Estate Agents Ordered to be more Transparent over Fees

Estate agents have been ordered to ‘come clean’ over how much they charge home owners for selling their property. The instruction follows on from the news last week that The Property Ombudsman (TPO) has already put its foot down on the practice of ‘portal juggling’ where agents relist unsold properties to make them appear new to the market

VAT to be included in Commission Fees

Updated guidelines to TPO’s Code of Practice for Residential Estate Agents issued at the beginning of October insists that estate agents should now include the cost of VAT in their advertised sales commission (rather than simply adding ‘plus VAT’ after the asking price figure). That way, home owners would have a more precise idea of how much exactly they would be expected to hand over in fees, explained Gerry Fitzjohn, Chairman of the TPO Board.

“In other words, it makes the whole process of selling a home far more transparent than ever before,” he added. “In fact, the decision was taken to carry out a full review of the Codes to reflect market developments and provide clear definitions of unfair practices.”

What this means in practice is that estate agents must include their commission fee (as a monetary figure rather than a percentage), with VAT included, into the seller’s legal written contract. Until now sellers were obliged to add on VAT themselves with the result that it was often overlooked.

Homeowners then sometimes found themselves having to fork out thousands of pounds extra which, in the stress of selling their home, they had overlooked.

In keeping with the previous guidelines, estate agents must also point out that the commission fee itself will vary according to whether the actual cost paid for the property is lower or higher than the asking price stated in the seller’s written contract, but that the actual percentage rate will remain the same.

Typical estate agent commission fees

The majority of estate agents charge between 0.75 per cent and 3 per cent of a property’s value. This is to pay for marketing the property – both on and offline – as well as undertaking house viewings, liaising with solicitors and administration work etc. VAT meanwhile has remained at 20 per cent in the UK for a number of years now.

Portal juggling recently banned

The VAT inclusion to commission fees in the reworked guidelines come on the back of news announced last month that TPO would also try to prevent what they called ‘portal juggling’ by estate agents.

This refers to the practice of many prominent UK estate agents relisting properties which have been sitting on the market for months having gone unsold. By relisting them they give the erroneous impression that the property has only just come onto the market. In some cases, it can increase the value of the property by as much as 10 per cent.

The practice of portal juggling was highlighted earlier in 2016 by independent data company Propcision.

They pointed out that it led to the impression that there were more properties on the market than was the case in reality. Buyers were also more inclined to pay more for a property if they thought it was recently available (with the reverse true if the same property had languished on the market without attracting much interest for some months).

Estate agents who ignore guidelines face a ban

Any estate agent who doesn’t comply with TPO guidelines could find themselves reported to their Local Trading Standards branch and unable to practice in the UK property market in the future, the Ombudsman warned.

Ban welcomed by property watchdogs

Paula Higgins, chief executive of the HomeOwners Alliance, said the organisation was delighted to see the TPO banning the practice.

She added: “Without accurate information home buyers are at a big disadvantage and estate agents and their clients, the home seller are the winners. This isn’t a level playing field.”

Mark Hayward, director at the National Association of Estate Agents, echoed the sentiments of the HomeOwners Alliance when he said: “This practice contradicts consumer protection regulations… and gives a disproportionate share to that one agent.

“It gives buyers a false sense of urgency as they feel they have to move quickly to secure a purchase, which is when prices end up becoming inflated by 10 per cent or more.”

TPO were due to hold their annual conference in London in October where both VAT inclusion and portal juggling were expected to be main issues under discussion.

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