Estate agents 'need jolt', says OFT report

It is going to be made much easier for private sellers and online estate agents to enter the home-buying and selling market, says the OFT’s new report. It spells out that new entrants, such as private sellers and For Sale By Owner websites, will face only the lightest regulation whilst existing sanctions against agents could be stepped up.

These extra new sanctions are due to be piloted. They were not explained at the press conference held yesterday (Thursday) to launch the OFT’s home-buying and selling market study.

In contrast, amending the Estate Agents Act will allow new business models which, in the OFT’s eyes, may not pose risks for consumers. “Regulation for these new models could safely be lighter,” says the OFT. The relaxation of the 1979 Act would let in new entrants who might even call themselves estate agents.

New entrants, said Heather Clayton of the OFT in response to a question from Estate Agent Today, would only have to conform to the great mass of industry regulation that already exists if they “stood between the buyer and the seller”. She did not explain how the public would be protected by incomers to the market, but said the existing estate agency market “needs a jolt”.

The OFT also anticipates that market forces will change and that there is space for new players to enter the property portal sector.

She said there is a “clear gap in the market” for a major portal to allow private sellers and online services to have access to list their properties. Clayton said sites such as Rightmove banned private sellers and private sale sites, but she felt that Google – “or something very like it” – would provide the platform.

In answer to a journalist’s question, she agreed there would be nothing wrong with an Auto Trader style of offering, perhaps called House Trader. The opening up of the estate agency market to other players was by far the main point to come out of the launch yesterday of the OFT’s report.

In another part of the report, the OFT has not banned referral fees, but is to ask the Government to take a look at them and advise the OFT on any further action. As expected, the report did not recommend the licensing of estate agents or the introduction of minimum standards.

Attending the conference, estate agent and broadcaster Trevor Kent said: “The industry is incredulous that there is no minimum standard of competence required.  It cannot be right that one day someone can be a poodle clipper and the next day an estate agent, in charge of someone’s most important asset.”

While Clayton insisted that the OFT report is not about “estate agent bashing”, in an aside to a Sky News journalist she admitted that this might be exactly what he was looking for.

She said that customer dissatisfaction had fallen to just 12% – about half of what it was when the OFT did its last estate agency report in 2004.

But she spoke of problems in the market, including ‘sticky’ rates – commission percentages which did not change if house prices went up or down, but which meant agents earned more in boom years. She also said that the boom had encouraged “excess entry into the market” and this was not in the consumers’ best interests.

She said that most agents charged the same sort of commission, adding: “There is no evidence of a price cartel, but maybe there is tacit collusion.”

She also talked of how Tesco Property Market – which she described as essentially a private sellers’ site – had been forced to close after it was advised that it was acting as an estate agent. This meant that it could no longer afford to operate at £199 per property listed. However, she did not say whether Tesco had contributed to the OFT survey. Nor was the latest Tesco-style product mentioned, a new launch expected from Spicerhaart which will put property back on the shelves.

She also said about existing legislation controlling estate agents that there was sufficient in the armory, but that it could be applied more efficiently.

When it came to referral fees, she said that some consumers valued a one-stop shop. She also thought the actual offerings were “okay”. However, she was concerned that where an agent had two buyers, one of whom could earn the agent more in referral fees even if offering less on the property, there could be a conflict of interest. In the report, it says: "The most certain remedy, to resolving the clear in principle problem with estate agents earning income from from referral fees, would be to ban them outright, as has happened in the US."