More than homes for sale

Estate agents must decide if they are selling houses or financial services

The roles of estate agents in selling houses have changed little for decades. While the sale of bolt-on financial services products is much higher than before, the large corporate agencies have largely kept to the old selling practices.

Can this cosy situation last? Consumer studies indicate that people do not rate estate agents highly. Vendors attach some value to the way estate agents advertise, set prices and deal with customers, according to a survey carried out for Mintel, the market research company. Purchasers, however, would welcome the ability to browse, preferably through colour photographs, without interruption from agency staff.

For vendors, the main interest is price. The key factor is how comparable houses have been selling locally. Until 1976 such data was available from the Charges Register but was stopped during the 1970s boom when the Law Society protested over the nuisance of having the previous price paid recorded on office copies of the register. Happily, the Land Registry is proposing to restore "price paid" to the Register.

Until then vendors will have to rely on the knowledge of estate agents about local prices. Mintel suggests that in choosing between agents, vendors could ask for structured market appraisals of prices for sale. These could show a basic price based on the recent sales prices of comparable properties, and the separate effects of features of the particular property, local factors, market trends and the aims of the vendor.

Can vendors rely on estate agents to get the highest prices? If an estate agent is on a 2 per cent commission he would stand to gain pounds 2,000 from a sale of pounds 100,000. If he pressed for pounds 104,000 he would get only pounds 80 more - a meagre incentive.

Mintel is proposing that the commission could instead be structured so that at three-quarters of the benchmark price, the commission paid is nil, but is then set at 8 per cent of the amount exceeding the benchmark. For example, with the pounds 100,000 property, if the agent achieved a sale of pounds 104,000 he would get a commission of pounds 2,320 - with the extra pounds 320 being a significant incentive to obtain a higher price. More imagination in setting incentives is needed.

What about the buyers? The position of agents becomes very murky when they sell financial services to purchasers. The financial corporates like Black Horse, Halifax and the Woolwich manage to turn between a third and a half of purchasers into financial customers. Their commissions from selling endowments, mortgage repayments insurance, critical illness cover, and other products may rival or exceed their commissions from house selling. Who are agents really working for, vendors or purchasers?

Vendors might well question whether agents selling financial services do press financial clients to pay the highest prices. They could reasonably ask for a rebate or waiver of commissions where purchasers are sold financial products.

Purchasers are vulnerable to being sold uncompetitive products with high charges or low surrender values. Those that do not buy from estate agents run the risk of being discriminated against. Indeed the head of public relations at Bristol & West recently pointed to anecdotal evidence that a widespread shortage of quality property meant estate agents were more prepared to offer houses to customers who also took out mortgages with them.

Agents might claim that they had more confidence in purchasers buying financial products with them, and that they were uncertain about the resources of other buyers. Such arguments might be redundant if purchasers came equipped with "finance availability certificates" from their banks.

Much has been made of the gazumping problem, but the fault lies in the system. The time taken to complete contracts is too long. Vendors should offer standard surveys and searches which would be acceptable to both purchasers and those financing them. Offers and their acceptances would then be soundly based and binding.

Estate agents work within a system which inevitably puts them in ambiguous positions, with major conflicts of interest arising from the selling of financial services. Ultimately the solution may lie in estate agents working exclusively either for vendors or purchasers.

Estate agents could face more competition from solicitor property centres, successful in Scotland, or from direct selling. But the real threat must come from new selling techniques using the Internet. A Branson or Direct Line-type initiative is waiting to happenn

John Chapman, a former official at the Office of Fair Trading, is the author of `Estate Agents: How To Improve Their Image', by Mintel