morituri te salutamus

For those of you who are about to die, read this. It could save your heirs thousands or tens of thousands of pounds. Essentially, I strongly suggest you review your will and particularly who your executors are as soon as you can. But on no account do so with your solicitor or accountant in the room. For if they were involved in drawing your will up, they may well have planted an interesting timebomb into it. And when it goes off, it'll be your relatives who are going to be counting the cost. It is a little know fact, supported by the Law Society, that professional advisors who are appointed executors are entitled to charge substantially greater fees than professional advisors who are appointed by the executors after the death. These fees include a fee which bears no relation to the work involved but to the gross value of the the estate. In short, this means they charge both for their time and what a solicitor described to me as their "profit commission". In truth, their fees were generous already so this so-called "profit commission" represents legitimate piracy. Extract from leaflet provided to the public from the Legal Complaints Service: How is a fair and reasonable charge worked out? Firstly, we work out the value of the time taken by the solicitor to carry out the work. This involves multiplying the time taken by the solicitor’s hourly expense rate. This works out what it actually cost the solicitor to carry out the work without any profit. Secondly, we add a profit mark-up which is usually 25% for an average estate, but can be up to 35% in more difficult cases. Thirdly, we add a value element. If the solicitor is not an executor of the will, the value element is usually 0.5% of the value of the deceased’s home if it is just in their name, 0.25% of the deceased’s home if it is in joint names and 1% of the value of the rest of the estate. If the solicitor is the only executor or joint executor with any person, these percentages are increased by 50%. It is very hard to revert this decision (to make a solicitor an executor) although the Residuary Beneficiaries are entitled to have the Legal Complaints Service question all fees charged, a service called the Remuneration Certification Procedure. However, their position is one which supports this lamentable state of affairs. So if you have already got a will drawn up, have a think - a) did the lawyer suggest they should be an executor, b) did they explain the fees in detail and c) is this agreement documented as part of your will? If contracts are freely and openly entered into, most relatives will not want to oppose the deceased's wishes. My beef is that many solicitors do not volunteer this information at the point of will writing thus leaving relatives to deal with a costly and difficult situation which is defended by the Law Society but questionable morally. Notes for reader: The Law Society gently encourages you to make your solicitor an executor http://www.lawsociety.org.uk/secure/file/162894/162894.pdf They do not mention the extra costs this will commit you to. The Legal Complaints Service can be contacted on 0845 608 6565 or www.legalcomplaints.org.uk. They are staffed with great people who voluntarily man the Helpline. They can supply you with the leaflet entitled 'Information Sheet - Charges'.

Estate agency - why the model is broken and why it has to change

There are a number of professions which are universally hated by their customers and none more so than Estate Agents. In a 2004 survey http://news.bbc.co.uk/1/hi/uk/3405295.stm by Horlicks, estate agents were the third most hated profession, pipped to the post by Bouncers and Traffic Wardens. Bafflingly, I hearb that Tesco and Asda are looking at getting into this market. Why would they want to join this hated professsion? So why are Estate Agents so hated? I can already hear you across the ether, venting your spleen, spitting vitriol and telling shameful stories about your experiences. But I bet most of the examples could be distilled down into one underlying issue, that of trust, or rather, the absence of it. You see, we all know there is something wrong with the whole set up but most people can't quite put their finger on it. As a seller, we do not see the real offers, we don't hear the conversations with the buyer about how low we, the buyer, will go. We simply don't know. So when we read that Estate Agents sell their houses for more that they sell a comparative one (get the evidence from a great read called Freakonomics) we worry about if we are being conned. And there is nothing an englishman hates more than dishonesty.

The fact of the matter is, Estate agens are compromised by their business model. And as long as we keep paying them according to the model, they havethe upper hand. Look at the example below:

I am selling a house and am asking £1million. My agent charges 2%

If they sell it for £1 million they earn £20,000.

However, for every £10,000 they get above my asking price they earn only £200. That's a lot of extra effort to earn very little extra. In fact if they sold at £500,000 they still earn £10,000 which explains why they do not care about how high they sell, simply that they do sell. At any price because there is simply no incentive for them to try very hard.

But it gets worse. If a corrupt buyer offers the agent an inducement to sell for less than the asking price, the economics really stack up against you:

Say buyer offers £1000 inducement (worth £50,000 of estate agent effort) for every £5000 'saving' the estate agent can obtain for them from the vendor (the £5000 saving only costs £100 in lost commission).

It's no wonder we can't trust them. So its time to renegotiate when selling your house. Ask the Estate agent to sign up to a scheme whereby obtaining a Base Price (the price anyone could sell the house at) earns them nothing and exceeeding the market price earns them lots more. This mechanic will both incentivise them to perform their best but also remove the incentive to cheat.

Here's a model:

£1million market value. Agree £800,000 Base Price (the price I could sell myself to anybody because its so cheap).

First £200,000 above Base Price negotiate say 5% commission = £10,000

Then offer for every 10% for next £100,000 = £10,000 more commission

Then offer the agent a whopping 20% for anything they get over that amount. Infact, you could go even higher depending on your belief in the market or recalibrate the whole scheme if you are in a hurry to sell. Either way, they will now be on your side.

It would be amazing how we might change our view of Estate agents if everyone did it like this. In fact, eeryone wins so why not? Come on Tesco and Asda, why continue this appaling situation. Be brave. Be imaginative.