Mortgage brokers have typically regarded the estate agency sector with suspicion. Whenever it has been mooted that brokers forge a closer relationship with the estate agency fraternity, the natural reaction of some brokers has been to run a mile.
There may have been some truth in this analysis some years ago, but the threat of regulation, particularly following BBC One’s Whistleblower programme, has moved many agents to ‘clean up their game’. This is evidenced in the rush by estate agents to sign up to the new Ombudsman service.
Membership numbers now boast over 10,200 and the trade body has seen 2,500 residential estate agency offices join since the beginning of the year. The Ombudsman for Estate Agents (OEA) claims that it now covers 80 per cent of residential estate agents in England and Wales with agents in Scotland and Northern Ireland now targeted for membership.
Flagging up failings
This has got to be good news for consumers and the industry. However, it has also flagged up some failings with the number of enquiries about estate agents to the OEA rising 41 per cent in 2006 to 8,472, according to the Ombudsman’s annual report. Those enquiries resulted in 586 cases being referred for formal review and resolution – an increase of 18 per cent over 2005. As we in the regulated world know, as clients become more aware of the regulator, the readier they are to refer issues that they have that they would otherwise not bother to raise, so we have to anticipate that this figure will increase.
Naturally, this makes financial services professionals who are directly regulated by the Financial Services Authority (FSA) very cautious about direct involvement, but there is a very good reason why brokers should engage with their estate agent cousins and it can be summed up in one word – distribution. Those who control distribution hold the power in the mortgage market and indeed the Home Information Pack (HIP) and conveyancing markets for that matter. Traditionally this power has been vested in the hands of the mortgage intermediary. It is they who have the ability to buy in leads, advertise for business, work from referrals, and utilise their, often extensive, database. It is also fair to say that one benefit of statutory regulation of the sector was to reinforce this enviable position.
But what would happen if estate agents were to become regulated? Would they then decide to bite the bullet and seek to maximise their income by broking loans for their customers? Would the product providers prefer to use this outlet to engage with the consumer at the expense of the well-trodden mortgage intermediary sector?
Holding the power
As we have established, real power is held, not necessarily with the lenders, or even with the big packagers and networks, it lies with those who control the distribution. The people who have initial contact with the customer can decide where the business goes. Increasingly, mortgage brokers are realising that it makes sense to strike up a partnership with estate agents. This is unsurprising as it is often the estate agent that has first access to the client. Brokers should recognise their importance and the opportunity that teaming up with them provides. Intermediaries should already have investigated the chance to work with estate agents to reap the rewards presented by the introduction of HIPs in June.
HIPs will see mortgage brokers insert themselves more easily in the sales process at an early stage by linking with estate agents and HIP providers. This could put them both in the driving seat regarding customer relationship, choice of mortgage and continuity of service.
By working together to fulfill the client’s HIP requirement and financial needs, estate agents and brokers can maintain control of the sales process throughout. This will aid client retention while maximising revenue for both parties. By partnering themselves with a mortgage broker, estate agents can become an integral part of the mortgage process with all the business benefits that brings.
The situation is even more critical for those estate agencies that have moved away from mortgages due to FSA regulations. For them, having a joint HIP facility offers the opportunity to control the process more effectively and maximise income and conversions.
The issue of regulation
With the introduction of statutory regulation of the mortgage and general insurance markets came new customer obligations. However, no such obligations are yet imposed upon estate agents. A new code of practice for estate agents, designed to ensure home buyers and sellers get a fairer deal, is the closest this sector has come to regulation. The code, drawn up by the OEA, is the first to be backed by the Office of Fair Trading and offers consumers protection beyond the basic requirements of the law. But the Ombudsman is a voluntary organisation – it will not have the power of a mandatory regulator – and it is doubtful whether clients are aware of its existence, the difference between an agent who subscribes and one who does not, or how to tell whether they are or not, all of which severely limits its market effectiveness.
The National Association of Estate Agents (NAEA) said the government had failed to address the issue of estate agent regulation. It wants to see all estate agents meet minimum competency standards and to belong to an approved body. Limited redress for clients who are aware of their ability to complain to a regulator whose power depends on the agent opting in to the scheme is not enough. Initiatives need to be put in place to prevent bad practice from happening in the first instance. In the real world this is only going to happen with mandatory regulation. If the wider financial services industry wants to maintain consumer confidence it needs to recognise that regulation is inevitable and ultimately, despite the time and financial costs, a force for good that establishes consumer confidence.
An anomaly
It is an anomaly that the first stage of most peoples’ biggest ever financial commitment, home purchase, has escaped regulation. Regulation would kick out the rotten apples, but its costs could cause smaller businesses to close, just as happened in the mortgage industry following ‘Mortgage Day’. However, in the hard world of retail services we have to accept that this is inevitable, and is part of the cost of doing business.
But the failure of the estate agency sector to be properly regulated should not, of its own, preclude the establishing of a mutually rewarding business relationship. It just means that you should take care with whom you partner. Smart alliances can be extremely profitable. For an alliance to work successfully there has to be a firm commitment on both sides of the relationship and, of course, a joint gain.
Clear guidelines have to be agreed in advance that are both workable and acceptable. More importantly, there has to be the will to make the relationship work. Regular contact is essential – sharing information ensures that the system is working and offers the chance to review processes to improve on the status quo. Always do your research before choosing a partner, whether it be an estate agent or a conveyancer for that matter, and ask yourself whether it can deliver your requirements. Also, does it have a reputation that matches your needs? You could team up with a firm that is cheaper but provides poor service, so you need to decide what is important to your business.
Regulation by the FSA created a new era of specialism in financial services, especially mortgages. It improved standards and offered greater consumer protection. True, there were cost implications for firms, but the market offered solutions to some of these through mortgage clubs and networks. Providing a quality service to the public with customer protection is the battleground that most financial firms now operate in. There is no reason why the estate agency sector should not similarly benefit from statutory regulation and it would certainly give encouragement to the mortgage intermediary when it comes to establishing mutually beneficial alliances.
But research in relation to HIPs suggests that mortgage intermediaries and estate agents remain to be convinced of the benefits and opportunities that working together might bring. This lack of commitment could result in both mortgage intermediaries and estate agents missing opportunities. This would be a mistake, as we appear to be moving into a period where finances are becoming somewhat tighter increasing interest rates and in which greater indebtedness threatens a housing market slowdown. In such times you need all the friends you can get.
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