This is something we feel very strongly about at Cadman Homes. There’s a right way and a wrong way of getting customers to use your services and there is, sadly, too much of this going on!
New research from the Homeowners Alliance has revealed that as many as 300,00 consumers feel pressured into paying for additional services so as not to miss out on their dream home.
The consumer body conducted a survey of homeowners and found that 25% of those who have used an estate agent to buy or sell a property felt under pressure to use the agent’s in-house services.
With 1.2m sales each year this means 300,000 buyers and sellers could be using an agent’s mortgage broker or legal services without shopping around for the best deal. This obviously increases the costs to consumers and may hamper healthy competition.
Homebuyers felt most pressure to buy mortgages and conveyancing from the estate agent. Of those feeling under pressure to buy a service from the estate agent, over half said they felt under pressure to buy a mortgage (55%) and just under half said they felt under pressure to buy conveyancing (49%). Slightly fewer felt under pressure to buy surveys from the estate agent (41%), with other services like insurance and EPCs further behind.
The research is timely as the government is considering what action needs to be taken to make buying and selling your home cheaper, faster and less stressful. The government is specifically looking at whether referral fees from in-house services are disclosed to consumers and the impact of potentially banning them.
Estate agents are required by the Property Ombudsman to declare referral fees, but here at the HomeOwners Alliance, helping buyers and sellers on a daily basis, we see little evidence of this happening.
Paula continues: “The great majority of estate agents are upstanding and a vital part of the home buying and selling process, but sadly a small number may be encouraging their clients to use their services for all the wrong reasons, not to help smooth the process but for financial gain.
Any estate agent that favours buyers who use in house services are doing a disservice to their client – the seller – as well. Sellers can also lose out because estate agents have an incentive to sell a property to a buyer who is taking out a mortgage or life insurance with them rather than one that isn’t.”
While there is nothing wrong with agents offering services to their clients and receiving a fee for this where it is done in a transparent way, it’s important to note that their client is the seller not the buyer. Offering services to both can lead to a damaging conflict of interest and harm competition.”
It’s for this reason the HomeOwners Alliance is calling on the government to ban estate agents from being able to sell services to parties on both sides of the same transaction i.e. selling services to the buyer while acting for the seller. This clear conflict of interest can be incredibly detrimental to both buyers and sellers, and is banned in other professional sectors such as accountancy or law. As a minimum, there needs to better enforcement of the existing regulation that requires all estate agents to declare their referral fees, so those estate agents taking advantage of their unique position are penalised.
Case study – KD
“I am a first time buyer and trying to get on to property ladder to have a home for family of 4 in the west Yorkshire area. My elder daughter, 5 years old, goes to a reception school locally, so I have been looking for houses around the school for over a year now. There is a high street sales agent who is very aggressive in selling properties, and prefers buyers to sign up for surveying and the mortgage adviser. If you do not opt to do so, then you are not a preferred buyer irrespective of your financial eligibility. There are a few instances where myself and my friend’s higher offers were not considered, and eventually properties were sold for slightly less than what we offered. It’s quite strange. Example: Asking price £280,000, my friend offered £283,000 and it sold at £282,000. Asking price £330,000, I was pushed to offer £345,000 and it sold for £342,000.”
Case study – Christine
“My daughter and partner wanted to book a viewing on a house for sale. The estate agents have told them that they will have to have an appointment with their mortgage advisor costing £500. My daughter already has a mortgage in place and a certificate to prove it !! They only want to view the property there’s no saying they will like it. This doesn’t sound right to me and the agent got a bit rude and said it’s what the vendor wants. Is this right?”
This article was posted on propertyreporter.co.uk today.
Adam says – Personally I have a big problem with this. We are a family owned and run business and recommend other services from third parties that we know and trust. And yes, for some, we have a referral arrangement. It’s similar to our clients getting a voucher, champagne or a gift from us for recommending one of their contacts to us. It’s business we may not have got otherwise. Referral marketing is key to many businesses and the “cost of marketing in other ways” can legitimately be passed on to the “referrer” as a referral fee as part of that company’s marketing strategy.
What is described in the article above is NOT ok. There are agents that bully or mislead buyers or sellers into using other services that they provide. Normally this is done by telling them that, for example, an offer won’t be as favourable if they don’t use in house services, or worst of all, when they claim the “vendor insists” that a buyer uses their services.
I must put it out there that in my experience of the industry (15 years working for agents big and small across the home counties and the midlands) most of this skulduggery occurs in the larger, corporate or “chain” agents. This is largely down to the fact that they employ in house mortgage advisors who then have to earn their keep. Furthermore corporate level deals are done with conveyancing “packaging factories” around the country to offer a cheap and not always cheerful way of making additional revenue from customers.
In theory there is nothing wrong with having arrangements such as these. There are however three things to point out –
- Often these mortgage advisors are not “independent”. Several of the large corporate agents you may recognise are actually owned by the same company, and are part of a large building society group. Their advisors work from a selected and limited “panel”. Therefore they do not offer “whole of market” advice and you might miss out on a better rate or mortgage deal that they do not have access to. There are benefits to this system, sometimes they negotiate preferential rates with lenders, but I’d rather know what the whole of the market is offering me and get fully independent advice. By that I mean independent in the sense of the advisor not being tied to any particular lenders, and independent of the estate agent!
- Conveyancing “packaging factories” might sound like an exaggeration but in reality a lot of these cheaper companies are not necessarily more cheerful! They are like factories where teams of “juniors” do the day to day box ticking and client contact and at certain key stages the “solicitor” (or conveyancer more likely) signs the work off and requests any more information that is needed. Again, on it’s own this sounds like a modern, efficient production line, however a house purchase or sale is the largest single transaction most people will make. I for one would want to know that I am dealing with an expert, who is there to talk to me if needed, or even better, sit down with face to face.
- The agent recommending these services isn’t doing so out of pride, or to give you the very best help, they’ve probably got a target to hit. Yes, it’s out there, agents in larger companies are heavily targeted on how many mortgage “sign ups” they have to provide each month and in many cases how many “conveyancing cases” they bring in. Sometimes commission is only paid if these targets are hit, and often there are tiered commission structures to reward high achievers. I’ve even seen agents targeted on how many phone calls they are expected to make per day, how many viewings they generate daily and how many valuations they book in for the office every month. I am certainly not against targets, but I do not support them when they are aggressively implemented and managed in this way. The mortgage advisors are often heavily targeted also, not only for the volume of mortgages they sign up each month, but also on average “case size” and how many insurance products they sell with each mortgage.
So that’s my little rant. There’s a place for different businesses and business models in the market as long as they all act ethically and professionally and the customer not the share holder is the priority. I worked as a branch manager for one large agency that told me openly that I had to train new staff to behave in ways that were similar (actually more aggressive) than the ones in the article above. I was not and will not train staff to do something that is actually a breech of regulatory codes of conduct. I tendered my resignation straight away.
I urge any house hunters, sellers or buyers out there to report these incidents to the agents’ head office or managers, but the biggest way you can hurt these agents is to “vote with your feet” and take your business away from them!
If you want honest, impartial advice then speak to a locally owned and run, independent agent. If you’re in CV21, CV22, CV23 or CV8, NN6 or LE17 then make sure it’s a family owned and run firm called Cadman Homes!