Last year the French government asked the competition authority (L’Autorité de la concurrence) for an opinion on the competitive structure of the real estate market.
In their report published this week the agency states that the regulatory structure for estate agents was established over 50 years ago and that given subsequent developments in technology and improvements in consumer protection, it was in need of an overhaul.
The agency notes that whilst there had been a substantial growth in the number of other intermediaries engaged in the selling process, they were all legally obliged to do so under the aegis of authorised estate agents, who have a monopoly on the sale process, although owners can also sell privately, normally by using an on-line portal.
The use of commercial agents had resulted in fewer salaried employees in estate agencies, and more independent agents working for a share of the sales commission paid to the estate agent.
As a result of this quasi-monopoly, and the near total reliance on payment by results, estate agent fees remain the highest in Europe.
According to the competition authority, the average fee in France was 5.2%, compared to 3.3% in the rest of Europe.
As VAT at the rate of 20% is also payable on estate agent fees, the total charge averages 5.78%.
The report noted, however, that the level of fees was tapered to the selling price of the property, with the highest percentage fees averaging 9.5% payable on low value properties, whilst on luxury property fees averaged 3.8%.
As shown in the graphic below, in monetary terms, the average level of commission to an estate agent is €12,463. It is around €5,000 for properties at the lower end of the market, up to nearly €27,000 for those at the top end.
Given the differences in property values across the country this means that estate agent fees vary substantially by geographic area, as shown on the graphic below.
Of concern to the authority was that, despite changes to the supply side of the market, estate agent fees remained as high as they were in 2010.
Nevertheless, the profitability of estate agents in France is the lowest in Europe, a consequence of the almost complete reliance on payment by results.
Not surprisingly, therefore, the agency concludes that the profession is over regulated and over protected, and that some loosening of the market is overdue.
In particular, the authority drew on the experience of countries such as the United Kingdom, Spain and Netherlands, where there are few barriers to entry to the profession.
With the growth in information available to consumers on market prices, and strong consumer protection laws in place, the authority recommends that the monopoly of estate agents over the sale of properties should be restricted to the final buyer selection and negotiating stages.
There should be no restrictions to entry to all other aspects of the process, including valuing and advertising property, organising visits and statutory surveys, or preparing the sale contract, for which estate agents or other intermediaries could charge a separate fee.
Just how that would work in practice was not set out by the agency.
The authority also recommends greater transparency in the information on the fee in sales adverts, as well as improved information on the properties for sale, and that notaires should be permitted to advertise properties for sale in the windows of their offices.
They also recommend that the professional qualification and experience requirements to become an estate agent should be lowered.
With these changes the authority considers that there would be more competition in the market and that, as a result, fees would come down.
The authority did not consider the quality of the services provided by estate agents, which many commentators say needs improvement, relying instead on the belief that greater competition in the market would bring about an improvement in standards.
The government has yet to comment on the report.
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