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. https://propertyindustryeye.com/connells-branch-allegedly-applied-pressurised-selling-on-a-purchaser/
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.
From what I can see in comments on yesterday’s articles, there’s an important point around enforcement that may have been overlooked, so sharing now in case useful.
The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) which came into effect as of 6th April this year and supersedes the 2008 CPRs, clearly defines Aggressive Practices under section 7. This means that conditional selling constitutes a breach of UCP provisions as set out in the Act.
For anyone wanting to read further, this is all outlined in CMA207, which is available easily online. You can find reference to Aggressive Practices on page 55.
For those not familiar, as of April this year the CMA has the power to directly enforce fines for breaches of the DMCC Act without the need for court enforcement. The maximum penalty is of £300,000 or 10% of global turnover, whichever is the greater.
The CMA can also bring about criminal prosecution via the courts. NTSELAT also retains its ability to investigate and bring about criminal prosecution and issue fines, via the courts.
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Well spotted Louisa.
Would that the CMA and NTSELAT have the gumption to act on this enforcement provision ! A game changer if a high profile serial offender could be brought to book with a meaningful fine, rather than a smaller independent trying to earn a crust with the headwinds we all face.
Anyone have any suggestions ?
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I would question whether the DMCC Act 2024 is the right mechanism for building a prosecutionable case. I get the reference to aggressive practices; however, my interpretation is that the act is aimed at big technology companies. There was no platform-based transaction to demonstrate loss.
It doesn’t matter how unprofessional, unethical, etc. we all find their actions; and I’m going to put my Simon Jordan hat on here., in all of this, what is the specific law/act that has been broken? Without that, there is no consequence.
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The DMCC Act applies to all ‘traders’ that have direct dealings with consumers, and as such estate and letting agents fall within scope of the Act. I do understand what you mean, the name does suggest that it’s mainly aimed at big tech, however it does encompass non-digital companies too (provided they meet the definition of ‘trader’ as outlined in the Act) which is why it is applicable to agents.
Breach of the Act doesn’t necessarily have to only take place via a digital platform, so in the case of conditional selling, however this is conducted, it would most likely be a breach of Section 7 of the Act, provided that evidence of the breach is available. Hope that’s helpful.
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Really useful so thank you. Lots of talk on here about various laws etc, but who specifically needs to take action? Is there an appetite from those affected to bring a case, and is there an appetite from those in authority to flex their muscles?
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In my view a test case is desperately needed and “Thank you” Connells for so bravely volunteering. C’mon NTSELAT, show us what you can do !
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The thing I took away from this is culture and training. You can have the wrong culture and you are at risk. Conner’s obviously gave a culture where conditional selling is understood fully through training but implementation has put the business at risk. I cannot imagine anyone has been directly trained to break the law. Even with the right culture people can make mistakes. Training and monitoring would absolutely be my advice to business owners worrying that they have teams that may make mistakes. If however you are an area manager putting this pressure on your teams to behave illegally maybe you need to think long and hard!
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Tried to edit my typos! Connells not Connors!
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Looks like you’ve never worked for a corporate agent Charlotte. The staff are aware of what unconditional selling is ONLY because the training given (initially on starting a role with the company) has to include a section on this. However, the entire ethos of corporate agents is to put massive pressure on all staff, and therefore customers, to sell related services. This leads, without exception in my experience, to situations such as those shown on Panorama. The truth is that all staff (from admin to managing director) are aware of what goes on and are actively “forced” to partake in it. “Hot Buyers” lists on wipe boards, populated only with pre-qualified mortgage buyers, would have been found in every Connells group office in the land (probably not for a few weeks now though!). It is very noticeable that there has been virtually no push back from anyone openly saying they work at Connells in responses online to the reporting of the Panorama story. Unfortunately none of this is going to change long term unless and until the government/trading standards actually do some investigating and prosecuting of the guilty companies.
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Well said
I assume the consumer protection training is just a tick box excercise. Like diversity training, and then people just forget and move on.
Until the regulators fine and punish these companies with massive fines, and almost stop them trading, nothing will change.
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This whole experience seems to highlight the void between the tickbox exercise of corporate training and the reality of commercial pressures.
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Hi Charlotte, I am interested you say that ‘no one has been directly trained to break the law’. Let’s take another law – the one that states that an agent cannot cherry-pick ‘happy’ customers to write reviews. Surely you must have come across competitors that do just that, and train their staff accordingly?
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No such law exists Malcolm. Only asking customers whom you know to have had a good experience for reviews is entirely legal. Websites offering customer reviews, to my knowledge, are very stringent about not removing negative reviews at the request of the companies being reviewed.
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Interesting Billy. The CMA regulations expressly forbid cherry-picking and gating (which I assume you are doing?). Unfortunately PIE won’t let me post a link here, but you might be surprised when you visit the CMA’s website. Look at their logic: how is a consumer helped if a business cherry-picks happy customers to write reviews? Indeed, how would reviews have any credibility at all?
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There is a big difference between the rules/regulations requested by a governing body and those that are enshrined in law. CMA can use things like the Competition Act, Consumer Law, Subsidy Control, Internal Markets etc, but I’m not convinced there is the appetite from them to prosecute. Or indeed, if those individuals affected will proceed (and on what basis) with a prosecution.
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It’s what I call ‘parking on double yellow lines’ syndrome: that was illegal in the seventies, but everyone did it, then enforcement became a thing in the ’80s and we all got tickets, then clamping that cost £300 and now we wouldn’t think of it. The CMA will get around to sanctioning businesses (ask any lawyer in the field of regulation), it’s just a question of when.
The major difference is that your competitors wouldn’t win business by alerting potential clients to your parking habits. With reviews it’s a whole different world – the casual aside ‘Of course they look great, they only invite happy clients to write Google reviews’ works wonders!
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Just been back to the CMA’s website (the CMA regulations, as I’m sure you know, have the force of law – remember the estate agents around Bristol that formed a commission cartel?). Its exact wording is as follows:
‘Don’t collect reviews only from customers you know are satisfied (unless these are clearly labelled as testimonials).’
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It’s advice, not a law. But stick to your line if you wish.
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It is exactly the race to the bottom with fees that created the need to top up revenue from ancillary services. Referrals were almost banned back in 2019 but instead there is now the requirement to disclose to buyers and sellers when you are offering services and that you are making money from it. Will NTSEAT now consider a ban? And if so will selling fees rise again to cover off the revenue gap or will it be the writing on the wall for some?
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The Law Society allowed for referral commission back in 2004, Purplebricks came in some 10-12 years later thats when the race to lower fees started! Commissions were always paid if you referred a mortgage/survey/builder or solicitor. I have been an agent for over 40 years and have always been offered payment for referrals which I have always rejected! Not sure what you mean by -Referrals were almost banned! Tottenham almost won the premier league, so what!
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Love the Tottenham reference!
I think this is baby and bathwater. Commission fees for the introduction of a relevant service related to the housemoving process is not the problem.
The problem is the management and declaration of the fees involved, and the avoidance of any bias towards those taking the additional services.
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This problem has been raised before, everyone in the industry not guilty of this practice despairs that it goes on unpunished. If this story gains any traction then a ban may follow, in the same way that agents outrageous fleecing of tenants instead of charging sensible management fees resulted in the tenant fee ban. Those agents not guilty of that survived because they didn’t suddenly have to double or triple their fees to stay afloat. Proper regulation of the industry i.e. a proper qualification or you can’t be an Estate Agent, will help to raise our industry in the eyes of the public to that of solicitors, surveyors and mortgage advisors, the other key elements in the house buying and selling process. No-one bats an eyelid when a solicitor charges £25 for an email or £50 for a letter, or a mortgage advisor charges hundreds of pounds for arranging a mortgage, so why should we not get paid for the work we do and certainly be charging higher fees. A pipedream maybe and not helped by the online agents who continue to cheapen our industry but something has to be done.
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In order to achieve what you – sensibly – set out here, the industry would have to move to a fee-based charging system like the legal profession. A flat fee for selling (irrespective of the value of the property), plus add-ons for other services and time spent. And, as you also say, this would require agents to be professionally qualified (imagine paying a lawyer with one woodworking GCSE?).
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Valid points on the comparsion to the rental market. However, some of the big companies, have tried to offset this by selling add on services, such as a monthly residency fee. Almost the same.
If you search google for it, you will see some tenant comments, albeit from 2019, that they will be force into it, as the landlord insisted (apparently) that the tenant must be signed up.
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I think I broadly agree with you. It makes sense to have a higher bar to enter the industry. The extreme would be a requirement to hold a degree in real estate/property management/surveying because at least you’re at a peer level with solicitors.
I lean towards the idea of registration/qualification for those appraising properties from both a selling and rental point of view. Different industry but recently, football agents are all now required to be registered and have to pass an exam to get accredited. I think there’s something in that.
Without some sort of professional qualification/certification, then there won’t be the justification to increase fees.
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That’s an excellent article.
It gets to the crux of the issues but is also interesting and entertaining.
Well done ‘Eye Reporter’ (it would be good to know who it is)
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It’s no surprise conditional selling persists when enforcement is practically non-existent. Could it be that the sheer size and influence of Connells Group (Sequence, Hamptons, etc.) makes regulators hesitant to act? Maybe it’s time the CMA looked into whether one company should have this much sway over the market. Until then, buyers will keep paying the price.
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