18/10    18 February 2010

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.

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 and buyers 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 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 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 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. See press release 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 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).