Estate agency is a business of long gaps between effort and income. A property is valued, marketed, viewed, offered on and agreed, and the fee only becomes payable on completion, often months later. Some sales fall through after weeks of work. Meanwhile staff, portals, office rent and marketing are paid every month.
When commission is income
Under most sole agency agreements, commission is earned on completion of the sale (or exchange, if the agreement says so). Until then, an agreed sale is pipeline, not income. Recognise the fee when it is earned under the agreement, raise the invoice then, and include VAT at 20% on the fee.
Keep a pipeline report outside the ledger: agreed sales, expected completion month and fee. Comparing it with completions each month shows how many sales fall through and how long they take.
Client money and deposits
Some agencies handle money belonging to clients: holding deposits, and for those who also let property, rent and tenancy deposits. Client money must be kept in a separate client account at a bank, not mixed with the agency’s own money, under the Estate Agents (Accounts) Regulations. Agents who hold client money for lettings or property management must also belong to a government-approved client money protection scheme, and every estate agent must belong to a redress scheme. In the books:
| Account | Belongs to |
|---|---|
| Office bank account | the agency |
| Client bank account | clients; matched by a client ledger per client |
| Client money liability | the total owed to clients, always equal to the client bank balance |
Reconcile the client account to the client ledger at least monthly. A difference is not a bookkeeping nuisance: it means someone’s money is missing. Lettings is covered separately in letting agent accounting.
Anti-money laundering
Estate agents are supervised by HMRC for anti-money laundering and must register, carry out customer due diligence on both sellers and buyers, and keep records. Budget for the registration fee and the time it takes, and keep the due diligence file linked to each sale record.
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Negotiator commission
Negotiators are often paid a basic salary plus commission on completed sales. Accrue commission in the month the related fee is earned, together with employer NIC and pension on it, so each month’s costs match its income. If commission is paid on agreed sales instead, decide how claw-back on fall-throughs works and record it.
The main costs
- Property portal subscriptions: often the largest overhead after staff; prepaid annual contracts go through prepayments.
- Marketing: boards, photography, floor plans, EPCs paid on behalf of sellers (recharged at cost, or included in the fee).
- Premises: high-street rent and rates.
- Vehicles: cars for valuations; private use creates benefit-in-kind charges.
A worked fee
A sale completes at £350,000 with a 1.2% fee plus VAT.
| Account | Debit | Credit |
|---|---|---|
| Trade debtors (seller’s solicitor) | £5,040 | |
| Commission income | £4,200 | |
| Output VAT | £840 |
The solicitor usually pays the fee from the sale proceeds on completion, so this debtor should clear within days. Fees still unpaid weeks after completion need chasing.
Month-end routine
- Invoice every completion and match receipts from solicitors.
- Reconcile the client account to the client ledger.
- Accrue negotiator commission on the month’s completions.
- Review the pipeline against last month’s forecast.
For VAT on fees and recharges, see VAT codes in bookkeeping.
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