that it was ethically the right thing to do and because he thought that such transparency would give him a commercial advantage.  He designed clever new marketing material and trained his staff to sell the new package.  I am sorry to report that the experiment has been a failure.

His competitors have responded by offering landlords even lower headline fees and clawing them back with even higher and more cleverly hidden mark-ups.  One of them is even offering a 0% headline fee for the first three months which is conditional upon the landlord signing up for a two-year period at the full fee thereafter.  I wonder if they got that idea from a certain motoring organisation?

In a perfect world, letting agents’ fees would be totally transparent and landlords would be able to compare agents on a like for like basis.  In the real world where even the country’s leading institutions seem to be intent on trying to outwit their customers, it seems that most letting agents will need to continue to subsidise their headline fee with mark-ups and other charges.  The skill with which you construct such a package will have a significant impact upon the profitability of your business.

Adam Walker is a management consultant, business sales agent and trainer who has worked in the property sector for more than twenty-five years.

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