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Launched: February 2009
Our study looked at the market for home buying and selling services in the UK. In particular, we considered:
For many consumers, traditional estate agents provide a good service and they are happy with the face to face contact and traditional package for selling their home. While there are problems with transactions, consumers do not generally think the estate agent was at fault.
It remains the case, however, that there isn't a great deal of choice for consumers who may prefer different, and cheaper, ways of buying and selling a home. Price competition between traditional estate agents remains weak and commission rates are sticky - this means that as property prices rise during booms, in real terms, so too do estate agents fees.
Internet portals have transformed the way people search for a home. Nonetheless, behind the portals the market is still dominated by traditional estate agents. The OFT believes that innovation in this sector could have a dramatic impact on the cost of buying and selling a home, in particular through online services.
At present, estate agents may receive a fee or commission for referring prospective buyers to other service providers (for example solicitors or mortgage advisors), provided they disclose to the seller the existence of such fees and commissions if the buyer makes an offer. The OFT believes this has the potential to cause an estate agent to prefer one buyer over another, to the seller's disadvantage.
We compared the home buying and selling process in England and Wales with that in Scotland. Some stakeholders told us that they believed they key to improving the process in England and Wales would be to introduce a point earlier in the process where parties make a binding commitment. It is not possible to quantify, with certainty, the costs and benefits of introducing a point of earlier commitment, but it is clear that the potential benefits might be substantial.
There are important messages coming out of this work around how consumers can best inform, protect and empower themselves in this market. We provide some 'top tips' for consumers (see www.consumerdirect.gov.uk/hometips).
We believe that the best way to tackle the lack of price competition is through promoting and encouraging new business models. Innovation in this sector would provide greater choice for consumers and would put pressure on the traditional ways of buying and selling a home. Regulation for these new models could safely be lighter and the current legislation may be preventing, or discouraging, innovation. We recommend that the existing legislation should be updated as soon as possible.
We found that most online estate agents can now access the major portals. We do not, therefore, believe that there is currently a need to intervene to ensure that online estate agents are able to access the major internet property portals. This is an area we will be monitoring closely in the future.
We have considered carefully the arguments for and against introducing a dedicated regulatory regime for estate agents, and have weighed the potential costs of doing so against the risks consumers face in this sector, the evidence we have of consumer harm, and the likely success of a licensing approach in preventing such harm. Our view is that there is not a strong case for introducing more regulatory structures and rules in this sector. We are not, therefore, recommending positive licensing.
Serious misconduct by estate agents should be dealt with by efficient enforcement and penalties which are high enough to deter such misconduct. We will work to improve co-ordination between Trading Standards, OFT and the Ombudsmen for a more rapid, prioritised response to complaints about estate agents which raise serious concerns.
The prospect of additional income may give the estate agent a financial incentive to prefer some buyers over others. We recommend that, as part of its work on the future of estate agency regulation, Government consider further whether the potential for conflicts of interest should be removed, including a ban on such payments.
It is hard to see either a significant positive, or negative, impact of HIPs in their current form. Nevertheless, HIPs make information available to prospective buyers early in the process, and some buyers said they found the information useful and that it influenced their decisions, so it could be argued that HIPs in their current form have a positive impact. We would expect any gap between wholesale and retail prices to reduce over time, as consumers become more familiar with HIPs and as direct sales become more common. We do not, therefore, recommend any intervention on this issue at the present time.
In the course of our study we found that consumers are often ill-informed about the process of buying or selling a home and about the roles of the professionals involved. However, there is a lot of guidance available to consumers that can be found either in books, guides or on the internet.
The following list highlights some of the useful guidance on the home buying and selling process that is available to consumers (it is not an exhaustive list).
Consumer Direct: www.consumerdirect.gov.uk/before_you_buy/thinking_about/buying-home/
The Property Codes Compliance Board: www.propertycodes.org.uk/consumerguide
Consumer Focus Scotland: www.consumerfocus.org.uk/scotland/publications/consumer-guides
Which?: www.which.co.uk/advice/your-home/index.jsp
Royal Institution of Chartered Surveyors:
Buyer guide: www.rics.org/buyingahome
Seller guide: www.rics.org/site/sellingyourhome
The OFT announces plans to launch a market study into home buying and selling. See press release 8 December 2008.
Back to: Completed market studies
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08457 22 44 99
