The Office of Fair Trading has said that a shake-up in how homes are sold, including updating legislation to allow new entrants into the market, could lead to a better deal for house buyers and sellers.
The regulator’s study into home buying and selling found that the housing market remains dominated by traditional estate agents with weak competition between them on price. As property prices rise during housing booms, so too do estate agents’ fees.
Overall satisfaction with estate agents, however, has improved in recent years, according to research conducted as part of the study. Where there are problems with transactions, consumers generally do not think the estate agent was at fault.
The OFT believes that innovation in this sector, in particular through online services, could have a dramatic impact on the cost of buying and selling a home.
27% of sellers who used a traditional estate agent have considered using an alternative selling method, and experience from the US suggests that alternative brokerage models have the potential to put competitive pressure on traditional ways of buying and selling a home.
However, the way current legislation, dating from 1979, is framed may be hindering the development of new business models and needs reform so that new entrants, for example those that only introduce private sellers to each other, are not burdened with inappropriate regulation.
Beyond this, the OFT has found existing legislation as it applies to traditional estate agents is comprehensive and wide ranging, and that further regulation is unnecessary. Instead, the report says the focus should be on improving the enforcement of current rules to guard against serious breaches.
The only area where the OFT recommends the Government should consider additional rules is around fees received by estate agents for referring buyers to providers of ancillary services such as mortgage advice, surveys, and conveyancing. The OFT believes this could cause an estate agent to favour one buyer over another, to the seller’s disadvantage.
The OFT is also encouraging more consumers to negotiate on commissions paid to estate agents. Whilst almost a third (32%) of those who had used a traditional estate agent believed that the fees they had paid to their estate agent represented slightly or very poor value for money, 64% of sellers in the OFT’s survey in England and Wales did not negotiate a lower fee. Failing to shop around and negotiate on estate agents’ fees could be costing these house sellers up to £570 million a year, according to OFT analysis.
John Fingleton, OFT chief executive, said: “In the present economic climate it is more important than ever that people get a good deal when buying or selling a home.