Agents who use controversial For Sale by Tender methods – effectively charging buyers rather than sellers – could find the practice banned or sharply curbed by the same legislation that seeks to outlaw letting agents’ fees charged to tenants.
Consumer Affairs minister Jenny Willott this week met property ombudsman Christopher Hamer to discuss the scenario, by which the successful bidder typically pays around 2% of the selling price to the agents marketing the home on behalf of the vendor.
The seller typically pays a £150 administration fee, for example to Arun Estates, as reported by Eye here:
https://www.propertyindustryeye.com/four-ten-sellers-using-sale-tender-says-agent
On top of the 2% that successful bidders pay the agent is the VAT bill. There is also the alleged concern among lenders that this money has not been factored into the purchase price – which could push it into a new Stamp Duty bracket.
A clause in the Consumer Rights Bill outlawing the practice was initially dropped after opposition by the Government.
However Labour’s shadow consumer affairs minister, Stella Creasy, has now resubmitted the “unfair contract” provision for the third reading of the Bill next month, and the Government has not as yet suggested it is opposed to the amendment.
A spokesperson for Vince Cable’s Business and Skills Department said: “The consumer minister is aware of this emerging practice and concerned about its potential impact on the market.”
Creasy also claims that her opposite number, Jenny Willott, spoke out against the practice in committee.
Creasy said she would welcome a U-turn by the Government on the issue.
This morning, ombudsman Christopher Hamer told Eye: “My view on Sale by Tender is that there is a potential conflict of interest if the seller instructs an agent, and the agent then enters into an agreement with a prospective buyer.
“There is a potential disadvantage to the seller if the prospective buyer does not want to use the tender process.
“The buyer has to find the fee from their own funds, and cannot clad it as part of the value of the property, so it is not included as part of the loan to value for mortgage purposes.
“This is an emerging commercial practice which needs to be fully transparent to all parties.”
Comments (14)
Briefly to pick up on those earlier comments about banning sales by tender of charging fees to tenants. In my opinion, neither estates agents nor the powers-that-be fully understanding the legal position.
And I fear the position is worse today than it was when the Estate Agents Act and the subsequent Orders and Regulations were being formulated and that takes us back to 1981/82 -just over 30 years ago!
I well recall a discussion with the then Director General of Fair Trading, then Sir Gordon and today Lord Borrie, who remarked, "Of course, none of this (the Orders and Regulations we were then drafting) would be necessary if estate agents actually knew and understood the Laws of Agency."
Basically, the clients' instructions and failing specific instructions their interests are always and in all respects paramount while all agencies involve a fiduciary duty of care which is implicit in any agency relationship and cannot be ignored. And these comments apply to any form of agency, not just estate agency.
In relation to property letting, one could have an arrangement where both the landlord and the tenant were liable to remunerate the agent provided there were two separate contracts and that both parties were aware of and had given their informed consent to the one agent acting for both parties in those two separate and individual circumstances.
However, were there a conflict of interests, or even a foreseeable possibility of a conflict of interests arising, then the agent cannot accept instructions from both parties. In such cases the Higher Courts would take a very dim view of such professional incompetence and could well institute penal sanctions.
Finally there is long way between the current 'political' manoeuvring in Parliament and drafting the eventual Orders in Council to implement the matter. And fortunately, our Parliamentary Counsel do know the law and would recognise the differing circumstances that could apply to this aspect of agency. They also appreciate the time-honoured convention that Parliament cannot out-law a legitimate commercial activity without overriding justification.
What a shame badgers come out at night, most will miss that post more's the pity.
Just read it…..sometimes we all miss the wood for the trees. Very sensible post.
"One offence is to NOT forward offers."
Not STRICTLY correct, Mr Mealham. As I have always understood under the Estate Agents Act 1979, and now direct from the OFT website:
"If your client tells you in writing that it isn't necessary to pass on certain offers, you don't have to write in those circumstances. For example, this could happen if the client doesn't want you to write with offers below a specific price level."
Its simple – Agents by law MUST put forward offers.
Buyers should not be restrained from offering bids. If such agents plead for buyers to then pay the fee as the seller doesn't have to, buyers should contact Trading Standards and say that the agent is refusing to forward the offer.
Its a breach of current estate agency regulation.
The Estate Agents Act 1979 regulates work as an estate agent. Its purpose is to make sure that agents act in the best interests of their clients, and that both buyers and sellers are treated honestly, fairly and promptly.
If agents don't comply with the law, they could be banned from working as an estate agent prosecuted and fined.
One offence is to NOT forward offers.
http://www.oft.gov.uk/about-the-oft/legal-powers/legal/estate-agents-act/handling-negotiations
Set upo by OFT now governed by Trading Standards
Okay… here's my slant on things (for what it's worth)
Firstly, I am NOT pro-SBT. Far from it, in fact – just as I am anti-auction. Where I am based, they are simply gimmicks offered by Agents to a) get shot quickly with minimal effort and b) money-spinners due to the far higher fees paid. Sellers usually come off second best – actually, make that THIRD.
But lets look objectively at the whole fees business.
Buyers' Premium, on either SBT or auction, is in my opinion (not that MY opinion matters here – just making a statement) unfair and unwarranted as it is generally higher than 'normal' Estate Agents fees.
Of course, Auction houses will argue that their costs need covering. Well, sorry – then take a bigger cut than you do from the sale fee as in many cases the Agent supplying you with the properties are doing bot-all for their substantial chunk of the proceedings. Trust me on that one. But of course they pay it because if they don't, then they won't get the properties to put under the hammer. But at the end of the day, the vast majority of those who buy at auction are semi-pros at least – and have their figures and costs worked out well beforehand. They AIN'T paying over the odds for the property – and the buying costs will be factored in when the bids are made. In my opinion, SBT buyers will be equally aware of how much they will be required to pay the Agent – and will adjust their tender bid accordingly.
These people are buying properties either to live in, to rent out, or to flip for (they hope) a profit. They are making either a lifestyle or a business decision.
Surely they should be given recognition that they have the wherewithal to do this – and we ('we' being everyone involved in the process AND the politicians who seek to make change) therefore have to accept that they are sufficiently savvy to work out what something is going to cost them.
What we are forgetting (or simply glazing over) here is that under good-ole Private Treaty, the buyer STILL 'pays' the Agents Fee – but this time they pay it to the seller, who then hands it over. The only difference is that it is rolled into a nice bundle with one price-tag on it so the poor hard-done-to buyer doesn't have to work out what house price X+ Fee Y equals.
Oh – and of course, the buyer pays whatever Stamp Duty is due on that commission element within the agreed purchase price (allowing the government to tax for a service, as well as tax on the tax that service commands, and not just the actual 'price' of the property.
What worries me is that, as far as I can see, NO-ONE in Government circles seems to acknowledge this.
Nor, for that matter, does anyone appear to from within our industry. NO 'trade associations' are banging that point home. No '"industry spokespeople", "property experts" or whatever clever name they like to be herded under is making any meaningful, joined-up comment.
I always knew I looked at things differently to most – I never thought for one second that I was unique.
Rantlet over. Back to my colleagues in industry…
Grenville Turner is now a non executive director at CLG.
He might not have much idea about Agency other than his unquestionable ability to run a business that does Estate Agency but it is a start.
CLG, DWP, OFT and HMRC could ceratinly do with some practial understandin of agency and not rely too heavily on those who have shoved their way into a position of credibility but who have very little insight into the complexities of the industry.
I will disagree with you about genuine sale by tender and auction Peebee. Where most private treaty sales seek to find the best buyer willing to pay the best price, there are occasions where there are multiple good buyers and it isn't possible to put a fag paper between them. Tender and Auction allows the applicants decide who gets the property rather than an arbitary decision by the agent or vendor based on factors like personality or sob story. With the best will in the world some properties have values beyond their apparent open market value, Auction and tender tends to reveal circumstances private treaty won't ever uncover.
One property close to here went for £500,000 against an open market valuation of £190,000. The reason; two purchasers knew or took a punt about changes to the local plan. 4 years later the field at the back of the property fell within the development boundary for the village. When there is an unexpected clamour for a single property Auction or tender is the professional way to deal with a situation that could easily turn in to a dutch auction or gazumpfest.
the *** is the usual reference to a cigarette.
Hi ampersat
I would agree with you that in SOME instances, auction and even SBT will produce a result you refer to. I would also suggest, however, that SBT is little different to Private Treaty other than setting a date for offers. This can be seen (and is definitely 'sold' to vendors) as promoting au urgency; it can also be a case of an agent simply wanting shot quickly – especially when their local competitors seem almost to give the board man their canvassing letters to put through the door – they arrive so quickly after it goes up…!
For all we know, the instance you cite could have ended in the same scenario under PT. As you say, all it takes is more than one bidder – whether it be in an auction room, sealed tenders, or simply inviting best & finals.
That is the beauty of the industry we work within, mon ami. The rules are there are NO rules; the goalposts are moved the second you kick the ball in their direction.
And we love it! 😉
It is the experience to know the goalposts are going to move and which way to direct the shot when they do that sets a good Estate Agents from the ones Mr Hendry lumps us all in with.
Let's get the heading right: Are we talking about outlawing sales by tender or some of the practices associated with it?
Sale by informal tender (or sealed bids as some people call it) can be a very effective method of achieving a quick sale at the best price if it is used correctly. Unfortunately too many agents use it when they either don't want to spend the effort valuing a property correctly or want to find an additional source of income. You act either for the seller or the buyer and should be paid by your relevant client. Any other practice creates a potential conflict of interests which could and can prejudice either party to the transaction.
Let's not forget the best way to sell using "sealed bids" – Formal Tender; clean, crisp and not open to abuse. But how many town agents know how that works?
If a ruling is passed that makes fees payable by purchasers illegal will that mean that all purchasers that paid previously, may have a case to claim it back from their agent?.
I, like most, have been very much against this sharp practise and hope it is stopped.
It's simply wrong for high street estate agents to act as "poachers and gamekeepers"
There was always a danger with this practice that it would receive exactly the kind of negative coverage we as agents do not need. It will be spun as "another example" of the greed and sharp practice of agents.
Innovation and having a competitive edge is key to any businesses success but sometimes the quick fix can have wider implications. In my areas of operation, Ward (Arun) Haart, YourMove and others have all jumped on the band wagon with minimal success. Most vendors we come across do not like the idea and I would say that it represents less than 10% of instructions won/properties sold. Lets hope this doesn't turn into yet another stick to beat us with.