Be on your guard when buying or selling a property for these secret fees and commissions!
It's not often you hear of any professional body calling for more regulation. Normally they complain about 'red tape' and 'bureaucracy', and are happier when they’re left alone to make as much money as possible with as little protection for the consumer as possible. That’s business.
However, the Royal Institution of Chartered Surveyors (RICS), is calling for more regulation in the property market, and makes it clear that there are some areas of the market where there is simply nowhere near enough.
Last week it released the results and recommendations of a year-long project into fees and commissions received for all sorts of professional services related to property, including service charges, property valuation fees, home information packs and insurance.
The report revealed a large gap between the protection we have and the protection we need as leaseholders, tenants and homeowners, particularly with regards to transparency of costs.
Worryingly, it also found that in some areas there is either no regulation or just voluntary regulation, and that many customers appear to have no idea that this is the case.
Here are its recommendations, along with tips on what you can do to try and reduce your costs:
Insurance
We get a lot of insurance pushed on us by our estate agent and insurance broker, whether we buy or rent a property.
RICS wants to see greater emphasis made on making customers aware of the remuneration all brokers receive from the transaction.
RICS also called on the regulator, the Financial Services Authority, to review the advice given to customers, particularly because there is often a conflict of interest for brokers who, while arranging the insurance, are acting on behalf of both the insurer and the policyholder, whose interests are often opposed.
What you should do
Before arranging insurance, ask what commission, fees or other payments will be received. With home insurance, for example, it’s not unusual to be paying 25% commission. If you show your outrage, you might be able to get them to cut it down to 10%.
It’ll probably be cheaper not to go through your estate agent or lender when buying insurance, and you’re not obliged to, so you should also compare prices elsewhere. You can do that through lovemoney.com’s insurance service.)
Service charges in leasehold properties
RICS was scathing of the hotchpotch of legislation that is supposed to safeguard leaseholders and tenants.
How to arrange a mortgage over the internet
The trade body questioned the fact that companies within the same group provide different services, such as both installing equipment and arranging insurance. According to RICS, this implies that managing agents are not shopping around for the best deals, which will be costing leaseholders and tenants money.
Furthermore, it found that service charges were difficult to challenge, because we don’t have access to the evidence we need. Typically, leaseholders have to take it to a tribunal without evidence, at our own expense, which can be considerable.
The staggering thing is that there is no regulation in this area protecting you from lazy or unscrupulous managing agents and landlords!
What you should do
The report says: “Each party should be under no illusion about the service that has been agreed, who will provide that service, what the cost will be and who is paid what.” These are questions you should satisfy yourself before moving into such a property. You want to know a breakdown of what the costs are and where they come from.
RICs would likely also recommend that leaseholders and tenants look into whether the managing agent or landlord is signed up to its code of conduct. Recognised consumer codes of conduct are, since May 2008, legally binding.
HIPs and Energy Performance Certificates
RICS found that there are two areas of concern with these additions to the sales process.
Firstly, many consumers aren’t likely to know that they don’t have to buy their home information pack or greenness certificate through their estate agent, because they won’t have sold a house for many years and may be out-of-the-loop on how it all works. RICS wants agents to make this clear.
It also wants agents to tell you what they get out of it. It mentions a case of a £100 home information pack referral fee from an agent to a solicitor that was not disclosed to the seller. RICS is calling for this to be revealed upfront.
What you should do
Estate agents sometimes tie you in by offering to refund your home information pack fee if you eventually sell through them. If you’re not totally confident that they will be the ones to sell your property, consider buying the pack separately, as it’s much cheaper.
Valuation fees
RICS takes up the issue that the charge for valuation fees can be £400 when the cost to the mortgage lender is just £140, which means they’re getting a staggering reward for referring you to their partners. This cannot be fair, when the valuation is for the lender’s benefit, not the buyer’s. RICS also felt that buyers should be made aware they’re not the beneficiaries of this ‘service’!
Unfortunately, the FSA’s guidance on drawing up mortgage Key Facts documents for consumers just ‘suggests’ that valuation fees are included. Consequently, no information is given.
RICS is calling for fees and commissions to be appropriate and reflect the extra level of service provided. As valuation fees are for the lenders’ benefit, there is no extra service provided - so I interpret that recommendation as meaning we should just be charged the cost.
What you should do
Perhaps try asking your lender to write to you explaining what their costs of the valuation are and what its fees and commissions are. Insist politely but firmly that, as this is entirely for their benefit, they should not profit from it.