The practice whereby agents are charging buyers, rather than sellers, in informal tender arrangements, has come under new attack from two industry heavyweights.
Industry trainer Adam Walker and Winkworth director Hugh Dunsmore-Hardy – a former chief executive of the NAEA – have both said it is totally unacceptable.
Yesterday afternoon, ombudsman Christopher Hamer reiterated his own concerns, telling Eye that the practice is probably not illegal but that he will be issuing guidance.
Walker said it was “ethically indefensible” to use conditional contracts, and that the basic principles of estate agency are being undermined.
He said sellers are being lured in by the promise of not having to pay a fee. When prospective buyers are then told that as a condition of their offer being accepted they will have to pay, the agent is setting up a massive conflict of interests.
Who, said Walker, is the agent acting for? Will the agent get the best deal for the seller? Sellers, he said, may not realise that the purchaser will probably deduct the fee from the price they offer.
Walker said: “Several of the national chains, such as Knight Frank, have a specialist department which will find properties that are not on the open market and/or negotiate acquisitions on the most favourable terms for the buyers.
“This has been going on for many years and is perfectly legitimate.
“The For Sale by Tender arrangements that have emerged over the last few months are not.”
He said agents were doing it for one reason only – money.
Dunsmore-Hardy said: “For Sale by Tender muddies the water over the agent’s fiduciary duty.
“For example, having agreed to sell to a particular buyer on a conditional contract, where does that place the agent if a higher offer is received, and what happens to the agent’s duty to submit that offer before contracts are exchanged?
“The first buyer – who has agreed to pay the fees – will hardly be delighted if the agent then puts a higher offer in and is fulfilling their duty to the seller.
“Also, it is going to restrict the market as many buyers in my view would not wish to add agents’ fees to all the other costs associated with buying and will walk away from those agents advertising this approach.
“Equally, I would be interested to know if these agents make it clear in their online property adverts that it is the buyer who is expected to pay their fee.”
An increasing number of agents appear to be using sale by tender. Among them is Arun Estates which says 40% of its vendors are now choosing the method and says it is simply another weapon in an estate agent’s armoury.
Waterfords, based in Hampshire, Berkshire and Surrey, had a half-page editorial last week in a local paper’s property supplement to explain the process by which the vendor pays a one-off admin fee of £300, while the eventual buyer pays a 2% introduction fee to the agent.
The firm’s managing director did, however, say that the process will not suit everyone.
The practice has also been queried by Property Ombudsman Christopher Hamer. He told Eye yesterday that he had not let the matter drop.
He said: “The issue with regard to this approach is the potential for conflict of interest.
“Namely if the seller has an agreement with the seller and an agreement with the buyer, who is the agent’s client?
“My initial researches suggest that there is nothing illegal here but in my view, full disclosure of how the concept works and transparency need to apply. There should also always be the option for a traditional sale to take place.
“I intend to issue some guidance on what I see as best practice after I have discussed a draft with relevant stakeholders.”
Here is how we covered the story before:
https://www.propertyindustryeye.com/four-ten-sellers-using-sale-tender-says-agent/
https://www.propertyindustryeye.com/sale-tender-agents-find-practice-banned-law/
Comments (18)
@ El Burro – well spotted. Maybe sending a link to local Trading Standards highlighting the 2% isnt that highlighted would be a good email to send. Ask if it comes under 'Bait/ and switch'
How do our colleagues on the continent get around the conflict-of-interest issue? All agents I know in France and Germany have their fees paid by the purchaser (and often in the region of 5%!) without any disputes about whom they are acting for. Is there a subtle difference between a broker (who can take a fee from either party) and an agent (who is paid by the seller)?
What is illegal under Consumer Protection Regs is agents not being up front with buyers about the fees they will get landed with.
You are supposed to declare anything that may affect a buyers 'transactional decision' up front, before they've even viewed (ie wasted time and money) we were told.
I've got a £300k ex council property on screen at the moment from Douglas Allen, no mention at all of it on their website property listing. Even when you opt for the full details it just says in the small print at the bottom 'purchasing a Sale by Tender property will incur an introduction fee' but no clue as to how much, instead it refers people to the tender pack.
Only then when you get to page 3 of the 5 page tender document does it refer to the specific fee, 2%+vat for the first (far higher than normal sellers commission in this area). By that time I suspect you'll already have viewed and gon to the agent with your offer.
Imagine being a buyer, making an offer and then finding that on top of £300k purchase price and the £9k stamp duty, you've got another £7200 to pay to the agent?
Bearing in mind that few if any buyers would ever anticipate paying a fee to the agent, if that's not something that will affect your 'transactional decision' I don't know what is.
And we wonder why the public have such a low opinion of us.
The solution is simple – Agents MUST put all offers forward by law. Agents who are experiencing other agents playing 'baited tricks' should advise consumers they hear of to insist agents put offers forward on the basis they will not entertain a buyers fee as baited in.
The agent who fails to put offers forward is breaking the law (under the 79 Estate Agents Act) and trading standards could act.
The second offense that could be looked at is 'bait and switch' where consumers are baited in, and services/goods switched'
* Thirdly, if buyers are appointing a search agent and understand there is a fee, then this is fine. But to have it thrown on you is unfair practice.
Please can we get the headline right!
There is nothing unethical about sale by tender, it is the way informal tender is being used that is up for debate. Used correctly informal tender (which is generally called "sealed bids" these days) can be a very useful tool to achieve the best price for a buyer. Traditionally, buyers have never been charged to submit tenders.
Formal tender could be used far more. Unfortunately, most estate agents haven't the foggiest idea how it works. Similar to auction, but private, it can be a very good way to achieve the best price for a property and enables the vendor to choose who he sells to, which he can't do in the auction room. And the buyer doesn't pay a fee!
It would be a great pity if misusing tender renders the whole system unacceptable.
i happen to be next door to ward & partners, instead of following them we attacked them. result, pulled Nine properties off them. do your job as best you can an you will get the better result, dont go the same way.
I can't see this going away without legislation unfortunately…The selling public will still be initially drawn in with the 0% fees adverts, unethical or not.
If agents stopped undercutting each other to the point that the UK now charges the lowest vendor fees in the developed world then there would be no need to start swimming in murky waters.
We had a vendor on the verge of repossession in negative equity desperate to sell. Every penny from the sale was accounted for and there were no fees available to an agent. No one would act. Informal tender was in that case a solution which allowed a sale to proceed. He actually got more than he, or we, expected as the property needed some work. Everything was utterly transparent and we received 1% plus VAT.
Is that really so unethical?
Sorry….so why couldn't an agent have taken it on at a price that included his fees? Doesn't seem right to me.
Simply because there would not have been anything left from proceeds of sale and we couldn't possibly sell it at the price required. The vendor had a £20k shortfall, but came to an arrangement with the lender which avoided repossession. He was extremely happy.
Lenders are almost always prepared to 'do a deal'. If you did your work upfront with them you would have discovered that. For years this has been the case with potential repossessions. Despite popular belief, the absolute last thing a lender wants to do is reposess as debt collection is seriously expensive.
Eric, I am not suggesting you aren't a great agent, and in this one transaction you felt you were doing the best, but what about all of the other 'questionable' deals that Arun have been promoting full on. Having had the dissapointment of working for them many many years ago, things don't change much.
In fairness, we tried, but due to the market the lender just said 'No – we are seeking possession'.
The model under scrutiny is simply a way a generate business and not a service which necessarily suits the vendors to whom it is offered and in many cases causes a conflict of interest. Add in too the cross selling of conveyancing and the commission earned from that, mortgage services then I agree, guidance is required. Nevertheless, it's not Sale By Informal Tender which is unethical, it's a question of fees, who pays them & duty of care.
Agents cannot be poachers and gamekeepers
"A buyer cannot have a contract with the seller and take a fee from the buyer."
Except at Auction?
The seller pays a fee and has a contract – the auctioneer may demand a 'buyer's premium' equivalent to 1.5% of the sale price. There is also often an administration fee.
Just an observation.
We are in an area served by Arun Estates and as a result we have had to offer tender sales (at a more reasonable rate) simply to preserve market share. We would be happy to see the practice outlawed as it is an inefficient model dreamt up with one sole purpose, to increase market share irrespective of the reputational risk to the industry.
In last 7 days we have had 2 sale by tender related issues, both relating to Arun Estates. In the first instance an applicant registering and subsequently making an appointment to view specifically asked if we operated sale by tender as, if so, she would not register with us following poor experiences with Wards.
In the second incident on a sale we had agreed for 6 weeks, our client finally found a property only to instruct us to ask the chain below for £3,000 to assist her in funding her purchase of a sale by tender property.
The sooner these agenst have their fingers burnt the better as this kind of sharp practice damages all of us.
Yep – totally agree and raised this issue regarding Arun Estates (Ward and Partners) at the outset.
An estate agent cannot have a signed contract with a seller and then take a 2% fee from the buyer. Totally a conflict of interest. The agent is instructed by the seller (the Client) but is then paid by the purchaser. Bonkers and all about….money, money, money (in the interest of the agent only, dressed up as benefiting the seller).