"Murky" estate agent practices revealed

7 March 2014

Home sellers could be paying thousands of pounds more than they need to because estate agents are so secretive about fees, a new report has found.

In fact, only 2% of estate agents in England and Wales feature their standard commission rate or contract terms on their websites, according to the HomeOwners Alliance (HOA).

The campaign group conducted a mystery shopper investigation of more than 150 estate agent websites and 45 offices and also found that 82% of the websites made no reference to fees at all.

Instead, the group found evidence of a “murky world of estate agents' fees and contracts" – 16% of websites made reference to 'competitive fees' or 'no sale no fee' and were “awash with 'free, no obligation valuation' offers and in-house services".

When the HOA's mystery shoppers tried to get information about fees over the phone, things weren't much better.

Its report states: “[The] majority of estate agencies are reticent about discussing fees and business terms over the phone – most prefer to do an in-person valuation before disclosing fees or terms."

When asked to give an idea of rates and contract terms at the initial point of enquiry, the HOA found two-thirds of agents pushed to do an in-home valuation first.

A third refused to give fees out over the phone altogether and one in six enquiries “uncovered questionable practices".

When information about fees was forthcoming – by phone or online – they varied from less than 1% to 2.5% plus VAT for a sole-agency contract. That makes the most expensive nearly three times as much the cheapest.

Mention of VAT was another sticking point, however. The HOA said agents often failed to state whether it was included in their fees, despite their being legally obliged to do so.

Other dodgy practices were found to be tucked away in “unfair contracts". These included hidden charges such as a “£99 registration fee", a “marketing incentive fee" of £200, and “hefty non-refundable deposits of up to £500 if the home seller withdraws from the sale".

The list went on to include the right to charge commission beyond the term of the contract with the home seller, and fees being charged upon exchange even if the sale falls through at completion.

Unfair conditions

Paula Higgins, chief executive of the HomeOwners Alliance, said: “We are shining a spotlight on a murky upfront answer to the question, what are your fees, how much will you cost me?

“Estate agents are far too secretive about the fees they charge, and too often include blatantly unfair terms and conditions in their contracts. The result is that homeowners routinely pay thousands of pounds more in fees than they need to, and too often end up in disputes with their agents, adding massively to the cost and stress of moving home."

Stella Creasy, MP for Walthamstow, added: "This report shows the problems with estate agents and unfair contracts are much wider and much worse that we first feared. It's time to increase our scrutiny of estate agents."

Creasy said action must be taken to prevent homeowners getting stuck with unfair contracts and being ripped off.

Outlining best practice, buying agent Henry Pryor commented: "Estate agents and their less-regulated colleagues in lettings should always quote their fees clearly as both a percentage (unless they are charging a fixed fee) and as an actual amount based on the asking price of the property.

"Some firms will also include their typical fee on the website and in adverts but since some jobs are more complicated than others this is not always helpful or practical. However, all agents should confirm their fees and expenses to a potential client in writing before they start work and most will ask for a signed copy of their terms to ensure that the client has received them."

Will we see change?

Russell Quirk, chief executive and founder of online estate agent eMoov, said: "We agree with the HomeOwners Alliance recommendation for homesellers to negotiate fees and contract terms; however, we feel that estate agency won't change unless the commission only model becomes a thing of the past. We believe that no sale, no fee is damaging the reputation of the estate agency industry and promoting a wasteful approach where 'successful sellers' are the losers.

"In a system where only successful sellers are charged, one out of four people are paying for four out of four people's marketing costs. Homesellers could be charged significantly lower fees if estate agents adopted a fixed-cost approach. We are not saying that the entire fee needs to be paid up front. Part of it could be paid on completion, but that 'winners' fee should be fixed and transparent so homesellers are clear on the costs."

Pryor gives anyone requiring the services of an estate agent the following advice: "There is no law that states that you must use an agent or what you must pay so the contract between an agent and his client can be whatever happy compromise is agreed. Remember, whilst you can now get your homes sold for under £500, I have always taken the view that since the fee comes out of the deal I always over-incentivise my agent.

"I want my home to be at the top of his list every morning and since many agents are commission driven this ensures he wants to concentrate on my property. When it comes to selling and letting I am a firm believer in the saying 'if you pay peanuts you get monkeys'."

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