Should estate agents be regulated? That was the question Mortgage Introducer asked the good and the great of the mortgage market and the property sector. The answer was unanimous. Even estate agents agree that it is time for some form of government-appointed control over the industry.
Last year estate agents hit the headlines when a BBC Whistleblower documentary went undercover at London agency Foxtons. One of the most shocking allegations made was that Foxtons had colluded with mortgage broker Alexander Hall, part of the Foxtons group, to push up individual property prices because the broker knew just how much a buyer’s budget could stretch to.
The Consumers, Estate Agents and Redress Bill is currently going through parliament and should become law later in the year. Part of this bill will bring changes to the 1979 Estate Agents Act and will force agencies to become members of a redress scheme – the ombudsman – as well as setting out rules for record-keeping.
In addition it gives the Office of Fair Trading (OFT) more powers to investigate estate agents that it believes are not up to scratch, as well as equipping it with the ability to take tougher action against firms guilty of poor practices. However, many in the industry feel the government has missed this opportunity to bring in de facto regulation by making it law that all estate agents become a member of an industry body.
Peter Bolton King is chief executive of the National Association of Estate Agents (NAEA). He told MI: “We have been calling for the government to introduce better regulation of estate agency through licensing for some time now. We would stress, however, that we are calling for licensing with a little ‘l’.
“We believe there is no need for the government to implement complicated and costly new legislation that will only serve to increase the burden of red tape. Regulation need not be difficult to deal with – in fact the structure is already in place within the industry. The NAEA, for example, has a technical qualification that estate agents must take in order to join and all members must abide by the association’s rules of conduct.”
Bolton King points out that although the NAEA already has a large number of the UK’s estate agents on its books, only compulsory membership of such a body would succeed in getting rid of rogue bad firms. He explains: “There is a minority of estate agents that give the industry a bad name and cause bad public perception. Those people won’t join us in a month of Sundays.”
Compulsory regulation
The government has considered compulsory regulation of estate agents in the past, but has always backed down. Bolton King says that ironically the government has held back from regulation because its feels it would impact negatively on the consumer in terms of reduced competition as a result of tougher entry criteria that legislation would bring, as well as the additional cost of regulation.
He continues: “The government has got it into its brain that restricting entry into the profession would mean fewer estate agents and less competition, as well as higher costs that would be passed on to the customer, which is absolute rubbish.”
Bolton King also says that government research has indicated no major benefits to regulated property markets it has investigated around the world, an opinion that Bolton King’s colleagues in international markets find laughable. “Regulation would protect the consumer,” Bolton King says, “and I just can’t understand the government. The public want it, the press want it, and we want it. It’s a vote winner.”
Miles Shipside, commercial director for online estate agency Rightmove.co.uk, also believes the current bill does not go far enough. He told MI: “Greater consumer protection is needed. While there will be a compulsory redress scheme, if consumers have to use it, it is rather after the horse has bolted.”
He continues: “The rogues will still exist, but the bill will give the OFT greater power to ban them. But will the OFT be able to police it?”
Pierre Williams, head of communications for the Inside Track Group, a residential property investment firm, also supports compulsory membership of a body like the NAEA. He explains: “Although agents are legally bound by the Estate Agents’ Act 1979 and Property Misdescriptions Act 1991, worries persist about the effective policing of these laws.
“Of course there is the option of joining the NAEA and obeying its code of conduct, but how can the public have confidence that the NAEA has teeth when it relies on voluntary membership and subscriptions from the very agents it is meant to police? In any case, what buyer would decide to pull out of the purchase of their ‘dream’ home because the agent wasn’t a member of the NAEA? It just doesn’t happen. However, if joining the NAEA was statutory, there would be far more confidence from both buyers and sellers about its ability to enforce its rules. So it’s difficult for any agent to argue otherwise – unless, of course, they’ve something to hide.”
Chris Kelly, managing director of independent estate agency Myplace, says that currently it is too easy to become an estate agent. He says: “Anyone can set up as an estate agent. People would have more confidence if there was a code of practice that all estate agents had to stick to and consumers had somewhere to complain to. We need the rogues to be cleared out and I think good estate agents would be happy to be regulated.”
Vote with their feet
While the situation remains the same, Bolton King says that the public should vote with their feet by not using an estate agent that is not a member of a respected trade body, and shunning those firms that do no belong to the ombudsman scheme.
The government’s back-tracking on the Home Information Pack (HIP) is seen by many as another blow to consumer confidence. However, many lenders and brokers feel that HIPs would actually make estate agents even more powerful by making them the first point of entry into the property buying process for most consumers, thereby putting them in a position of influence when it came to wider issues such as mortgage advice. Some brokers and lenders were unhappy that unregulated estate agents could ‘sway’ buyers towards their own mortgage advisers, possibly sacrificing independent financial advice in the process.
David Hollingworth, head of communications at broker London & Country, explains: “Estate agents are in an extremely influential position and you do hear of agents who make house buyers feel that they have to get a mortgage from them – they persuade the consumer to get advice from their own broker.
“Although that broker will be regulated, there is a danger that the consumer will not be getting advice from the whole of market. Consumers need to know the difference if they use an estate agent’s broker.”
Hollingworth continues: “We are talking about the sale and purchase of an asset that is probably the biggest and most valuable that most people will ever own. The sale of that asset could be done in the best interest of the consumer, and sometimes it might not. We don’t want estate agents overstepping the line and becoming too influential when it comes to mortgage advice.”
Bill Warren, compliance director at Complete Mortgage and Loan Services Limited, also worries about the role of HIPs in the future. He explains: “Once HIPs come into force, estate agents will be in a key position of consumer influence. Sellers will be parting with large sums of money for their HIP and this should be in a regulated environment.”
Jon O’Brien, operations director for the Professional Mortgage Packagers Alliance (PMPA), feels that estate agents already have too much input into the buying process. He explains: “It is inconsistent for estate agencies to be at the core of the buying and selling process which results in a mortgage recommendation and choice being made, and still remain unregulated themselves. Estate agencies are among the largest providers of mortgage advice, so it is also illogical that the advice process is regulated, but not the parent company’s main trading activity.”
Causing problems
Rob Clifford, chief executive of Mortgageforce, believes that statutory regulation of estate agents could cause problems. However, he still feels controls are required. “Estate agents facilitate a hugely important transaction, probably the biggest in any consumer’s life. Any sector which is consumer-facing, not subject to mandatory professional qualifications, indemnity insurance or has any reasonable entry thresholds, should have a regulatory framework. This need not be statutory as long as a voluntary regulatory regime could be brought about swiftly and effectively.
“An indirect threat to the mortgage market might be that regulation, especially if statutory and as hugely costly as financial services regulation, could drive out some estate agents, reduce the number of agencies, restrict consumer choice and hand more power to big corporate agencies. This, in turn, could mean less mortgage business is passed from estate agencies to mortgage brokers, as the corporate estate agents tend to keep the mortgage business in-house.”
Bob Riach, of brokers Riach IFA, agrees, saying: “Estate agents are possibly the only professionals left that are not regulated. Buying and selling a house is normally the largest financial transaction in a person’s lifetime, so the company dealing with this should be regulated.”
Broker Danny Lovey, who operates as The Mortgage Practitioner, believes a Financial Services Authority (FSA) type organisation should be in charge of estate agents. He says: “The general public do not have much faith in the honesty of estate agents and it would be only equitable if they were part of the regulated network in the same way brokers and solicitors are. Regulation under an FSA type body would ensure that estate agents are regulated by law and not of toothless trade bodies.”
Lack of distinction
The lack of distinction that some consumers make between estate agents and others associated with the property sector, such as brokers for example, is cited as another argument for regulation.
Alex Hammond, PR manager for Kensington Mortgages, explains: “There are some very good estate agents and some not so good ones. The reputation of the bad ones taints the industry. Brokers are also involved in the property industry and are lumped in with estate agents, so if estate agents have poor public perception, that can impact on brokers as well. It is in the entire industry’s interest if estate agents were regulated as this would help public perception.”
Brian Morton, sales and marketing director at Dunfermline BS, points out that currently homebuyers pay estate agents for their advice, but that advice is not governed by any standards. He explains: “The consumer pays for the services and regulation is in their best interests – it is more ethical and will avoid any conflicts of interest especially if the agent is also arranging the mortgage. We need to ensure best practises throughout the industry to maintain public confidence and regulation is the way to do this.”
However, Stephen Pickard, spokesman for solicitors Leeds Legal, believes that although more needs to be done to tighten up the action of estate agents, he is not sure regulation is the best solution.
He explains: “More regulation would help to restore the public’s confidence but I don’t know if it would have any impact on the market. I’d like to see common standards of client care implemented and regulation to protect purchasers’ reservation fees. Vendors also need more protection. For example, information about a seller’s personal circumstances should be confidential but it is often revealed to prospective buyers by agents to encourage an offer.”
Colleagues from the legal sector do not agree. Eddie Goldsmith, senior partner at conveyancing solicitors Goldsmith Williams, feels regulation would boost public confidence. He says: “Estate agents should be regulated and I can’t understand why the government, which seems to want to regulate our every waking hour, is not pushing for regulation of the only sector of the house transfer process that is not regulated.
“The house buying public must have confidence that all the parties they deal with are professional, will act impartially and in their best interest. As long as estate agents remain outside the regulatory framework, the public will have little confidence.”
Tricia Lonorgan, conveyancing director at Barnetts, feels that regulation would push out rogue operators. She says: “Regulating estate agents will give the customer a quick and straightforward way of resolving any complaints they may have and may well see a number of less reputable firms closing their doors, leaving behind the good quality firms to raise the overall profile of estate agents.”
John Phillips, financial services director of estate agents Kinleigh Folkard & Hayward, sums up the feeling of the majority of people MI questioned. “UK estate agency has for a long time been plagued by the actions of a rogue minority, with both consumers and agents suffering as a result. By insisting that estate agents must be a member of an approved professional body before they are allowed to practice, the government could easily go a long way towards tackling this important issue.”
But it seems the government has no appetite for such an approach, perhaps put off by the amount of manpower required to run the FSA. Instead it has opted for HIPs, designed to tackle the problem of collapsing sales, not the actions of estate agents. Even this has proved to be unsuccessful, but it may well return in a bigger, better format in the future.
If it does and we see more rogue estate agents using their power to influence property sales to the detriment of consumers, we might end up with a bigger scandal on our hands. Perhaps then the government will finally act.
