London gets a taste of New York’s cut-throat real estate culture
Sotheby’s agents earn a net fee of 20% on each deal, and once they hit £500,000 worth of fees in a year, that rate doubles to 40%
[LONDON] When Marcus O’Brien brokered the sale of an £80 million (S$139.8 million) mansion in London’s Kensington and Chelsea district last year, he pocketed at least a 20 per cent share of the roughly £1.6 million commission UK Sotheby’s International Realty charged the seller.
It’s a familiar practice among US realtors, but in London’s luxury housing market – dominated by a handful of firms that have been selling the city’s priciest property since the 1800s when Queen Victoria was on the throne – it represented a revolution.
New York’s “eat-what-you-kill” real estate culture had arrived.
“There is no doubting Sotheby’s are the new kids on the block,” said Charles McDowell, a broker whose decades-old eponymous property firm advises wealthy clients on purchasing homes in the UK capital.
Sotheby’s London property franchise – led by George Azar, a former managing director at Jefferies Financial Group – has changed the rules on pay structures that trace their roots to the genteel partnership models traditionally favoured by the city’s firms of chartered surveyors. And it has been poaching top talent from its biggest rivals, Knight Frank and Savills.
Offering larger earnings packets more closely aligned to personal performance, Sotheby’s has recruited over 50 selling agents in about two years, including Becky Fatemi, one of the highest-rated London brokers, according to Spear’s 500, an annual industry ranking. At least 10 of those agents have been lured away from Knight Frank.
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Last April, Knight Frank became the first major agency to tweak its pay structures in response to the talent war. It began offering London residential sales agents a direct share of commission on deals, instead of a bonus linked to their performance as well as that of the business itself.
Even so, earlier this year the company lost another two of its longest-serving agents to Sotheby’s, which announced four new hires to expand the franchise’s presence in the affluent southwestern neighbourhoods of Barnes and Richmond.
The agents – who had spent about 50 years combined at Knight Frank – were given the choice between negotiating a salary or a minimum-pay guarantee, with the latter rising to roughly £1 million annually for the top performers, people with knowledge of Sotheby’s pay model said, asking not to be identified discussing private information.
Knight Frank’s best brokers earn a similar amount, whether they advise on residential real estate or far pricier commercial deals, including the sale of skyscrapers, shopping malls and portfolios of warehouses worth billions. The agent with the highest share of the partnership’s profits in 2024 took home about £1.6 million, according to company accounts, which don’t indicate which department that person worked for.
Sotheby’s agents earn a net fee of 20 per cent on each deal, and once they hit £500,000 worth of fees in a year, that rate doubles to 40 per cent, according to the people. The company advised on £1.2 billion of property negotiations in 2024, including some of the biggest transactions, and roughly quadrupled its year-on-year revenue in that time.
A spokesperson for Sotheby’s said in an emailed statement that it doesn’t comment on individual pay terms but prides itself on offering the best brokerage package in the industry.
As it seeks to retain top talent during a market slump that has depressed company earnings, Knight Frank is considering how it can further evolve its pay changes. “We are working hard to make Knight Frank the very best place to have a career,” residential head Tim Hyatt said.
Sotheby’s compensation tactics arrived in London as the slowdown, driven by higher interest rates and tax changes, prompted some desperate sellers to offer discounts of as much as 30 per cent.
Residential deals above £5 million tumbled 23 per cent in the first three quarters of 2024 from the same period a year earlier, and only one sale, brokered by Knight Frank and Beauchamp Estates, surpassed £100 million. Sotheby’s deals included O’Brien’s £80 million west London mansion sale and a £56 million Mayfair penthouse, the people said. O’Brien declined to comment.
Fees at Sotheby’s are split 50-50 between the agent who won the listing and the one who brought the buyer. And unlike traditional agents, there are no geographical restrictions on where brokers can do business. That has fuelled competition among those vying for commissions, the people said.
“Our focus has always been on delivering exceptional results through integrity, expertise, and trust,” Azar said in an emailed reply to questions. “That’s why I personally handpick the agents who join our firm.”
The former banker, who is based in Dubai and took over Sotheby’s London property franchise in 2023, has approached so many top London agents that not receiving an offer is seen by some as a snub, the people said.
One senior agent said they were flown out to meet with Azar, but turned down a job proposal due to skepticism about the long-term prospects of the business model. The person speculated that some agents may view working for Sotheby’s as a financial boost in a market slump and that they will return to traditional brokers when activity is booming again.
It’s not unusual for brokers to change jobs during a downturn and the prospect of signing minimum pay agreements that cover their first one to two years in a new role is attractive. However, the extent of Sotheby’s raid on the city’s incumbent firms has been a hot topic in the private members clubs of Mayfair, and not everyone is convinced by its New York-style brokerage culture.
“The model that works in America doesn’t necessarily work here,” said Trevor Abrahmsohn, managing director of luxury real estate firm Glentree. “Desperation for sales plays into the way you deal with things, when in reality, there’s a coolness you need to build long-term success in this market.”
He added, “If the lights went out now, they would have made their mark, but the model is unsustainable.” BLOOMBERG
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