More details have emerged of the government’s proposals to enhance estate agency regulation, regulate referral fees, offer guides for buyers and sellers, and trail reservation agreements.
Initially - at yesterday morning’s surprise announcement from the Ministry of Housing, Communities and Local Government - only a brief statement was released; but shortly afterwards the department released a more substantial document.
This was the summary of responses to the government’s call for evidence on improving the sales process, and informed the government’s announcement yesterday.
It is a 53 page document but the key elements, in the government’s own words, are:
Further Estate Agent Regulation: We believe that introducing a requirement to hold a professional qualification backed up with a programme of Continuing Professional Development would professionalise the industry, improve service and reassure consumers. This builds on our consultation to strengthen consumer redress in the housing sector.
- work with the National Trading Standards Estate Agency Team to strengthen enforcement of the existing regulatory framework for estate agents with a focus on ensuring all agents comply with consumer protection regulations;
- launch a consultation on creating a mandatory professional qualification for estate agents following engagement with industry and regulators; and
- post-consultation, evaluate the responses and consider introducing legislation where appropriate to ensure all estate agents are suitably qualified.
Referral fees: Referral fees are paid by conveyancers or mortgage brokers to estate agents in exchange for recommending business to them. We want to create more transparency surrounding referral fees so customers can make an informed choice and feel they are being treated fairly.
- work with industry to standardise the presentation of referral fees and ensure that customers are made aware of any potential referral fee before they make a decision whether to purchase;
- task the National Trading Standards Estate Agency Team to proactively monitor the disclosure of referral fees; and
- look more closely at the case for banning referral fees, particularly for new build properties and instances when buyers are being referred.
‘How to Buy’ and ‘How to Sell’ guides: The government will develop and publish guides on ‘How to Buy’ and ‘How to Sell’ which will complement our existing guide on ‘How to Rent’ and planned guides on ‘How to Let’ and ‘How to Lease’. These guides will ensure customers are better informed of the process and know what to expect throughout.
- develop and publish ‘How to Buy’ and ‘How to Sell’ guides; and
- consider how the guide is distributed, for example making it a standardised part of estate agency engagement in the same way the ‘How to Rent’ guide is with letting agents.
Choosing a conveyancer: We want consumers to be able to make a more informed choice of conveyancer which considers service levels, not just price. Currently when selecting a conveyancer, home buyers and sellers often rely upon recommendations from friends and family or referrals from estate agents.
- work with industry and consumer groups to develop solutions using more transparent data, standard metrics, kite marks and quality standards; and
- use our ‘How to Sell’ guide to encourage sellers to have early contact with their freeholder.
Speeding up local authority searches: Although response times to search requests have improved considerably over recent years, they still vary considerably between different local authorities. Lengthy waits can add weeks to the time taken to buy and sell.
- write to all local authorities to set an expectation that they should respond to search requests within 10 working days and allow timely access for external search agents; and
- take action against authorities if they fail to meet these expected performance levels.
Getting a Decision in Principle: A Decision in Principle is a certificate from a mortgage lender setting out how much money they will lend to a buyer. We believe that all non-cash buyers should obtain a Decision in Principle before they start house hunting, and we know that many estate agents already ensure that prospective buyers have a Decision in Principle before they are able to view or make offers on properties.
- make it clear in our ‘How to Buy’ guide that buyers should seek a Decision in Principle early in the process.
Reducing failed transactions: Over a quarter of all transactions fail, costing hundreds of millions a year to consumers and causing undue stress to both buyers and sellers.
Over 65% of all buyers and sellers are worried whether they will make it to completion following an offer being accepted. Government is particularly interested in the introduction of reservation agreements to address this problem given that a high proportion of buyers and sellers have expressed an interest in up front legal commitment. This will help to reduce the fear of gazumping.
Reservation Agreements: Reservation agreements are contracts which increase commitment between buyers and sellers earlier in the process, providing more certainty and reducing the risk of gazumping. These agreements are already used in some high value transactions but their use is not currently widespread. However research, supported by the responses to the Call for Evidence, showed that buyers and sellers would be willing to use them. We believe that making use of these agreements a more common part of the process will reduce the rate of failed transactions and the fear of gazumping.
- work with industry to develop a short standardised reservation agreement which can be used in any transaction;
- commission some behavioural insight research in order to consider ways to encourage consumers to adopt these agreements; and
- pilot these agreements with aim of making them a standard part of the process.