Gazumping, guide prices and fee levels are among the issues that make estate agents unpopular, but the industry is facing a review, writes Shane Hegarty
You do not have to hunt too long for estate agent horror stories. Almost everybody who has bought or sold a house seems to have one. Most involve suspicions of mysterious bidders or experiences of gazumping. There are guide prices far out of check with the selling price and misleading brochures. There are estate agents who omit to mention major problems - one buyer only discovered once she'd moved into a house that an internal wall was made of crumbling turf. And there are those with brass necks.
"I was buying a house close to the one I was already living in," explains Lorna O'Doherty. "I hadn't put my house on the market yet, but the lady in the house I was buying was looking for one like mine. So she came around, liked it and we did a deal between us, without an estate agent. But a few weeks later, I got a bill from her estate agent. They wanted a commission on the sale of my house, saying that they had introduced us. They were quite insistent that I pay. I didn't, of course."
Surveys consistently show estate agents to be among the least popular professions. The British consumer magazine Which? has recently begun a search for "The Worst Estate Agent of the Year". And in Ireland they are not particularly loved, either by buyers or sellers. "It's in the nature of the business," admits Aidan O'Hogan, chairman of Hamilton Osborne King. "You become immune to it. If you are over-sensitive then you won't last as an agent."
That sensitivity will soon be put to the test. This week saw the first meeting of a review body, set up by the Minister for Justice, Michael McDowell, to examine an industry that is loosely regulated, requires no qualifications to join and varies widely in its fees and practices.
The review group will look at several issues. Why, for instance, are guide prices for auction properties often far lower than the selling price? It means that many customers spend money on surveying houses they won't be able to afford. Senators Joe O'Toole and Shane Ross have been particularly vocal on this issue. "These guide prices are, apparently, set by people who have an expertise in this area," Senator Ross told the Seanad last year. "Their only expertise is in continually ensuring that the prices set to give a gullible public a guide are, inevitably, pitched well below the prices at which houses sell."
The group will examine the fees charged. "I can't see why the fees are based on a percentage of the sale price," the Director of Consumer Affairs, Carmel Foley, told The Irish Times this week."Fees should be based on an estimate of the amount of work needed or by the hour, or type of transaction. If a house is sold for €10 million as opposed to €1 million, why should they get 10 times the amount of money? Don't tell me they've done 10 times the work."
The review group may even question why the system is based entirely on the principle of caveat emptor. As it stands, buyers really must beware. The onus is on them to find out what is wrong with a house, not on the estate agent to tell them. The agent's duty is to the seller, so they are under no obligation to inform you of any problems, unless you ask. And even then, they are famously imprecise in their replies, and can seem to have little knowledge of even the basics of a house, such as the aspect of the garden or the fixtures and fittings. In the UK, a proposed Housing Bill will ensure that every house comes accompanied by a "seller's pack" featuring a home condition report, a seller's questionnaire and planning information. The property industry there is against it.
Here, the Irish Auctioneers & Valuers Institute (IAVI) believes a single survey would leave the seller open to future legal problems.
The IAVI also points out that, as unpopular as gazumping might be, the practice is perfectly legal. The estate agent, it says, is only the messenger. A seller can accept a higher fee even after a deposit has been paid and formal contract signed by the buyer, because none of this binds the seller to the deal. Yet, it is still common practice to take a booking deposit from buyers, usually 2 per cent of the purchase price. At any one moment, there are millions of euro swilling around in estate agent bank accounts, without any legally binding force.
"There is talk about the booking deposit, but no one has highlighted exactly what the problem is," says Aidan O'Hogan, former president of the IAVI. "It's not binding and people are happy to go with it. We've found, in fact, that purchasers are more likely to change their minds in a ratio of about five-to-one. So it's not clear what the problem really is." He adds that there has been no case of an agent absconding with the deposit in at least 20 years.
Meanwhile, the lack of transparency in the bidding process has bred a deep paranoia among the public, who are sometimes convinced that they are up against "ghost bidders" but are unable to prove it, and usually fear calling the estate agent's bluff in case they lose the house. It doesn't help that not all companies will keep a paper trail of offers. The Irish Times spoke to one former estate agent who once worked for a company that she says commonly used such "ghost bidders". She subsequently moved to another company and insists that it is a rare practice.
The industry has long argued that the commission system works in favour of the seller, in that it encourages estate agents to go for the top price. HOK surveyed clients on whether they would prefer a time-based fee and found that the vast majority did not. Most companies will charge between 1 and 2 per cent commission on a sale. From that figure, the individual agent might get 10 per cent, while some companies spread earnings among the staff.
Becoming an estate agent is easy. You require no qualifications or experience. You need only to be 18 years old, or incorporated as a limited company. You cannot be bankrupt, have been convicted of fraud and you must deposit a €12,700 bond. The IAVI has been encouraging training among its members, through a four-year degree programme in auctioneering, valuation and estate agency, but it is not yet a requirement.
Because anyone can sell a house, some people decide to sell their own. This week, Louise Brown decided to sell her house without an estate agent, having calculated that it will save her €4,500.
"My husband works from home so is available to show people around. But, mainly, we decided to go alone because of the fees. We thought that to sell it they only have to show the house to a few people, and we can do that ourselves. We had gone to some estate agents, but I don't think they earn the money they charge. It's my property and I'm the best person to sell it."
O'Hogan insists that estate agents do earn their money. "The negotiation and attendance at the house is what people see, but it's what is not seen. How they play potential buyers, the marketing of a house, the talking to people, adding value. The right estate agent will bring credibility to a house." In an adversarial process, he says, people are likely to get bruised. Bad communication is what often leads to problems.
"It's often a question of interpretation. The agent might say one thing, and the customer will hear something else. I don't think it can be solved, but training would help it."
And for all our gripes about estate agents, we continue to rely heavily on them, and your opinion of them is likely to be coloured by whether you are buying or selling. "You have the hopes of the clients in your hand," adds O'Hogan. "You are dealing with emotions as much as you are dealing with money. You have to be a psychologist and social worker. No agent likes going to people and telling them that they didn't get a house. Maybe we should get bedside training like the doctors do."
