EYE OPINION – Insufficient Enforcement Allows Conditional Selling to Persist – TNT

EYE’s coverage of the BBC Panorama expose of Purplebricks and Connells, unsurprisingly provoked a substantial quantity of comment from readers.

Whenever such a programme airs there are calls for more regulation and policing of estate agencies. But unless we are going to have a Trading Standards person sitting in every estate agency branch there is not the slightest chance that heeding such a call would have any effect. There’s more than enough consumer legislation and agency codes of practice in existence – but enforcement is woefully lacking.

The programme conveniently overlooked the requirement for agents to check the financial position of potential purchasers, but that would have got in the way of a good story. However, conditional selling is a stain that taints the whole industry. Everyone knows that it happens and it is a disgrace that Trading Standards has not been given the resources and the specific task to root it out.

Two years ago EYE reported on an alleged case of conditional selling that was used as an illustration in this week’s BBC programme. 

Back then, the response to the article from Trading Standards was accurate but masked the fact that their ability to enforce the rules is very limited. “As the regulator of estate agency work in the UK, National Trading Standards works with local authorities and other regulators and organisations to enforce the provisions of the Estate Agents Act.” Well, it isn’t enforcing very much that we can see.

When Sir Robert Peel spearheaded the creation of the Metropolitan Police in the early 19th century, punishments for crimes were particularly unpleasant. Peel set out the principle that certainty of detection prevented more crimes being committed than the brutality of punishment could achieve.

In today’s world of estate agency, there is very little certainty of detection of wrongdoing, so it is no wonder that some firms do no more than pay lip service to the rules.

The Panorama programme unwittingly identified one of the factors that has led to referral income being so important to estate agencies, and why conditional selling arose. Featured in the programme,  Purplebricks was certainly a disruptor in the market but it was also another downward pressure on agency sale fees which have spiralled lower with each passing decade.

Half a century ago, referral fees were almost unknown.  Most high street agencies worked to the old RICS scale fees. 25 years ago it was not uncommon to see 2.5% for sole agency and 3% for multiple. Now, less than 1% is par for the course.

But as John Ruskin noted in his ‘Common Law of Business Balance’ : “There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.” His words should be heeded by all, especially those contemplating the sale of their property.

When the cut-price, so-called ‘online estate agencies’ came on the scene purporting to provide a lot of service in return for little sale fees, or just a listing fee, the race to the bottom heated up.

Faced with reducing sales commissions estate agencies had turned to referral fees from conveyancing, mortgages and other ancillary services. Many were quickly reliant on referral income, which often far outweighs commission from the sales, for their profits, and in some cases, their survival.

The drive for referral income led to heavy performance targets and incentives (as well as penalties) to get sales negotiators to push buyers and sellers towards signing up for conveyancing and finance deals – and inevitably spawned instances of conditional selling.

Directors target the area managers, who target the branch managers, who target the sales staff to get the referrals. This relentless and often aggressive pressure creates fertile ground for, if not always outright conditional selling, then a strong bias in favour of those clients and customers who are purchasing additional services. Conditional selling may be outlawed but it will not stop with the current, weak enforcement regime.

Long gone are the days when conveyancing referrals to the local solicitor might result in a case of decent wine at Christmas, or the introduction of purchasers to the mortgage broker down the road bring an invitation to lunch every now and then. It sounds quaint now but it was arguably a healthier, more professional business environment back then.

There will be a lot of froth resulting from the Panorama programme but we’ll be surprised if anything substantial changes as a result.