METRO - 22 September, 2011
OFT tries to tighten up property industry
By Jo Eccles
The UK property market is often considered one of the most unregulated industries in developed nations. Compared to the US for example, where ‘realtors’ need to take (and pass) a series of exams to obtain a licence, the UK has very few requirements for estate agents. The trade bodies which do their best to control the market and encourage good practice are all voluntary and therefore bad practice can regularly occur.
A large majority of the property market are calling for more regulation to clean up the nation’s view of property professionals. Therefore, it is welcome news that the Office of Fair Trading (OFT) has launched a new consultation on draft guidance to estate agents which publishes advice on how estate agents and property developers should act, enforcing them to comply with the law when selling property and land. The OFT is welcoming comments on the document before the deadline of the 9th December.
One specific example of forbidden practice – which I personally salute – is banning estate agents from ‘recommending an asking price in a market appraisal that is unrealistic given current market conditions (in order to gain the instruction)’. This has been common practice over the past year due to the lack of properties being sold for one main reason: estate agents need to be doing sales to stay in business. Whether sale prices are 10% higher or lower doesn’t tend to make a huge difference to their fees, but what does make a big difference is the number of sales transacting. Due to the number of transactions in the three months to August being at the lowest level for over two years (Rics report), there is fierce competition amongst estate agents to win whatever instructions are coming onto the market. Therefore, we have seen lots of estate agents giving ridiculously ambitious and unrealistic valuations in order to gain the instruction. This has been driving up property prices in London to unsustainable levels.
Whilst it maybe too pernickety to be worthwhile enforcing some unintentional disingenuous information, other mis-information can be costly to all parties involved. We recently had a situation with a client where the estate agent confirmed in writing that the property had a share of the freehold. However, after both buyer and seller had started the legal process (and incurred legal fees), it transpired that the property didn’t have a share in the freehold and it only had an 89 year lease. This would have cost our client nearly £30,000 including fees to extend. In the end, the estate agent had to reduce their fees to contribute to the cost.
So, all in all, it is good news that we’re moving towards greater transparency and regulation, although the OFT need to make sure this is enforced in a sensible way and doesn’t become too restrictive.