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18/10 18 February 2010

MORE INNOVATION NEEDED IN HOME BUYING AND SELLING


MARKET, OFT FINDS

A shake-up in how homes are sold, including updating legislation to

allow new entrants into the market, could lead to a better deal for

house buyers and sellers, the OFT said today.

The OFT’s study into home buying and selling, published today,

found that the housing market remains dominated by traditional estate

agents with weak competition between them on price. As property

prices rise during housing booms, so too do estate agents’ fees.

Overall satisfaction with estate agents, however, has improved in

recent years, according to research conducted as part of the study.

Where there are problems with transactions, consumers generally do

not think the estate agent was at fault.

The OFT believes that innovation in this sector, in particular

through online services, could have a dramatic impact on the cost of

buying and selling a home.

More than a quarter of sellers (27 per cent) who used a

traditional estate agent have considered using an alternative selling

method, and experience from the US suggests that alternative

brokerage models have the potential to put competitive pressure on

traditional ways of buying and selling a home.

Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX. Press Office direct lines: (020) 7211 8901/8899/8898/8133
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However, the way current legislation, dating from 1979, is

framed may be hindering the development of new business models and

needs reform so that new entrants, for example those that only

introduce private sellers to each other, are not burdened with

inappropriate regulation.

Beyond this, the OFT has found existing legislation as it applies

to traditional estate agents is comprehensive and wide ranging, and that

further regulation is unnecessary. Instead, the report says the focus

should be on improving the enforcement of current rules to guard

against serious breaches.

The only area where the OFT recommends the Government

should consider additional rules is around fees received by estate agents

for referring buyers to providers of ancillary services such as mortgage

advice, surveys, and conveyancing. The OFT believes this could cause

an estate agent to favour one buyer over another, to the seller’s

disadvantage.

The OFT is also encouraging more consumers to negotiate on

commissions paid to estate agents. Whilst almost a third (32 per cent)

of those who had used a traditional estate agent believed that the fees

they had paid to their estate agent represented slightly or very poor

value for money, 64 per cent of sellers in the OFT’s survey in England

and Wales did not negotiate a lower fee. Failing to shop around and

negotiate on estate agents’ fees could be costing these house sellers up


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to £570 million a year, according to OFT analysis. The OFT’s advice

service, Consumer Direct has created key tips for consumers which can

be found at http://www.consumerdirect.gov.uk/hometips

John Fingleton, OFT Chief Executive, said: ’In the present

economic climate it is more important than ever that people get a good

deal when buying or selling a home.

‘Encouraging new business models, online estate agents and

private seller platforms could put useful competitive pressure on

traditional models and lead to better value for buyers and sellers. The

Government can help this process by updating legislation and making

sure regulation only applies where it is essential to protect consumers.

‘We also encourage home sellers to negotiate hard on

commission fees and consider using alternatives to traditional estate

agents.’

The market study and accompanying research reports can be

found at http://www.oft.gov.uk/homes

NOTES

1. The market study was launched in February 2009 and covered the
whole of the UK, whilst recognising the differences in the market in
Scotland. The press release is at
http://www.oft.gov.uk/news/press/2009/19-09

2. In November 2009 the OFT published four research reports


undertaken as part of the market study. These comprised a survey
of estate agents, a survey of trading standards services and
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qualitative and quantitative research. An additional report, Online


Diary Research has been published today.

3. The £570m/annum figure is based on an analysis of the responses


to the OFT’s consumer survey, where it found that those sellers who
negotiated paid, on average, 1.4 per cent commission, while those
who did not paid significantly more, an average of 1.8 per cent.
Applying this potential saving to those consumers who did not
negotiate suggests savings of up to £570 million, based on 2007
prices and transaction numbers. Estimated potential savings for
2008 are in the region of £280 million, given the lower transaction
figures and prices.

4. OFT market studies are carried out under section 5 of the Enterprise
Act 2002 (EA02) which allows a market-wide consideration of both
competition and consumer issues.

5. Market studies involve an analysis of a particular market with the


aim of identifying and addressing any aspects of market failure from
competition issues to consumer detriment and the effect of
government regulations. Possible results of market studies include;
enforcement action by the OFT; a reference of the market to the
Competition Commission; recommendations for changes in laws and
regulations; recommendations to regulators, self-regulatory bodies
and others to consider changes to their rules; campaigns to promote
consumer education and awareness; a clean bill of health.

6. The OFT is unable to provide advice or resolve individual complaints


for consumers. Consumers can seek advice from Consumer Direct
(tel: 08454 04 05 06, www.consumerdirect.gov.uk).

MEDIA enquiries: 020 7211+

Corinne Gladstone 8899 Kasia Reardon 8901


Jonathan Marciano 8898 Frank Shepherd 8133
Out of hours: mobile: 07774 134814 messages: 020 7211 8961
Copies of press notices: Ext. 8993
http://www.oft.gov.uk

PUBLIC enquiries: 0845 7224499 enquiries@oft.gov.uk


OFT reports and consumer information leaflets are available free from:
OFT, PO Box 366, Hayes UB3 1XB 0870 6060321 oft@eclogistics.co.uk