Rory Joseph, director, and Sebastian Murphy, head of mortgage finance , at JLM Mortgage Services, penned this piece for Mortgage Solutions, which has kindly given us permission to reproduce it in EYE. The pair are scathing in their criticism of some estate agencies’ tactics in pushing buyers to their tame mortgage advisers. No doubt EYE readers will also have a view on it…
In terms of certain aspects of housing market practice at the moment, it feels a little like advisers should be keeping their friends close, and their enemies closer.
Of course, there is a lot of talk in our sector about the collaborative nature of the UK property market and how we are all parts of a jigsaw puzzle that only completes when all the pieces are in place, but there are still some sections of our market who appear happy to sell that self-same jigsaw without all the pieces being there.
For instance, there’s no doubting this is a seller’s market, which means that prospective buyers, particularly those wanting to purchase for the first time, are in many cases being led – or more literally not being led – up the garden path by certain estate agents.
Pressure from estate agents and ‘advisers’ on buyers
Talk to any mortgage adviser, and we guarantee they will have a story or dozen to tell regarding recent attempts by agents to push a client into the arms of their financial services division, suggesting if they don’t use those services they will not see, let alone secure the property.
We receive anecdotal and first-hand evidence of this all the time. Agents have limited stock to sell, and when it comes to them, it tends to be offered on very quickly. It means they can be ambitious on values, achieve those values – although surveyors will often down-value – and get the property ‘sold’.
However, for certain agents, the money they are making on these sales isn’t enough for them, and they can often earn more if they push purchasers to their ‘financial advisers’ in order to secure the mortgage/life insurance commission, charge a fee, etc.
The problem they have is getting those individuals to their ‘advisers’. So, what better way to do this than by frightening them. By telling them that, unless they use their adviser, they won’t get to see the property and they certainly won’t have their offer put forward to the vendor.
A lot of the time this is targeted at first-time buyers who effectively don’t know any better, who might think these strong-arm tactics are part of the ‘cut and thrust’ of buying a first home. Who accept it when an agent tells them that they are selling properties to the first two or three people who view every time, and that they need to be part of this early group – and the only way to do this is by using their adviser.
Vendors are being ripped off too
And what about the vendor? Well, the agents simply tell them that those individuals who don’t use their advisory services are “not serious” or “are playing games”. The vendor accepts this version of events and is blissfully unaware that the right buyer for their property, the buyer who might be in the very best position, has not even been allowed to view or had their offer put forward.
We recently had a purchasing client of ours who went through this exact experience. They (thankfully) knew something was up and came back to us to check whether they had to go down the agent-adviser route.
At that point we were able to point out, what they would be getting from that adviser. Access to a limited panel of half a dozen lenders for their mortgage product; a hugely-inflated adviser fee for their trouble; a requirement to use the agent-adviser’s conveyancing service which was also extortionately priced; a range of life insurance policies with big premiums and big commissions. We could go on. Essentially, they would be sold to within an inch of their life all while feeling they have to accept everything in order to get to see a property they like the look of.
The problem is, of course, despite this being completely immoral, the agent couches it in terms which appear not to contravene any rules – and what can the prospective purchaser do? We suggested they knock on the vendor’s door and make them aware of the situation and what they were being asked to do, in the hope the vendor might vote with their feet. However, by then, that house might be already offered on, at which point it becomes much less of a concern to the vendor.
Be on guard
The main culprits are the big corporate agents bullying people into taking hugely sub-standard advice services with, quite frankly, **** mortgage propositions.
Which means we have to be on our guard here. The nature of the market is always competitive – that is a given – but these firms actively work to put the client in a worse financial situation than they would be if they came through reputable advisory practices.
Let’s therefore ensure consumers are aware of these practices and the consequences, and let’s ensure vendors do not instruct agents that ‘go after’ clients in such a way.
It’s a practice that should be consigned to the past but is very much evident in the here and now.
The original article on Mortgage Solutions website is here.
Some agents have been “recommending” other service suppliers to their buyers and sellers for years, and in many cases those individual agents would not go near the actual service suppliers they recommend themselves, nor would they recommend them to their friends or family. Regulation needed asap.
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How do you know that they would not use those services themselves?
There is already regulation.
As a developer we will not accept any offer from anyone who has not been qualified by the IFA we use.
We tell a prospective buyers that they do not have to use our IFA but we will not arrange an appointment and an offer will not be accepted until they have spoken.
We do not want our sales staff wasting time with people who are not going to be able to buy
It is amazing how many times our IFA says that a buyers is not financially qualified.
Just last week we had interest from someone who when he spoke to our IFA it turned out he did not have leave to remain in the UK.
If we had not done that we could have wasted time and money on a non proceedable non buyer.
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When I was a conveyancer some agents would instruct me on their own transactions (and those of their friends and family) but not on other transactions because I declined to pay them a referral fee.
Well, better regulation is needed then.
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If you insist your broker sees them and will not otherwise accept them as a buyer – this is conditional selling and you could get into trouble with NTSELAT. look at CPr 2008 regulations.
Do you accept them as a buyer, if you or your broker qualify them, and they return to their original broker?
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Janbyerss is not an estate agent, so they keep telling us but a property developer. Agents are not permitted to impose restrictive practices on ‘potential’ buyers without good cause and at the direction of their client vendor. Another word pops up and is more important with his comment above …. Discrimination.
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OMG discrimination again zzzzzzzzzzzzzzzzzzzzzzzzzzzz
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Of course, as I said they are told that they do NOT have to use pur brokerhanege
If they are qualified and wish to use their own it is fine.
We do ask them to confirm that their broker know about Help to Buy of it is applicable as we have a 28 day exchange deadline.
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That is a tiny example and not a real survey.
I am sure many agents use the IFA and sols they recommend.
I did when I was an agent.
The lawyers did me a freebie for all the business I had passed in fact.
I still use the same people now as a developer as I did as an agent for me, my family and my business
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Reality is some largest firms rely on FS to make their large profits-without this income the bottom line is a whole different story. Unfortunately just selling houses on scale with the dumbing down of the fee propositions by the likes of PB/Strike will cause this issue- of what is let’s face it conditional selling -to grow not get better.
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This all stems from the fact that the estate agency industry is unregulated.
it is too easy for unqualified individuals to enter and then offer cut price fees for a cut price service. They then drives everyone else’s fees down so they are forced to seek alternative forms of revenue.
This in turn pushes them to the highest paying options not the necessarily the best. Nothing will change until the industry stops eating itself.
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Wrong, it is regulated.
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Yes it is and regulation will not stop some firms charging a lower fee than others
It is called competition
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If one is flogging a retail product such as mortgages and insurances you have to adopt competitive retail sales strategies; be better, be cheaper or have your product where people will see it and buy it.
Attacking agents because their FS products are well positioned and perfectly timed won’t make Mr. Joseph’s products more visible, it won’t make their products any different to what they are now.
Sorry but this is sour grapes, If Mr. Joseph wants to shift stock he has to find a way of displacing firms that got there first. A long and difficult sell winning respect and trust of front line agents. I’m not sure this aggressive stance is the way to begin that process
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In 30 years of running multi branch businesses including corporates, I have never once received a compliant about a mortgage related issue except where the broker has been unable to place the mortgage. TPOS Code covers this too. As Robert says, sour grapes.
75% of BUYERS want & need a mortgage. 80% of these do so through a High Street broker.
Agents offer a service and as long as they disclose their referral fees, then I see no issues.
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Agreed
As a vendor I want to know that the buyer has been qualified by someone I know and trust.
I would not instruct an agent to sell my home who did not do that.
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It’s how they disclose those fees though.
Is this just a one liner in the T&C’s to say a referral fee may be made by using the services we recommend or is the total fee disclosed to the client.
Does the client have to ask if and how much the referral fee is, if known and not hidden in the small print?
Not one single complaint. Did you tell (verbally) that the services you were recommending you were going to get a kickback?
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Hypocrites! The writers charge a broker fee of 1% on top of their Proc fee’s. Is this not rinsing the client? Is this not a conflict of interest? Should brokers ONLY be allowed to earn a fee from one side? Do they ‘push’ life policies on their clients and do they declare the commissions they get to the client?
I’m a small one branch independent, we offer the mortgage services of course. We do not conditionally sell, insist on our brokers doing the mortgage etc as this is illegal. But we do offer the service and as my 2 brokers do not charge broker fees – I’d say they will win the business based on being free and with whole market options. Because unlike JLM Mortgage Services, we do not charge a broker fee whilst getting a proc fee from the lender. I believe this to be a completely immoral practice.
Perhaps 1 in 3 of our buyers use our brokers. The others remain loyal to their brokers. We qualify or their broker qualifies the applicant and no conditions are placed upon anybody. In doing so we have a 700+ client list for a plentiful repeat business pipeline.
I agree that as described, conditional selling is immoral and illegal yet it happens a lot, especially with the corporates. If a good service is offered there is nothing wrong with winning business the right way and accepting that we also do lose clients to others. We’ll try harder to retain them.
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Also the same for IFA’s recommending **** solicitors.
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Funny how these stories only crop up when the market is tightening.
last year there were so many sales and mortgage opportunities that no one cared
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This has always been the shaddy area of selling and buying a property. Many agents do not cross the line, some get very close, others may unintentionally cross it, while a few deliberately try to get away with it and that is often in the direction of corporates who everyone knows make big bucks out of the referral system be it FS or Conveyancing. This has been going on for decades and there have been some pretty hefty fines for those that have been caught.
The dilemma for any mortgage adviser under management pressure/targets is, is what they say the best deal for the customer and why choose that particular lender over another if they are both offering the same product. Referral fee is often the answer and the customer is not losing out. But when the referral fee takes over the best deal/advice option …. that is another matter and there is more than enough regulation to take action.
This is basic ……
Agents are required to take instruction from the vendor (as long as its legal) on who views, offers etc.
The agent is required by regulation to qualify a buyer, no later than at the time of offer. Not viewing, so suck it up with time wasters or you may fall into the discriminating trap as letting agents have discovered over No DSS (same principle applies).
It is the ‘qualifying’ of buyers that some agents cross the line. You can ask but you cannot impose restrictions i.e. have to see our mortgage adviser first, nothing stopping you offering that service. If the customer doesn’t want to use you …. tough and its that simple but picking and choosing buyers for your own needs …… go to jail.
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Clarity and transparency on referral fees needs to be an industry standard
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It has been for decades …. just some don’t comply.
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Arrogance personified! Some IFA’s seem to think every EA based advisor is beneath them and all offer an inferior proposition. Several DA’s and networks have restricted panels etc. and at times can offer weaker propositions than EA advisors.
Has an EA advisor ever legitimately won a piece of business from you or is it much easier on your massive egos to put any business loss down to foul play.
Murphy/Joseph seem to forget where they came from. Like many others they owe their careers to an agent taking them on as trainees and are criticising firms with models that they both happily operated within for years. Nothing more than an opportunistic advertorial and an attempt to ring fence customers from competition.
I hope your backgrounds are whiter than white!
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Agree totally
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