Ombudsman says agents must tell sellers about potential disadvantage of modern method of auction

The Property Ombdusman has said that agents who sell through the modern method of auction must declare to sellers at the outset not only that purchasers pay, but that this could be a drawback.

A TPO spokesperson said yesterday evening that sellers should be made aware if it is buyers who pay the fee, that “this is a potential disadvantage of that recommended method of transaction, given that a buyer may vary their offer accordingly”.

The TPO said its advice was in line with its newly updated Codes of Practice, where 4a states: “When you give advice to someone selling their property, that advice must be in the consumer’s best interests and within the law.

“The potential benefits and disadvantages of any recommended method of sale must be explained in clear terms and taken into account.”

EYE had put queries to TPO after an agent contacted us with his concerns.

TPO updated its codes towards the end of last month, and in a covering press release, which was widely used, said: “Advice obligations have been strengthened to require agents to explain both the benefits and disadvantages of their recommended method of transaction at market appraisal stage, for example, modern auctions.”

However, the agent who does offer the modern method of auction yesterday said he could find nothing in the new code that specifically relates to this type of auction where buyers, rather than sellers, pay commission. Nor could he find in  TPO’s codes what relevant pros and cons he should warn sellers about.

He was also unclear as how he should reveal the referral fee paid by his firm’s modern method of auction provider.

We could not find the specific guidance either and asked TPO.

On referral fees Peter Habert, head of policy at TPO, referred us to 2d of the Code of Practice, which is applicable in all cases.

This states: “If you intend to offer or recommend to consumers surveying, financial, investment, insurance, conveyancing or other services, or those of an associate or connected person, where the service provider rewards you for the referral by way of money, gifts or any other form of benefit, you must disclose this arrangement to consumers in accordance with the National Trading Standards Estate Agency Team’s ‘Guidance On Transparency of Fees Involving Property Sales’ 2.”

On the section in the new code about appraisals, there is also no mention of the modern method of auction.

However Habert told us that this was deliberate: “The wording for paragraph 4a has been kept generic because it takes into account any potential new or inventive ways agents may choose to transact property.

“The key point is that whatever form of transaction is being recommended, the agent must explain the advantages and disadvantages to the consumer so that they can make an informed transactional decision.

“This also leads on to 2e of the Codes which requires agents to complete a consumer fact find to ensure that any specific requirements are taken into consideration before a method of transaction is recommended.”

TPO emphasised: “There is not a separate section on auctions – the codes apply to all types of sale.”

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15 Comments

  1. Property Poke In The Eye

    TPO is another useless organisation which does absolutely nothing and taxes agents £234 a year.

    If the TPO want to help they should do a chart of pro’s and con’s which agents can use.

     

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    1. Bless You

      And also make payanyway agents provide stats on how many people don’t sell , and what % they drop their value to secure a sale.

       

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  2. TwitterSalisPropNews

    Auctions are more often than not a way for an estate agent to secure their commssion, NOT to secure best price/in the best interest of clients.
     
    (I have heard that from estate agents who do auctions)

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    1. AgencyInsider

      ‘I have heard that from estate agents who do auctions’

      How many estate agents have you heard that from? One, I suspect.

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      1. Property Pundit

        You’ve got a valuation appointment which will lead to commission of £1000 (at 1.2% sold via traditional route) OR £2500 if you can persuade the vendor to go down the MMA route – which are you going to choose?

        One agency recently told me the £6000 paid by the buyer goes to the auction company for an online service (no room auction). They weren’t allowed to tell me their cut (we all know it’s 50:50). How on earth can that ever be justified?

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        1. NotAdoctor32

          Property pundit, I believe the corporates get 50-60% and most independents get 40-50% dependent on their size.  Having had pressure put on me in the past to sell the MMA route and seen the issues it causes, it is not something I would recommend.  We had a buyer tell a seller that he would have paid her £2000 more if she took it off the auction company and she was obviously upset.

          There have been a few cases where it has been better for the client but in most cases, not.  So few go to the auction room because they obviously have to cherry pick the best ones to make the sold-in-the-room stats look good and keep the attendance figures high.

           

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  3. AgentQ73

    If a buyer has an extremely tight deposit this method effectively rules them out in my (limited) experience.

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  4. ArthurHouse02

    This sort of “selling” has always been about agents getting a higher commission and never about what is best for the vendor. These companies leach of the back of the property market earning a living at the expense of us and our reputation. Most importantly if you actually look at the numbers, as the large fee is split 50/50 with the auction company, the fee in the end is not much more than you could have got via a normal sole agency.

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  5. cyberduck46

    >The key point is that whatever form of transaction is being recommended, the agent must explain the advantages and disadvantages to the consumer so that they can make an informed transactional decision  
     
    So does this mean somebody who just wants to list with a traditional agent needs to have the pros & cons of every other type of sales method explained to them?  
     
    “One advantage over our sales method over the modern method of auction is that the buyer doesn’t pay any commission. The disadvantage is that you do,”. Then you also have traditional auctions and so on.  
     
    Is it necessary to explain the pros & cons of “pay anyway” v “no sale no fee”.  
     
    It might take half an hour to discuss all the different methods of sale while the sellers’ eyes glaze over. I’m sure a leaflet could me made that’s complicated enough that it gets thrown straight into the bin.          

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  6. Richard Copus

    TPOS guidance is quite clear and reinforces the Provision of Information Regulations which have been in place for many years.

    There is clear evidence from auction results and the many comments online from prospective purchasers who have taken part in the “modern” method of auction that high buyers’ fees do put off bidders resulting in lower bids and, more worryingly for sellers, people just deciding not to bid.  It is therefore only logical that the rules should be strengthened to include all methods of sale.

    It must not be forgotten that these new “modern” methods are, in fact alternative methods of auction and are considered by many lawyers to be methods of tender rather than auction as they do not follow traditional auction procedure or the Auction legislation.  I was approached by a person of some experience a couple of weeks ago with the invitation “Would I like to earn hundreds of thousands of pounds more” and invited, like many others to join their national “auction” franchise and go to their big roll out later next month.  I went along with him and asked him a few questions in writing.  One was: “Does the buyer’s premium form part of the purchase price for stamp duty purposes”.  The reply was: “It is never added to the purchase price and is a totally separate cost which many traders like to put through their books”.  HMRC advice is completely clear and says that it MUST be added to the purchase price.  I then asked him if the high buyers’ premiums put off bidders and he fudged the answer.  These are the sort of organisations that are running many of the “modern” auction groups and are at the bottom end of agency.  They don’t allow enough time to maximise the number of buyers, they don’t tell the sellers that their primary duty of care is to the buyer not them if they are paying nothing and they don’t explain the system properly to sellers, many of whom are elderly or less articulate than the the likes of us.  They prey on the fact that some people will pay in any way to secure the house of their dreams.

    The good news is that these organisations won’t be around for long.  They are already being exposed by the media and can only exist while buyers’ premiums are high because they have to pass a huge whack of the fee onto their novice “partners”.  One of the largest auction houses has just abolished all buyer’s premiums and others will follow.  Traditional auctioneers charge nothing or a small admin fee for buyers running into a few hundred, not thousands of pounds and have an excellent track record which is recognised by the courts.  There is definitely a future for conditional auctions which have positive advantages for buyer and seller, but not by rooking buyers.

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  7. LetItGo

    and car dealers will soon have to explain that there is a similar car down the road cheaper than the one hes selling -nonsense.

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    1. Property Pundit

      Yes, your post is nonsense.

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  8. PropertyTsar

    Consumer sellers seeking an agents advice should rightly expect to be furnished with options to sell, explanation of the advantages and disadvantages of the various method of sale and after taking a considered view on the property and the vendors circumstance provide an informed recommendation.
    Maybe something for TLO to consider but what should their members be advising if they did not offer traditional auction or Modern Method of Auction services, when the property and the sellers circumstances would be better served by auction, mandatory outsourcing to an auctioneer!
    Let’s not for one moment kid ourselves that Private Treaty is the default answer and Unconditional Auction (Modern Method) is not worthy of consideration. The fact is that Private Treaty does not provide the transactional speed, certainty nor transparency when bench marked against auction.
    To get some balance why is the TPO not suggesting that its compulsory that its members flag the length of their agency agreements. Indeed, many estate agents agency agreements might well be considered too restrictive with terms of six months, sometimes twelve months. Additionally, would the TPO require its members to divulge its private treaty sales cancellation rate, I suspect not.
    It appears that the TPO have somehow concluded that a Buyers Premium business model is bad and have linked the process that is Modern Method (Unconditional Auction) as equally being bad. We operate Private Treaty, Conditional and Unconditional Auction and from personal experience our buyers have as much issue in paying a buyers premium when we are transacting Modern Method of Auction, as sellers do when they are picking up the sales fee…. neither don’t! Why because they knowingly enter into the transaction because we agree fees and disclose fees.
    If you cannot agree a sales fee and agency terms with a seller then you do not get instructions to sell. If a buyer comes across a property with a buyers premium and they do not like that they have a choice to move past it and buy elsewhere.
    Consumers should be able to make an informed choice and I believe CPR and ASA regulations already cover fee disclosure.
    Thankfully TPO is not the only Ombudsman scheme in town and fortunately the other Ombudsman schemes seem to be taking a more pragmatic commercial view when it comes to interpreting regulation.
    Finally, a quick comment about the idea that some commenting on this story here seem to hold, that auction automatically means that the ‘Best Price’ is not achieved. I have heard this statement trotted out for over thirty years, often by agents that have never set foot in an auction room or really don’t understand auction. Most auctioneers mirror the marketing and promotion of instructed lots to the same level as their private treaty counterparts; indeed, many auctioneers invest more in marketing and promotion of lots due to the auction process timeline. Attracting multiple buyers and putting them in an open and transparent position to competitively bid to a winning position, surely is a reasonable recipe for getting the best offer from the best ready willing and able buyer at a point in time. Maybe those holding this view should review and check their thinking that private treaty is the only way.

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    1. ArthurHouse02

      It is for me to provide information on what my company offers a vendor and the pros of doing so. Yes on some occasions other options come up in conversation, but i normally focus on the pluses of what we offer rather than discuss our competition.

      It is not for me to inform vendors on the pros and cons of what other estate agents do or dont do.

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  9. WiltsAgent

    If someone wishes to auction their property then I am the wrong person to be dealing with it, appoint an auctioneer. I don’t have any expertise in that area and wouldn’t pretend otherwise. If you want a leaking pipe fixed you don’t call an electrician. As for modern method auctions I wouldn’t touch it.

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