One of man's primary needs has always been to provide shelter for himself and for his family and as his technological capacities improved, he became more demanding and his home more and more complex, requiring more security, more privacy with separate rooms, waterproofing, running water, sewage disposal, heating, thermal and acoustic insulation and more recently, air conditioning. In time came the need for social distinction, with a better location, larger size, a particular aesthetic style and richer furnishings.
Today, man spends on average, a third of his daily labours for paying the rental of his home and he will also spend very large sums of money, often his whole life's savings, to purchase the house of his dreams. The estate agent has always played a very important role in helping man satisfy his need for shelter and his is surely one of the very earliest professions. In this very important matter, the competence and seriousness of the estate agent is vital and his success or failings can produce either happiness or much misery to the family in search of a home to live in.
With the increasing technological complexity of modern housing and the ever more complicated intricacies of fiscal legislation on real estate, more and more demands are made of the real estate agent, requiring him today to be a highly specialised professional.
Access to the profession
However, it is most unfortunate that throughout Europe, governments have given far too little consideration to the regulation of this very important profession, with all the responsibilities that it entails. In many countries, there is no restriction whatsoever on access to the profession, nor any minimum requirements of competence.
There are presently varying levels of regulation, ranging from a complete absence of any regulation, as in Germany, to the very strict regulation, requiring an equivalent university degree preparation, as in France.
The CEI (Confédération Européenne de l'Immobilier) which I represent, is striving towards a harmonisation throughout Europe of the rules governing access to the real estate profession.
For brevity's sake, I will review four significant cases, Germany, Italy, UK and France:
Germany does not have a law governing admission to the profession of real-estate agency. In fact any German, as well as any citizen of a European Union nation, may open up a real estate agency in Germany, without having any particular level of education or specific professional experience, or without having to pass an examination.
It is sufficient to get a simple office license from the local council under Art. 34C of the Gewerbeordnung. The prospective estate agent must only prove his financial liquidity and that he has had no previous penal convictions.
Italy had its first legislation regarding estate agents in 1958, requiring a simple verbal examination and later modified it in 1989, with slightly more stringent requirements and with a minimum of 80 hours course preparation or a diploma in accounting. It is now examining a further legislative review, requiring higher standards still.
The laws of mediation in this country were originally governed by the Italian Civil Code, which basically defined the mediator as "he who brings two or more persons together for the conclusion of a contract". He is therefore required to be impartial and for this reason it is customary for him to receive a commission from both parties, as he in fact represents both sides. This differs from other countries, where the estate agent is considered to be the agent of only one party and therefore gets only one commission. (When negotiating sales with colleagues from other countries, it always pays to be familiar with the local commission usage.)
In the United Kingdom there is no specific law governing access to the profession of estate agents, but it is controlled by what is known as "Negative Legislation". Whilst anybody can set up as an estate agent without qualification (providing that they have not been bankrupt), if they trade against the laws connected with estate agency, they can be heavily fined, banned from working or even imprisoned.
Laws that concern estate agency in the UK, relate to the keeping of a clients account; paying interest in certain circumstances on clients money; providing certain information to clients in respect of charges and services offered; ensuring that property details are accurate; disclosing personal interest; ensuring that offers are put forward in a correct manner and confirmed in writing within 24 hours and finally, with limiting offences against the Race Relations and Discrimination Act.
It would be very difficult for a person who was not carefully aware of all this legislation to work without getting into trouble with the law, hence the term "Negative Legislation". The associations play a large part in training candidates to the profession and it is quite unthinkable to set up an office in the UK without being a member of either the NAEA or the RICS.
France has the strictest requirements in Europe for becoming an estate agent. Real estate mediation is sternly regulated by the "Loi Hoguet" of 1970 and the Implementation Order of 1972. According to this law the estate agent must have a "carte professionelle" (professional card), which must be shown upon request.
I will describe the French system with a little more detail, as it is the example to follow, requiring a very high degree of professional expertise.
A penalty has been attached to practising estate agency without the "carte professionelle": either a fine and/or imprisonment (section 16 of the Loi Hoguet). To obtain the professional card a number of very strict requirements have to be fulfilled, such as:
1. - to show competence and professional skill through a bachelors degree in Law or a similar diploma or
- having passed an exam equal to university entry level, plus having occupied for one year one of the jobs mentioned in the implementation Order or
- having occupied for ten years one of the jobs mentioned in the Implementation Order. 2. - to take out insurance against professional liability;
3. - to pay a deposit or obtain a financial guarantee by an insurance company or by a "Société de Caution Mutuelle" or by a bank;
4. - not being involved in theft, fraud, perjury, bankruptcy, etc.
The estate agent has to renew his "carte professionelle" every year and if he fails to do so he loses the right to exercise his profession.
The agent must also display in his office:
- the name and address of the covering insurance company;
- the amount he is insured for against professional responsibility;
- the name of his bank and his account number.
All his documentation and letterhead must bear the number and place of issue of his professional card, the name and address of his insurance company, as well as the type of business activity carried out.
The estate agent is obliged to have a written listing, in order to be able to demand payment of his fees. It must be limited in time and must clearly declare the amount of his fees and who must pay them. The amount of estate agent's fees are freely determined by the parties.
As I mentioned, those countries wishing to properly regulate the profession, the French system is the example to follow.
In 1996 CEI made a general study of the real estate market and practice in 12 European countries and I am happy to provide you with some of these figures. However, just recently the European Commission has approved a grant to CEI of 126,000 ECU to finance a deeper study of the present situation in five pilot countries, Holland, Rep. Ireland, Italy, Spain and the UK, which will be later extended to cover the other member countries. The results will be published in a printed manual, together with an interactive CD ROM, for those wishing to prepare themselves for the practice of real estate in a foreign country. This will be ready in early 2000.
For the moment I can provide you with the following information largely based on the 1996 figures. The 12 countries considered have a total population of 350 million people, with 87,000 real estate offices.
Each estate agent has a potential field ranging from 764 families, in Rep. Ireland, to 5,637 families in Germany. It appears that there is less competition in the field, (i.e. there are more families available for each agency) in the more populous countries, like Germany, Great Britain and Italy, where agents have well over 3,000 families at their disposal. It is to be noted of course, that the estate agent's work does not cover only housing needs, but also the sale of farmland, offices, factories etc., so that even 700 families can provide a sufficient source of income for our Irish colleagues.
However, not everybody utilises the services of the estate agent, if we exclude Great Britain, where estate agents there have the lion's share of all real estate work, with fully 95% of the public negotiating real estate. The Netherlands also have a very high share of all real estate business, at 85%. Generally however, the coverage is between 30% and 60%.
The public in the UK and the Netherlands obviously has much respect for the work of estate agents, but we must also take into consideration that these two countries have the lowest agency fees in Europe, from 1% to 2.25%, which, because of their low cost, do encourage the use of estate agents. Countries like Italy and France, on the other hand, have higher commission rates, from 3% to 10%, but have a lower public fidelity rate, 40% and 47% respectively, of clients who buy and sell through estate agents.
These two graphs show the total maximum commission paid by both buyer and seller in various countries compared to the total market capture by estate agencies in each country. They tend to indicate (with the sole exception of Germany) that lower commission rates result in a larger share of the market, or more simply: lower commission, more sales.
It should also be noted however, the different work required by the agent in each country, as this reflects on the amount of commission paid. In Italy for example, commissions are high, but the agent must do most of the work that the solicitor does in the UK, titles search, preparing all the documents, including drawing up the preliminary contract and sometimes even sees to the structural survey.
In France and Italy, you will find that estate agents depend on commission from property sales and rentals for 90% to 95% of their total income, so that fluctuations in the market will greatly influence their financial well-being. Dutch colleagues, on the other hand, are more independent of the market, as they have several other sources of income, such as property administration, insurance, bank loans etc. - so it pays to diversify, if the local laws allow it.
The following chart and graph represent the prices of apartments in the main European cities, based on the cost in ECU/Euro per square metre, for normal and for luxury apartments.
A compensation has been made in consideration of the different modes of expressing the prices in square metres, as in some countries these include the thickness of the walls, whereas in others the measurements are expressed net of the walls. The total wall thickness has arbitrarily been calculated in 15% of the total surface area.
You will note the considerable difference in prices with the Budapest and Bucharest prices, making these very inviting for the western investor.
Transfer costs of real estate vary widely throughout Europe and this is a pity, because it makes it confusing for the public wanting to evaluate the purchase of a property in another country. Hopefully, however, things will become more uniform in the future, but most preferably on the lower values of the UK rather than the high levels of Italy, France and Belgium.
There are over 40 associations of estate agents, covering approximately 50% of the 87,000 real estate offices in Europe. Generally we find that there are two main, competitive associations of estate agents in each country, with occasionally, some other small local associations. Great Britain and France have the more larger organisations, whereas Greece has several small, localised associations.
How many estate agents are member of an association? It is very difficult to estimate the percentage of all estate agents covered by the associations, as in some countries, eg Great Britain and Spain, there are several different association members in each office, whereas in other countries, such as Italy, it is generally a one association member per each office and therefore a calculation on the given figures would not give a uniform reading. A general estimate would put the average at about 55%, i.e. just over half of all estate agents in Europe are members of a professional association.
Real Estate Franchising in Europe
Franchising is a system whereby the Franchisor, or the mother company, provides a wide range of marketing services. For this service they pay an initial entry fee plus a percentage of all future income.
Real estate franchising basically started in the USA and has developed extensively, with several important and respectable organisations, such as Century 21 and Remax, of which you will no doubt have heard (or will in the very near future, as I am sure they will attempt to spread to Eastern Europe).
Only one word of caution though, beware of new, unscrupulous dealers entering this business, who are interested only in numbers, rather than quality and these can only bring discredit to the profession.
Italy is the European country where franchising has taken most hold. It is estimated that there are approximately 2000 franchisees operating through a dozen companies, with Tecnocasa being the largest, which is now spreading to Spain. There is some franchising activity in Germany and Austria, but very little in the UK.
The Italian association of estate agents FIAIP, has taken a stand against certain franchising companies that incorrectly present their organisation to the public as being one, large real estate agency and has actually brought a case against one of them on this. As a result, most of the franchisees now place the wording "Affiliate member" on the board-sign in front of the office.
In conclusion the franchising phenomenon has not taken hold in Europe, but it will certainly strengthen. The young candidate to the real estate profession, is easily won over by franchising, as it immediately puts him into business. Perhaps the real estate associations should do their best to fill the void and provide all the services, information, documents, pamphlets, courses etc. that are required. In this way they can closely control the quality of the training in preparing these candidates to the profession, who will not have the burden of paying a royalty to the franchisor.
However, in the absence of a regulating legislation in each country on real estate franchising, perhaps the associations should oversee the market and try to moralise and positively influence the franchising phenomenon and ensure that we get only serious operators in the field.
The European Union
In founding the European Economic Community in 1956, the Treaty of Rome (Article 3) proclaimed "an internal market characterised by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital." That is, all Member States were obliged to remove all legal, fiscal and bureaucratic barriers that hinder the free movement of citizens in Europe.
This has been a long process, but now is well on the way toward completion, for the consolidation of the European Union. It is now much easier for E.U. citizens to travel, transfer capital, purchase property and set up business in another Member Country. The recent elimination of passport and customs control has made it so much easier to travel and to do business - those of you who have had visa problems going to Western Europe will appreciate the necessity of getting your countries into the European Union. From next January 1st, the common currency, Euro, will become effective, so that the European citizens of those eleven countries will be able to move freely and spend their money, using their own personal, familiar currency, which means one big common market. These eleven European countries have a total population of about 290 million people, but with the recent fall of many economical and political barriers, Europe has now widened to include your eastern countries and now counts 550,000,000 persons (almost 200 million families) and if we take into account the ex-USSR, the population figure rises to well over 800,000,000 persons.
All this represents an enormous market for the internationally oriented real estate agent, with many new economical opportunities. In fact many western European investors are looking towards Eastern Europe for real estate development projects and many small investors are buying apartments in the old city centres, counting on a capital revaluation and using them in the meantime as family holiday homes.
Now is the time for eastern European agents to make good contacts with colleagues in Western Europe and build up regular referral relationships and CEI is willing to do all it can to help in this respect.
It is my personal hope and I am sure that many agree with me, that the sooner we unite all European countries, both East and West into one large Union of a Greater Europe, the sooner we will all enjoy a major prosperity and a brighter future for everyone.
Confédération Européenne de l'Immobilier
Warsaw, September 28th 1998
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Copyright L. Camillo 2000