Estate agents threatened by property websites
New rules could break estate agents' grip on home sales, but would this be a good thing?
Along with bankers, bailiffs, bouncers and traffic wardens, estate agents regularly feature near the top of 'most-hated professions' surveys here in the UK.
Hence, news that the government is to relax the rules surrounding the sale of private homes will delight those Brits fed up with sharp-suited property salespeople!
Cutting more red tape
The government is absolutely desperate to dig Britain's property market out of the doldrums and turn it back into an engine of economic growth. Hence, last week, the coalition announced plans to ditch planning permission for extensions and conservatories.
This week, consumer affairs minister Jo Swinson at the Department for Business, Innovations and Skills announced plans to alter the Estate Agents Act and scrap the Property Misdescriptions Act, so as to make it easy for property websites to take on high-street estate agents. The aim is to make sales of private homes easier and cheaper, helping to restore a vibrant and active market for domestic property.
This 'bonfire of red tape' would reduce the regulations surrounding property sales. Right now, the law treats many websites that display property sales in much the same way as estate agents. This forces these online services to check that property descriptions are accurate, pushing up their costs and fees, while slowing down their service.
Hence, the government plans to give property websites more freedom to compete with estate agents by scrapping the legal requirement for them to them to perform detailed property checks.
Good for buyers, bad for agents?
While any new competition in tightly controlled markets is to be welcomed, estate agents warn that this proposed change could lead to fresh problems for buyers. They claim that websites that match up buyers and sellers are no match for local experience 'on the ground', backed up by consumer regulations, reliable property descriptions and government-approved complaints procedures.
However, I feel that estate agents are protesting too much. In effect, the proposed amendment would create a two-tier market for selling homes. On one hand would be the low-cost, no-advice route via websites, while on the other would be traditional estate agents with their local knowledge, negotiating skills and fees of between 1.5% and 2.5% of each sale's value.
Even so, the Royal Institution of Chartered Surveyors (RICS) claims that, "This [proposed change] could lead to delays, increased costs and even sales falling through, causing frustration and stress for all involved." Given the success of the Internet in enhancing, simplifying and speeding up other aspects of our personal and financial lives, this sounds like sour grapes to me.
Could Tesco return to house sales?
It will be interesting to see whether these changes might prompt supermarket to enter or return to this market.
At the peak of the property boom in 2007, Tesco launched Tesco Property Market, an 'online notice board' that charged property sellers £199 to advertise a home. Alas, the subsequent collapse in home sales, plus a successful legal challenge by estate agents, led to the site being shut down in its infancy.
Another site that struggles on against the estate agents' near-monopoly is Tepilo, a free service run by property guru and TV presenter Sarah Beeny, who welcomes the move to relax red tape for low-cost 'sale by owner' intermediaries.
In an interview with the Daily Mail, Beeny argued, "This is an important step and can only be a good thing for sellers. If people want to use an estate agent, that's fine and they still can, but you can't ignore that the Internet is here and people want to do things in a different way. Good agents should have nothing to fear and should be happy that they can prove the value they add."
Fat fees under threat
In summary, estate agents may be making a needless fuss, as they perform up to 97% of all home sales. What's more, increased choice and lower costs will surely help to stimulate the property market, thus benefiting all participants.
On the other hand, enhanced competition may encourage estate agents to introduce flat fees, rather than levying fees as a percentage of sale prices. Again, this could save sellers thousands, while putting more pressure on one of Britain's least-loved business sectors.
Finally, if you think estate agents are expensive in the UK, then look westwards towards the US. In America, fees are around the 5% to 6% mark, which explains why 'sale by owner' transactions account for up to three-tenths (30%) of all private home sales!
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