Julian Knight: Estate agents don't need licensing, says the OFT. Is it right?

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The Independent Online

"About as useful as a chocolate fireguard" was one reaction I received to the Office of Fair Trading's report into estate agents. After what seems like an eternity looking into the market, the OFT concluded that it works well, and that licensing – something consumer groups such as Which? and even much of the estate agent industry itself has wanted for a long time – isn't needed.

The OFT said that the current legislation governing estate agents is "comprehensive and wide ranging", and that the industry should simply focus on making sure that what we have in place works well. In the midst of this clean bill of health, the OFT chided sellers for failing to negotiate properly with their agents for reduced agency commission. In London, they are right, it is advisable to get three or four quotes from agents and ask that they compete against each other on price.

A good rule of thumb is that you should look to knock 0.5 per cent off whatever commission rate the estate agent quotes, and, in fact, often the agents will tell you that their commission rates are "negotiable" – particularly if they know you are getting valuations from three or more agents. But go outside the big cities and playing one agent off against another isn't so easy. Even in the internet age, it's still the case that in some UK towns just two or three agents have a stranglehold. And, although I wouldn't suggest that there is any collusion over commission (perish the thought), it's easier to remain firm with consumers if you're certain that your rivals will do the same. Duopolies are generally bad for consumers.

Putting aside commission, it is fairly safe to say that the estate-agency ombudsman scheme and the Consumer Act have helped stem some of the more flagrant abuses by estate agents. However, don't forget that despite all the talk (by London estate agents) of a boom, we're still at historically low levels of transactions and, in much of the country, prices are not rising but are either falling or treading water. Therefore, there isn't the "top of market" incentive for estate agents to act dishonestly. When I say "dishonestly", I'm thinking of cases where agents have deliberately undervalued properties and got friends or relatives to buy or get involved in mortgage fraud (which was rife at the end of the last boom). Generally, but not always, the crooks go out of business when the market gets tough.

Undoubtedly, though, the overwhelming majority of estate agents are honest, play fair by their vendors and do a decent job. But these good agents want to distinguish themselves from the cowboys when they ride back into town during the next market boom. They want licensing, so that those who are crooked can be forced out of the industry pronto rather than waiting for the over-pressed trading standards to prosecute. What's more, it seems frankly ridiculous that agents are subject to stringent regulation from the Department of Communities and Local Government when it comes to lettings but not house sales. The simple truth is that anyone can set themselves up as an estate agent – regardless of their background – and when you're dealing with the biggest purchase of people's lives, that has to be wrong.

All in all, I don't agree with the chocolate-fireguard comment. For instance, I like the fact that the OFT has seen a potential conflict of interest in the fact that estate agents gain commission for referring buyers to mortgage brokers and solicitors, which could mean them favouring one bidder over another. However, it seems that the OFT has failed to understand that it has taken its snapshot at a low watermark for the market and we will only see whether or not it is right about the estate agency industry being intrinsically sound once we get another boom. But that may be many, many, years away.

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