OFT clears path for Google to take on estate agents

Published 19th Feb 2010

The consumer watchdog today recommended relaxing rules for new entrants such as Google and Tesco to offer rival property search websites that will compete with traditional estate agents.

The Office of Fair Trading (OFT) said that allowing new companies to set up search portals regulation-free would "shake up" the traditional estate agency model, resulting in better choice and lower prices.

Google is widely expected to launch a property search website as soon as this year, and Tesco tried in 2007 to launch a property finder online service that charged sellers a flat fee of £199, before shutting it down, partly because of the burden of regulation.

Concluding a long-awaited investigation into homebuying and selling, the OFT said: "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 ... 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.

"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."

The OFT stopped short of recommending that existing estate agents should be better regulated to protect homebuyers and sellers and ignored calls to introduce mimimum entry requirements, meaning estate agents with no formal qualifications will remain allowed to trade.

In a report published this morning, the OFT claimed that existing rules were enough to protect homeowners and buyers from unscrupulous practice and excessive fees, despite an investigation that uncovered evidence of both.

The OFT's study found that one in four estate agents does not comply with current regulations.

The watchdog has also estimated that UK homesellers are losing as much as £570 million a year collectively by paying too much commission to estate agents because they do not negotiate on fees.

It added that the current flat rate commission model was failing to adequately incentivise agents to achieve the best price on behalf of sellers, costing them an estimated £5.7 billion to £10.5 billion a year.

However the watchdog called for the Government to consider new rules or even a ban on fees received by estate agents for referring buyers to providers of additional services such as mortgage advice, surveys and conveyancing.

The OFT said that it "believes this could cause an estate agent to favour one buyer over another, to the seller’s disadvantage".

The National Association of Estate Agents (NAEA) was disappointed by the OFT's decision.

Peter Bolton King, chief executive of the NAEA, said: "Once again, the OFT has categorically failed to see that better regulation of the home buying and selling market is required. Buying a home is often the largest single transaction of a person’s life and it is disappointing that the OFT has not thought it appropriate to acknowledge that a robust and appropriate level of consumer protection is needed.

"The NAEA would like to see a greater level of regulation to ensure that professional, qualified estate agents are not confused with agents that, all too often, fail to meet the basic professional standards we would expect from our members."

The NAEA will introduce a licensing system for letting agents later this year, while the Government is planning to fully regulate letting agents. "

Steven Gould, director of regulation for the Royal Institution of Chartered Surveyors, said: "Again the OFT have adopted an approach that is fixated on price competition as if that is the only issue involved in protecting consumers.

When consumers, consumer bodies, property professionals and even OFT's ex Director General come down on one side of an argument and OFT comes down on the other, then something must be wrong.

The OFT need to realise that there is more to protecting consumers and maintaining fair trading than prices."

Source: ' Times '

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