Property: Estate agents with their little bit on the side

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The Independent Online
You would suppose that most estate agents make their money by selling houses. They take their commission on your sale and that pays the wages. Simple. Those owned by a building society might add in a bit from financial services, but the core business would remain the same.

Agents themselves, however, may have a different perspective. Some marketing bumf from one agency chain revealed the following: branches showed 'an average profit of pounds 350 per house sale and pounds 500 per mortgage-related policy on completion'.

So this firm is making more from bringing in mortgage customers than it is from selling houses. What are the implications of this to the seller, in whose interest estate agents are supposed to act?

Clearly, the agent still wants to sell your house. But he or she stands to make much more money by selling it to a buyer who signs up for a mortgage than from one who doesn't.

It was to address this potential conflict of interest that the Government in 1991 added some regulations to the Estate Agents Act. These declared it an 'undesirable practice' for agents to discriminate against a prospective purchaser on the grounds that he or she would not be accepting financial services, or to fail to disclose that they were providing such services to a prospective purchaser. In theory, this means an agent should say to a client, 'Mr Smith has made an offer of pounds 80,000 for your house. You should know we are providing him with a mortgage.' How often does this happen in practice? The only sanction against agents who commit 'undesirable practices' is for a trading standards officer to ban them from their profession, a punishment so disproportionate that it has never been used under these circumstances.

Presumably this potential problem is confined to 'tied' agents, those run by building societies? Not at all, said another agent with whom I spoke. Everyone's got a mate in a building society in the town, and no one, including the tax man, need know about a pounds 500 backhander.

These revelations may go some way to explain the fee-cutting which is rife in many parts of the country. It is partly caused by too many agents chasing too few houses, but it may also be that, for the agent making more from mortgages than from house sales, the property is also the bait in the window for the next potential mortgage customer.

This leaves the independent agents, who may well be the best people to sell your house, having to cut their fees to an unprofitable level in order to compete. It might be that they could market your house in a way that would bring in far more than the pounds 300 you have saved in fees.

JAMES LAING, head of Strutt & Parker, which earns its money the good old-fashioned way, thinks some of the problems cited in our Next Move campaign to change the way we buy and sell houses, could be solved if agents down the market took a leaf out of the upmarket agents' books.

When he is instructed to put a house on the market, he will ask the vendor for the name of his or her solicitor and explain that he expects a copy of the deeds, a draft contract and a search to be ready the day the house goes up for sale. When someone makes an offer he rings the solicitor to check the contract is ready, just in case the vendor wasn't listening the first place. At the same time, the would-be buyer is asked for a pounds 100 deposit as a sign of good faith. If the buyer proceeds, the deposit is passed on to the vendor. Mr Laing says the system flushes out time-wasters.