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Agents’ Mutual’s latest ‘letter of intent’: what’s in it for agents?

The consumer is King and to protect sellers and buyers' best interests estate and letting agents have to operate in the boundaries of law.

In particular the law sees consumers are vulnerable. And legislation and regulation has to be in place to ensure consumers' interests are best protected, and represented. 

Estate agents too can be vulnerable if they enter into wrong practice, as well as being praised for good practice. 

Codes of practice such as the TPOS code tell us that agents as defined under the Estate Agents Act 1979 must act in the best interest of their clients, whilst CPR’s (Consumer Protection Regulation) lay down the rules on agent’s actions and what they can and can’t say or do.

In recent weeks, the war of the portals has heated up and Agents' Mutual has offered non-member agents a deal: sign up to a "letter of intent" and, in return for a non-binding commitment to become a member once OnTheMarket (OTM) reaches 7,500 current and prospective member offices, you can be assured preferential rates.  

By using a letter of intent, Agents' Mutual aims to give agents confidence to act collectively so as to increase OTM's membership. In using this method again, it is definitely becoming a serial strategy to attempt to lever new agents in.

Should you sign up?

Agents face an important business decision that goes far beyond which portal they or their managers should be on: the area of competition law is not something agents think about daily, or something that many are mentioning. Anti-competitive practices and cartels are harmful to consumers, businesses and the employees within them.

As agents, it is perhaps time that more attention was paid to this subject, even if only for agents own business self-preservation ‘peace of mind’. To highlight this, one case that English and Welsh agents may not have heard of was shown in Scottish press some years ago, that highlighted even solicitor-agent associations who should know law, can get things wrong. 

Agents, their trade associations and other associated businesses are not immune from the sort of legal and ethical failings found in society in general or in other business models.

The case in 2003 saw the Glasgow Solicitors Property Centre was found wanting and was obliged to change its entry rules following an investigation by the Office of Fair Trading (superseded by the Competition and Markets Authority). 

According to the report, the Glasgow Solicitors Property Centre refused membership from a Glasgow based solicitor firm, putting that firm at a competitive disadvantage. The OFT expressed its concern to the GSPC that its admission rules were anti-competitive. 

The GSPC offered to change its admission procedures to meet the concerns raised by the OFT. The chairman of the OFT was quoted as saying: "It is important for competition, consumers and new businesses that all trade associations have admission rules that are non-discriminatory, fair and transparent."

Behind OTM is Agent’s Mutual with a message that growth and unity will win back main marketing outlets for High Street agents that by boycotting the two main portals agents will be King. But on the flip side, becoming a member means signing up to the "one other portal" rule for up to five years.  

That risks being locked into an arrangement that might or might not deliver benefits for the agent and importantly, their clients. Even if the scales were to tip in OTM's favour three to four years into the five year term, agents and some clients would have had to endure compromises along the way. 

With OTM’s website traffic still way behind Zoopla and Rightmove, agents face the real danger of losing leads, and more importantly less leads, compromises clients ‘best interest’ along the way.

Agents' Mutual & OnTheMarket's intentions to gain more agents to sign a 'letter of intent' and support their actions should be treated with great caution. Especially as agents joining in support, may be doing so in support of a ban of ‘online only’ agents from a main consumer property search platform. 

Any agent would be foolish not to take their own legal direction, because this approach lays out restraints in the way (you) the agent can service your home sellers and landlords, plus affects other agent types from serving their clients.

Today our industry accepts that most buyers find their next home via portals. What empowers a commercial operative to impose rules that restrain a vendor’s property exposure, where consumers are being deprived of max, and all portal exposure with a view to gaining a best offer. 

As an agent, or manager or negotiator in one, personally I would be concerned as to being told what I could or couldn’t do in my clients interests. I would be concerned about agreeing to commercial restraints that in my eyes would restrain me from acting in line with the Estate Agents Act 1979 and recent National Trading Standards Estate Agency Team Guidance on Property Sales which came out September this year.

BPR's (Business Protection Regulations) were introduced into estate agency by the OFT to maintain a fair property market, and not one that could be tainted or restrained by commercial rules, other than stipulated by government legislation and official regulators. 

The Competition and Markets Authority have maintained that they are 'monitoring' OTM and AM. Until they publicly state that they have gone away or closed their file. Agents should remember that if AM/OTM were to be summoned the matter would go to Crown Prosecutors who would look at factors such as whether the offence was motivated by any form of discrimination. 

In the AM instance, member agents are collectively discriminating against 'online only models'. CMA may also see that managers who are accountable in their own right to the Estate Agents Act 1979 are doing so under a companies MD or 'board' policies.

The CMA (Competition and Markets Authority) came into being in April 2014, replacing the OFT (Office of Fair Trading). Their aim is to make markets work well for consumers, business and the economy.

A personal concern I do have is the fact that Agents' Mutual is shown at Companies House as having 9 directors, who are different to the 2 Directors shown for OnTheMarket? If AM and OTM are indeed 2 separate entities, joined by a trade agreement that carries restraints for AM's subscribers. If operating or setting up an estate agency today I would be very concerned about joining a collaborative dual entity movement, when reading how the CMA describe ‘cartels’ and cartel actions.

A person commits the offence of ‘cartel’ if he or she agrees with one or more other persons that two or more undertakings will engage in certain prohibited cartel arrangements, namely price fixing, market sharing, bid rigging, and limiting output. The offence is subject to certain exclusions and defences. The maximum penalty on conviction on indictment is five years imprisonment and/or an unlimited fine.

In July 2014 a joint article by Lindsey Miller, a prosecutor in the Crown Office and Emma Lindsay, assistant director, Cartels & Criminal Enforcement Directorate, Competition & Markets Authority (CMA) appeared in the Journal (online edition). It was titled “Cartels: raising the stakes”. The summary reads: “Stronger powers for the new Competition & Markets Authority, closer co-operation between enforcement authorities, and legislative changes, increase the chances of conviction for cartel offences.” 

The Competition Act 1998, in combination with the Enterprise Act 2002, set out various criteria and a framework for identifying and addressing perceived cartel, restrictive business practices and abuse of dominant position within a marketplace. In the UK this includes conduct that may be seen to distort, restrict or prevent competition. Horizontal agreements, understandings or collusion between firms on the same level of the chain of supply services.

Removal of the need for dishonesty in an agreement, written or otherwise, has considerably widened the scope of the offence. This could well catch out individuals who long ago entered into agreements with others, honestly believing them to be in the interests of their business. It would be reckless or complacent to think so, and it may be wise to carry out a full review: time and the law have moved on. If in doubt, the CMA is there to assist.

As an agent talking to a client who wanted best exposure to achieve a best offer, would I be lying if I said that marketing on just OTM and one other portal would achieve best results? Morally, could I honestly say that compromise could achieve the client the best deal?  Any agent who knowingly offers less is surely doing just that.

Earlier this year the CMA found that an association of agents and a media group had broken competition law by restricting other competing agents. The fine was £735,000 and even caught out Hamptons International, part of the Countrywide Group which has a large legal team which small and even medium sized agency operatives wouldn’t have access to. 

Whilst associations can offer many legitimate benefits, associations and collectives supporting practice that is seen to restrain unfairly some types of other competitors and in particular unfairly allow consumers fair market access or exposure, can break competition law. 

Actions that limit the commercial freedom of their members, for example, by restricting the form or content of their advertising, can risk breaking competition law. The association, as well as its members, can be fined for such conduct.

The consequences of breaking competition law can be severe: fines can be as much as 10% of a business’ global turnover and directors can be banned from running a company for up to 15 years. In the most serious cases, individuals can even go to prison for up to 5 years.

It is therefore important that the membership rules of any organisation you are a member of don’t unfairly restrict how you run your business, especially when acting in the best interest of consumers.

One must ask are existing and, arguably, prospective members of Agents' Mutual individually vulnerable to the legal risk surrounding Agents' Mutual?  CMA and Competition law can look right through a membership body which could lead to fines and other legal implications. For sure, when the Independent Network of Estate Agents has corresponded with the CMA, they have always confirmed that they are monitoring the Agents' Mutual and OnTheMarket situation. We can only still presume that the Competition and Markets Authority officials are still watching developments with interest.

“If an agent believes that they have or were involved in cartel behaviour, they should consider applying for leniency as a priority, because businesses that come forward to report their involvement in a cartel may have their financial penalty reduced or may avoid one altogether.” 

*Trevor Mealham is founder of The Independent Network of Estate Agents

  • Chris Arnold

    Totally agree, Trevor. Great article and one that every agent should read. Over the years, agencies have collectively ceded authority and thus power to the two main portals. It should not require restrictive practice to regain the power if the principle is fair and just. The sooner agencies focus on their own patch and develop a reputation that attracts rather than repels vendors, the less influence any portal will enjoy.
    This takes much effort but breeds loyalty and respect within each community.

  • Trevor Mealham

    Thanks Chris. Key to the article: should an agent accept commercial restraints, if it means they or their staff enter a commercial contract that could compromise best interest of tbeir client consumers in gaining max buyer exposure?

  • Simon Shinerock

    I find it amazing how agents have gone into this arrangement on trust without making their own enquiries. It goes contrary to everything else we do. Signing up without at least making enquiries to the CMA or taking legal advice would like buying a property without any conceyancing and hoping for the best

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    Wow, this is hard-hitting stuff Trevor. Agents should take note.
    Surely this is something other agents would have gone into with their eyes wide open? We, as a group are not stupid but who is benefiting from this?

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    I think the problem Joe, is 'you don't know what you don't know'. Every time this subject has come up Agents Mutual has said 'the company is satisfied that it is operating within the law', suggesting that advice has been sought and the project cleared.

    There are two aspects to this comment that are disingenuous:

    1. Competition law is not a static thing. As a business becomes more established and holds a greater market share, its ability to operate at the margins of what would be considered anti-competitive changes. Any business that has over 40% of share in a market (and this could be a very specific geographical market), is considered by the CMA as dominant and therefore could find itself being investigated if there are suspected misdemeanours.

    2. Agents Mutual have said that the COMPANY is operating within the law. They have carefully offered no comment on the behaviour and liability of their members. I am amazed that no-one has picked up on this. I know of some areas where agents have been getting together (in some cases almost all agents) and collectively deciding what portal to choose and which to drop. This is illegal and Agents Mutual will be able to offer them no protection if the authorities do decide to operate.

    All in all many - in some cases very reputable - agents have placed their business, staff and customer's well being in jeopardy with some very 'loose' behaviour. If the CMA do decide to look into this, it could be explosive for those agents who have been behaving as if they were in the Wild West...

     
  • Trevor Mealham

    Well said Steve.

    Joe, your comment is good as you say you looked into it with eyes wide open, which is respectfully part of the problem. Agents are entering into a situation 'they believe' to be safe.

    As per the article. Even a solicitor/agent group (GSPC got caught out with eyes wide open, who you wouldn't have expected to have got caught out over rule and restriction making.

    Any concerned agents shouldn't just take my thoughts or AM/OTM's view alone. But seek independent legal advice or better contact the CMA direct to show due dilligence.

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