Stella Creasy, shadow consumer minister, has taken a stand against double-charging by estate agents. Photograph: David Levene for the Guardian
It is an estate agent’s job to work for the seller of a property, lining up lots of prospective buyers and getting the best price for the property, whether it’s an immaculate family home in a most-wanted catchment area or a fixer-upper in need of some serious DIY. As such, the agent’s fees are met by the seller.
But a new trend is emerging where buyers are also being asked to stump up some cash – and when they’ve already had to go through a process of outbidding rivals. With the property market warming up in London and the south-east, an increasing number of sales have been going to “sealed bids” and “best and final offers”. Typically the estate agent will hold an open day or a series of viewings in quick succession, and ask would-be purchasers to put their offers on paper. In some parts of the capital buyers are being advised that an offer of less than 10% above asking price won’t stand a chance.
Now some agents are taking the process a step further with “sale by informal tender” contracts for buyers who make sealed bids – the contracts commit the successful buyer to paying an introductory or finder’s fee to the agent, usually around 2-2.5% of the cost of the property. At the same time, the agent collects a fee from the seller.
Stella Creasy, the Labour MP and shadow consumer minister has highlighted this double-charging by agents as a reason why there need to be tougher rules around the industry. She is voting against government plans to transfer the Office of Fair Trading’s regulation of the sector to Powys County Council’s trading standards department. Creasy says the buyer’s fee “means [buyers] have to offer a lower price for a property as they have to cover this cost as well as the purchase price. Consequently sellers get less money for their property despite also paying for the estate agent’s service”.
“The only people who do well out of these kinds of ‘sealed bid’ deals are the agents who get a nice fat fee from both the buyer and the seller. The ombudsman calls this an ’emerging commercial practice’, meaning it may be starting in London but without quick action it could spread across the country.”
One agent in the south-east that uses this sales method is Douglas Allen. In a letter to Creasy, the agent said the process was fair and that fees were made clear from the start. “If buyers are at all concerned or deterred by the introduction fee, they remain at liberty to take this into account when making their bid. If a seller is not satisfied with the highest bid on the closing date, they remain at liberty to decline to sell …” the letter said. The agent told the Guardian sellers were currently paying a reduced fee to use the process – £150 plus VAT – so the overall charge was not larger than on a sale made through the traditional process.
Mark Hayward, managing director of the National Association of Estate Agents, said: “Common practice for estate agency fees is for the fee to fall to the seller in return for the agent’s role in marketing the property, securing the sale and negotiating the transition with the buyer and others who may be part of the chain. However, given the current pressures on supply in the market, some agents may well consider changing their fee structures to encourage more sellers to the market by reducing fees for those selling a property and instead introducing a finder’s fee to help buyers find the right property.
“In whatever instance a fee is levied, however, our code of conduct is clear that all agents must be upfront and transparent about the fee being charged.”
Fees for both parties are already commonplace in the rental market, where agents charge landlords to find tenants, then land those tenants with a separate set of costs. In both scenarios, the agent holds the cards and it seems like consumers have no choice if they want to bag a particular property. If Creasy is right, and it means sellers will get a lower offer for their home, then they would be wise to ask the agent not to go ahead. Unfortunately though, it seems that this kind of tactic is likely to be most often used in a heated market, where buyers won’t feel they can risk a low offer, so it will make little difference to sellers.
The mismatch of supply and demand mean this is already a seller’s market, but tactics like this make things even harder for buyers who are already struggling to keep up with rising prices.