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OFT Report on UK Estate Agents

More vigorous price competition is needed in the estate agency market, says the OFT in a report published today. The report also recommends changes to the Estate Agents Act to enable more effective enforcement of consumer protection legislation to drive out those unfit to practice and to combat bad conduct. In addition, the industry is urged to raise standards of customer service through better and more widespread self-regulation.

Agents earned an estimated £2.5 billion from the sale of residential property in England and Wales in 2002. Around 1.45 million property transactions took place that year, with an estimated value of £185 billion. More than nine out of ten people buying and selling a home in England and Wales use an estate agent.

The study examined competition in the market, levels of customer satisfaction, and the effectiveness of relevant legislation in tackling misconduct and unfit agents. It found that although the market structure is not uncompetitive, price competition is limited. Moreover, there is a high degree of customer dissatisfaction (see note 4). For example, a quarter of recent sellers said they were dissatisfied with the service they received from their estate agent, citing poor value for money, delays in the sale and inadequate communication. The OFT also identified some serious complaints such as failure by agents to pass on offers or declare a personal interest, and suggestions that buyers would be more successful if they used financial services offered by the agent.

Recommendations for more price competition

The structure of the estate agency market is not uncompetitive: market shares are not high and a large number of businesses enter and exit the market. However, there is scope for more competition between estate agents on price. At present, there is widespread use of fixed 'pricing points', with the majority of fees being set at quarter-point increments from one per cent to two per cent.

Only half of sellers surveyed by the OFT obtained quotes from more than one agent. However, those who did shop around and negotiate fees paid on average 14 per cent lower fees than others. For a property of average value, this represents a saving of about £300.

The OFT recommends that:

sellers shop around between estate agents and negotiate on fees
estate agents provide – and sellers request – fees quoted both in percentage terms and as a money amount. This should also be a requirement under any code of practice adopted by the sector.
The OFT will launch a consumer information campaign to raise awareness of the savings that can be made by comparing prices between estate agents and negotiating on fees.

Recommendations for regulatory change

The Estate Agents Act regulates the work of estate agents and allows for agents to be banned if they breach certain parts of the Act or are convicted of certain other criminal offences. It covers how offers should be handled, the information to be provided to consumers and the use of certain terms in contracts. The OFT is currently considering 120 complaints under the Act.

The OFT and trading standards departments have recently acquired additional powers under the Enterprise Act 2002 to take injunctive action against agents who are breaching the Estate Agents Act and other consumer protection legislation. These injunctive powers supplement the banning powers under the Estate Agents Act. But both the OFT and trading standards departments are in practice restricted in their ability to take enforcement action in this sector by limitations in the Estate Agents Act.

The OFT recommends that the Act is amended so that:

It is more enforceable - currently lack of access to evidence limits the ability to take effective action. For example, because much of the buying and selling process is conducted orally with little documentation involved, it is difficult to establish whether all offers are being passed on. The OFT recommends that estate agents should be required to maintain written records of offers, and that the enforcement agencies are given enhanced powers to access these when there are reasonable grounds to suspect that the Act has been breached.
It is clear that it covers new ways of doing business. Recent years have seen the emergence of new ways of buying and selling property - e.g. over the internet - and further business models are likely to emerge in the future. It must be made clear that all these are covered by the Act.
Statutory terms used in estate agency contracts are clearer - written in plain language so that consumers can fully understand the terms of their agreement before entering into it.

Recommendations for improving self regulation

The high level of consumer dissatisfaction shows the need for estate agents to improve their standards of customer service. Better and more widespread self-regulation should raise standards. The OFT recommends that code sponsors within the estate agency sector apply for approval under the OFT's Consumer Codes Approval Scheme (CCAS - see note 5). This scheme encourages business to raise their standards of customer service. Of particular importance is the establishment of independent, low-cost procedures for handling complaints and securing redress for customers who have received a poor standard of service.

There are a number of voluntary codes of practices in the estate agency sector. Only one of those, the code of the Ombudsman for Estate Agents Company Limited, has achieved Stage One status under the CCAS. This scheme currently covers only 36 per cent of agents.

If voluntary codes of practice do not achieve the desired results the case for a statutory scheme should be considered.

John Vickers, OFT Chairman, said:

'There is widespread public dissatisfaction about the market for estate agency services. Necessary change includes sharper price competition, more effective regulation and higher industry standards.'

NOTES

1. Download Estate agency market in England and Wales report (pdf 544 kb). You can download the annexes from the market studies page.

2. The OFT launched its study into the estate agency market in June 2002 (see press release 36/02).

3. Government has 90 days to respond to the report.

4. The OFT interviewed 1000 buyers and 1000 sellers during the course of the study. Approximately 500 estate agency offices responded to a detailed questionnaire.

5. The Estate Agents Act 1979 covers anyone who, in the course of business, is engaged in 'estate agency work'. This means introducing to someone else a person who wishes to buy, sell or lease land or property, and being involved in negotiating the subsequent deal. The work must be in the course of business, whether as employer or employee, and as a result of instructions from a client. The land or property may be commercial, industrial, agricultural or residential. This does not include acting as a letting agent.

The OFT can bar from estate agency work a person who has been convicted of certain specified offences such as fraud, or other dishonesty or violence; or who has committed racial or sexual discrimination in the course of estate agency work; or who has failed to comply with the requirements placed on estate agents by the Act.

Before a Prohibition Order is issued, the person concerned has the right to make representations to the OFT as to why the Order should not be made. If an Order is made, an appeal can be made to the Secretary of State for Trade and Industry.

6. The Enterprise Act requires the OFT to set criteria for approving consumer codes of practice and permits it to use an official symbol to signify which codes have OFT approval. A body that administers a voluntary consumer code and can influence and raise standards within its sector, such as a trade association, may apply for approval of its code. Such a body is known as a 'code sponsor'.

The OFT published core criteria for codes in July 2001, following consultation (see press release 31/01). The criteria cover the organisation of the code sponsor, the preparation and content of the code, complaints handling procedures, independent redress, monitoring, compliance and publicity.

The Consumer Codes Approval Scheme comprises two stages: Stage One - the OFT must be satisfied that code meets the OFT's core criteria in principle. The code sponsor must make sure its code contains measures designed to remove or ease consumer concerns and undesirable trading practices in its sector. Stage Two - the code sponsor must prove its code lives up to the initial promise. The burden of proof lies with the sponsor. The sponsor must show that the code is being effectively implemented by its members and that consumer disputes are properly resolved.