The estate agency industry is still under the spotlight for possible illegal price fixing cartels according to the Competition and Markets Authority.
In recent years the CMA has taken action against three examples of anti-competitive practice in the property sector and the latest warning, issued yesterday, was contained in a document outlining how companies can break the law even through ‘apparently innocent’ conversations.
The CMA highlights the case of five Somerset estate agencies which in 2017 were fined over £370,000 and saw four of their directors being subsequently disqualified.
The rival agents all fixed their minimum commission rates at 1.5 per cent and according to the CMA their rationale was contained in an email between some of the conspiring firms which said ‘…with a bit of talking and co-operation between us, we all win.’
Email evidence also explained how ‘the aim of the meeting…will be to drive the fee level up to 1.5%’ and ‘…it’s really important we all give it the priority it deserves (making as much profit as possible)’.
Each business took it in turn to ‘police’ the illegal agreement. According to additional email evidence obtained in the CMA probe, agents were to report any issues ‘to the policeman immediately and get the matter resolved rather than let it fester and risk the agreement falling apart!”
The CMA says the lessons which the agency industry should learn from this case include:
- being careful when talking business with competitors and being especially wary of any conversations about pricing, or about a shared approach to pricing. “Rival businesses must decide and set prices independently of each other” says the authority;
- being aware that competition law applies to small businesses as well as large ones - the agencies in this case were small local or regional businesses.
The authority also issues a warning to the industry in the document when it says: “The CMA has now taken three enforcement cases in the property sector and remains committed to tackling anti-competitive conduct in this sector.”
Join the conversation
Jump to latest comment and add your reply
this is the same organisation that allowed the main four competing portals to merge in 2012, to be controlled by two parties with the inevitable consequence that a duopoly would be created
I posted that Rightmove ARPA would rise to £1000 a month when the story broke on here in October in October 2011, when the merger was first made public. I wasn't wrong!
CMA need to decide on a fair policy for all and stick to it
Yes and one that is not overly generous to whistleblowers either. There obviously needs to be an incentive of course otherwise noone would come forward. However, it feels a little perverse to create and manage a price fixing Cartel, sometimes for many years, no doubt eliciting significant accolade, revenues, profits and salary only then to escape with full immunity and no financial punishment at all, thus retaining all the ill gotten gains.
I cannot think of many other examples in the criminal justice system where a guilty parties' cooperation is so richly rewarded, and it doesn't feel like enough of a disincentive when the risk really then just comes down to the timing of making sure you are the first one to grass up your bed fellows.
Sounds like those agents had decided that they offered nothing unique from each other which is a shame. Agents should strive to find the competitive edge that gives them a point of differentiation so that discussing fee levels to such a degree becomes obsolete. I know one that hardly any estate agency firm is talking about.
In traditional UK estate agency the fee that the client pays is determined by a number of factors. The value/eventual sale price of their home and whatever they can negotiate as a percentage or fixed commission figure with the valuation agent on the day they sign up. The agent's pricing is a dark art, a closely guarded secret, try calling a traditional retail estate agent and asking what they charge and you will see this perfectly demonstrated. Not very transparent and a factor in the general mis-trust of traditional estate agents.
One thing the much criticized 'big hybrid' agents have made clear is the fixed fee that they charge for their services. It’s made very obvious on their websites and in other marketing material. A more consumer friendly approach.
Some confusion prevails regarding whether estate agents should really charge variable ‘commission’ or not. Where a buying client finds a property online, sees it, views, offers and has a sale agreed there is little sales skill on the part of any agent in achieving a higher than expected price for the vendor. The purpose of commission is meant as a way to motivate and reward salespeople and encourage specific sales behaviors, but isn't it market forces that determine the true value of the property?
The traditional agent may be claiming 1% commission of the sale price upon completion. If the property sale gets £255,000 rather than £250,000 that equates to an extra £50 to that estate agency business of which the sale person may see an extra £5 from this. Does this really change that employee negotiator’s approach or behavior when taking an offer and forwarding it to the vendor client? generally no. The same routine process of receiving offers will repeatedly be followed often several times a day to get to the agreeable sale price. This is why the concept of variable commission for a single property transaction in modern estate agency is next to pointless and may as well be a transparent fixed fee.
Traditional estate agents would say that they have obligation to achieve the best possible sale price for a vendor client, as do fixed price agents. This sale price will happen naturally due to market forces so where is the job here with a variable percentage? What behavior does charging a variable commission influence? Discuss...
A variable commission structure Philip (AKA Bstard Agent) helps to avoid agents constantly looking for the easy way out by dropping the price for a quick sale. It has existed for years, promise the earth, deliver 'supposed' great customer experience, fail to achieve price, consistently blame the market conditions and ask for a price reduction again and again. A dropped market price will lead to less fees so it equates to a lose lose. Whereas with a fixed price, only the vendor is losing out. As such, surely the biggest evil is a fixed price up front and the fairest fee structure, offering shared pain, is the variable commission. But all this dialogue is missing the point entirely and it is a shame that agents get so hung up on fee structure of either type.
IF a valuation / appraisal meeting always comes down to fees you have surely failed to deliver enough value in your service proposal or deliver a unique service promise that differentiates your business from others.
"You cannot compare Apples with Pears".
Take a step back from what you have always done as a business on an appraisal, take a look at what truly sets your business apart and then deliver a complete picture to a prospective client. Deliver what actually matters to them in a meaningful capacity, set aside the ego and bravado of the business and actually deliver.
Hi Daniel Are you suggesting that agents that charge a variable commission don't reduce the price of their stock? Do you think that the £50 extra fee earned by selling the property at £255,000 rather than £250,000 makes any difference to how that agent and their negotiating staff operate? Does the agent really feel 'shared pain' when they get £50 less commission? Does the sales negotiator also feel the 'shared pain' for receiving £5 gross income less when the property completes in three months? Yes a valuation appointment is your chance to differentiate your offering from other agents if you can but the original article suggests agents colluding and charging the most they can get away with, this can't be the only town in the UK where this happens. What sets one traditional estate agent apart from another, bigger shop? more phone answering staff? shinier brochures? Let me know. Percentage fees are used to grab the largest proportion of the sale price of the property by kidding the vendor client that "it's only 1.5%".. 1.5% makes it sound like a really small amount which it was originally when house prices were £30000 UK average, not so much now they're £240k+. If agents were as transparent as consumers would like about what they charge they would tell them what their fee is when phoned...
Hi Philip,
I agree that collusion is wrong but believe that it was likely driven by the fact that each of those agents believed that they had nothing more to give and that there was nothing to differentiate them.
So many agents believe that it’s all about winning the instruction and, unfortunately in this market, it is. It’s a land grab because property will sell itself, within reason.
I don’t believe that the job stops when a sale is agreed and that it is an agents job to start screaming at solicitors to speed things up. We launched a Search Solution offering the ability for buyers to get their Searches underway at the point a purchase is agreed. A buyer who pays for their Searches is committed to that property. A buyer who gives the name of a solicitor for a memo is not necessarily.
Which agents in your area are proactively asking buyers to buy they Searches on day one of a sale being agreed?
There’s a differentiation for you.
Given that 4 out of the top 10 additional enquiries raised by conveyancers post receipt of a mortgage offer could be answered at the point of valuation if a local authority search was provided to the surveyor at the time. That would save time in the conveyancing process too. Anyone spearheading that in your area?
That’s another differentiation for an agent.
The focus at the moment should be banking money, at whatever level, to prevent fall throughs and positive pipeline management.
Anyone talking about that at a valuation or is it all about fees?
I set up my business to support positive behaviours and shorten exchange timescales with little changes to practices. They make a difference and provide some agents with a differentiation from their competitors who are too busy doing what they’ve always done to change. They’d rather just collude over fees or debate about which is the best fee structure.
The client wants a sale at a good price with an agent offering a competent, comprehensive service from instruction to completion.
Please login to comment