Estate agents are charging buyers thousands of pounds in “reservation fees” to take properties off the market.
Analysts say reservation fees are on the rise as take-up of “modern methods of auction” increases among estate agents.
“Modern methods” allow buyers to bid for properties online and then finance their bids with mortgages.
But the Property Redress Scheme (PRS) says it has also noticed an increase in “reservation agreements” – where an agent charges the buyer a fee to secure an offer.
These fees are smaller than those charged in the auction world, in the region of £500 to £2,000 on average.
Sean Hooker, head of redress at the PRS, warned that these sorts of fees will be “open to abuse” if the government does not step in and regulate agents – legislation it was told to bring in five years ago by Lord Best.
Hooker told The Telegraph: “The concerns I have are whether these fees are transparent enough, and what is a ‘legitimate’ reason for a buyer to pull out and get this fee back.
“If anyone should retain the fee, it’s the seller. But I suspect some agents are taking this fee instead and that’s why we need clear guidance and rules on it.
“This sort of fee isn’t recognised legally because it’s technically ‘voluntary’, so agents can charge whatever they want.”
Complaints made about reservation agreements are low, Hooker said, because buyers either go through with the sale, or accept it was non-refundable. Last year, the TPO received 36 enquiries about them and made nine decisions on disputes.
For those bidding on auction-listed properties, the sales process is even murkier. Paula Higgins, of property adviser HomeOwners Alliance, said she was “very concerned” that fees being charged on these types of transactions were “far too much” in relation to the cost of the property.
She told the press: “Increasingly, we’re hearing of people not getting this fee back. The seller isn’t pocketing it either. The estate agent gets it and it’s an awful lot of money.
“The more non-refundable fees agents get, the more they will make off these than off their sale commission.
“Five years ago, this was particularly rife in the Midlands. But now it’s a national problem.”
In the new-build sector, £500 to £1,000 reservation fees are common – but the fee is often taken off the overall purchase price and the money is refunded if the sale falls through.
The Levelling Up, Housing and Communities Committee questioned industry members on the homebuying process yesterday, and the issues regarding reservation fees was raised. Watch it here.
Kate Faulkner, who was among those that addressed the committee yesterday, has long called for regulation of estate agents.
She said: “A lot of these problems exist because agents don’t have to be qualified and aren’t regulated. It’s utterly ridiculous.
“Everyone else is regulated – the brokers, the lawyers. But not the agents.”
Trading Standards said last week that some estate agents were “manipulating” property sales by insisting on sellers’ contracts – often without them realising – whereby buyers have to be financially qualified by the agent even if they have already paid an independent broker and have a mortgage decision in principle.
A spokesman for the Department for Levelling Up, Housing and Communities said: “Any action by property agents to rip off consumers is completely unacceptable. Property agents – including estate agents – must already belong to a redress scheme so that buyers and sellers can complain when they receive a poor service.
“We continue to work with the industry on improving best practice across the property agent sector, and measures in the Leasehold and Freehold Reform Bill and Renters (Reform) Bill will help to drive up overall standards.”
Estate agents are ‘manipulating property sales’ by failing to pass on offers to sellers
It is a shame as there are valuable schemes in place in both Auction and Private Treaty where Reservation Fees are clearly detailed and refundable. As always it’s the negative headlines that get the press NOT the thousands of vulnerable customers of some excellent agents who are provided with certainty and less stress by not having to face the threat of Gazumping and Gazundering and the ludicrous property buying and selling system we have in this country. Change the system first as the public and professionals detest it.
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Unfortunately this is about fees which are not refundable. It has become commonplace in the new so-called “Modern Method” of auction world to charge buyers massive premiums, normally a minmum of £5,000 and often £10,000 or £15,000 for the privilege of being able to purchase a property and to have an exclusive reservation period on it. This sum is NOT included in the purchase price of the house and many buyers are surprised to discover that it is also added to the whole purchase price for stamp duty purposes. The on-line auctioneer keeps this fee and splits it with his estate agent partner, even if the buyer cannot subsequently exchange contacts.
These reservation fees are a continuation of and are taking advantage of this iniquitous state of affairs and PRS and NTSELAT are quite rightly are looking at all these compulsory premiums which buyers are under pressure to pay in default of which they will lose the property they want to buy to someone else.
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Kate Faulkner sounds like she has no clue what she’s talking about. As “Kate Faulkner OBE is one of the UK’s leading property experts”, she doesn’t seem to grasp that qualifications don’t equal skill.
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