The estate agent profession is often seen as an accessible one, requiring above all interpersonal skills, good negotiating skills and an excellent knowledge of the property market.
However, there is much more to being a real estate agent than just these aspects. It requires a genuine ability to manage a business and the associated risks, and above all is subject to numerous laws relating to the agent’s relationship with his or her customers.
Like an adviser or intermediary, whether a banker, notary, lawyer or anything else, the agent interacts with clients, whether buyers or sellers, and must not only respect their rights but also verify all information relating to the transaction. These obligations are certainly necessary, but as we shall see, they are so extensive that they seem slightly disproportionate. In this blog, we take a look behind the scenes of the estate agent profession in Luxembourg. In particular, we’ll look at the current difficulties in the market, and the legal and administrative obligations incumbent on estate agents.
Far too much KYC work
This involves verifying the identity of customers with regard to anti-corruption and anti-terrorist financing laws. This is a real KYC task, i.e. Know your customer, i.e. collect information on customers and on any beneficial owners if the customer is a company, which is often the case for companies that rent out property and use agents.
Failure to comply with these provisions can result in heavy fines (and sometimes personal complaints), and the agent cannot evade them without significantly reducing his results and his trust in customers.
In this respect, it is regrettable that the provisions are so extensive and strict for agents, who are considered to be intermediaries, have no legal training and carry out relatively simple transactions, compared with banks, for example, which are covered by similar provisions (more extensive, obviously) even though they are in a completely different category.
What’s more, this work is carried out by the notary, who also has to carry out the formalities and research all the information relating to the client. There is a huge discrepancy between a notary, whose job is to ensure that deeds comply with the law, and an estate agent, whose role is not to ensure that they comply with the law, as they are primarily there to support a sale, to ensure the relationship between buyers and sellers, and not to act as a legal adviser. We could perhaps think about simplifying the system for agents, who would have to deal with the essential information, which would then be confirmed by the notary, who would assume most of the responsibility here.
Drastic requirements under the GDPR
The General Data Protection Regulation (GDPR) is a European Union regulation governing the collection, use and sharing of personal data. Estate agents are subject to the GDPR as they collect and process personal data from their clients, such as their names, addresses, telephone numbers and financial information.
Not only must this information be collected in compliance with the anti-bribery laws mentioned above, but it must also be extremely measured and follow strict procedures.
In particular, a register must be kept, and any information collected must be justified. If I collect an address, I must have specifically mentioned it in my register, justify its usefulness and how it is secured. A real administrative burden, requiring a lot of time and training for all employees.
There are also fines for agencies in this respect, and regular checks, so the procedure is very penalising for small agencies that do not have the resources to keep such registers and keep them up to date.
Registering compromises with the Land Registry Office
It is sometimes said that the agent accompanies the customer from the first meeting to the signing of the deed, or even much longer if we think of rentals, where the estate agency can follow the project throughout its rental life, over time and with tenants arriving and leaving regularly.
But it’s not just the monitoring of sales and lettings that has an impact on estate agents, as it also involves meeting all the obligations associated with the registration of preliminary sales agreements.
You validate your purchase and sign your preliminary sales agreement, but then it’s up to the agent to set up a procedure to send this document to the authorities, who will register it and charge fees for this work.
The rules on deadlines and procedures are quite precise and require time and attention to be respected. For example, if the compromise is handed in one day after the due date, there are penalties. It’s quite precise and fast, and you have to make sure that you take into account postal delivery times to ensure that the administration receives the documents on time. You also need to have a perfectly signed version (with all the necessary details) before sending.
For example, suspensive clauses must be very clearly worded, and if the compromis contains one, then the fees will differ from a compromis that does not.
Above all, it must put in place a procedure to ensure that it is on time, and it must take into account the rules of reception that form the basis of the tax procedure (legal and tax skills, once again).
Disputes involve dealing with the tax authorities, which takes time and has little chance of succeeding without knowledge of complex administrative and tax procedures. At Van Maurits, for example, this involves filing the files physically (since the compromises are sent by letter and in paper format) so that every week we can ensure that we send the correct compromises, signed and checked, within the allotted time.
This takes time, costs money from a certain number of compromises (a dedicated person for the task, for example), and perhaps the procedures should be simplified (online), the registration costs reduced (which are in reality an additional tax) and, above all, the deadlines made more flexible to enable agents to organise themselves better (and considering the deadlines set by notaries, which are in any case provided for much later in the compromises).
We can see, then, that the profession requires real legal knowledge and is subject to numerous regulations and obligations, and we wonder why this is so extensive for an activity that comes under the heading of sales, intermediary and not a technical profession in terms of regulations (lawyers, notaries, banking professionals, etc.).
All of this is extremely unfavourable to the independents, to agencies on a human scale, which do not carry out complex transactions and lack the resources, or at least could devote much more time to customer relations than to pure formalities. Could these requirements be relaxed and digitised? These obligations should in fact be the responsibility of the banks (which grant finance to customers, and are they all important in terms of resources and structures, unlike agencies that start with a single agent), the notaries (who check the deeds) and the authorities themselves for tax matters and checking customer data, according to the information provided by the institutions mentioned above.
Obligations coupled with a slowing property market
Let’s conclude by pointing out that the current situation on the market is difficult: although prices remain high, transaction volumes are falling drastically.
As a result, agencies are having to adapt everything. Lower transaction volumes mean lower sales for the agency, yet its costs (i.e. the rent on the building, the agents if the agency has employees, in fact all the fixed costs that the agency may incur) remain largely the same, particularly the costs associated with all the administrative and legal obligations we have mentioned. In other words, with lower revenues, the agency still has to put everything in place to comply with all these provisions, even if there are fewer compromises, the same internal procedures remain and the same need to allocate time and staff to these tasks continues to weigh on agencies. An RGPD register is independent of the number of clients, for example. Small agencies, if they ever manage to maintain their activities (lone agents cannot hold their own in the current market), cannot compete with the large structures.
In a market that has become more restrictive, with economic and financial conditions weighing heavily on agencies, particularly small ones, it might be necessary to think about simplifying procedures and avoiding imposing ever more extensive administrative obligations on an intermediary profession (we’re not going in that direction with ever more legal standards), and making the various administrative deadlines more flexible so as to allow agents to concentrate on their original mission: advising and putting buyers and sellers in touch with each other in order to get the best for both parties.
An article by Van Maurits Immobilière.