In a report on competition in the UK housing market, the Office of Fair Trading (OFT) stated that house sellers could be paying estate agents £570 million a year too much in fees. And this could just be the tip of the iceberg.
The OFT claimed that “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.”
They went on to add that “innovation in this sector, in particular through online services, could have a dramatic impact on the cost of buying and selling a home.”
Sellers failing to negotiate
To illustrate this they highlighted findings showing that only a third of house sellers negotiated on the commission they paid to their estate agent. On average, sellers who negotiated paid 1.4 per cent commission, compared to an average of 1.8 per cent.
This could be costing sellers £570 million a year, according to the OFT’s analysis.
And while this sounds like a lot, the true figure may be far higher, since the £570 million figure only considered the use of traditional high street agents.
Potential savings of £2.9 billion
The OFT report itself was much more wide-ranging, looking at alternative methods of sale such as private sale and the use of online estate agents. And based on their findings, switching to online agents could save UK house sellers £2.9 billion each year according to HouseHop.co.uk.
That’s because online estate agents usually offer fixed fee deals, typically priced at around £500 plus vat.
With the average UK house price now standing at £164,389(5) switching to an online agent would save £2,951 compared to using a high street agent.
At the moment just 1 sale in 50 is through an online estate agent. So with an estimated 984,000 property transactions expected to complete in 2012 the potential saving is a staggering £2.9 billion.
And the good news for sellers in the UK is that the OFT seems to be coming out very much in support of alternative methods of selling such as online estate agency.
The decline in private sales
The report did note, however, that the proportion of private sales had declined (it’s lower now than it was in the 1970s), due to lack of access to the major property portals. This is because the major portals – with around 95% of buyer traffic – have banned private sellers.
Yet for the time being, at least, the OFT seems reluctant to take action to allow private sellers access. Instead, they are hoping for a market solution. In 2010 it looked as though Google might provide such a solution when it announced its entry into the UK property market (causing Rightmove’s share price to drop by 10 per cent in a single day). However, Google scrapped the service in February 2011 citing “low usage”.
Without OFT intervention private sale websites can only reach a small fraction of buyers, leaving online estate agency as the only alternative to traditional estate agents with their traditional high fees.
Switching to online estate agency
John Tighe, the founder of online estate agent and conveyancing website HouseHop.co.uk – formerly a private sale website – explained why they had made the switch: “We tried really hard to make private sale work, but the deck was very much stacked against us as we couldn’t get access to any of the major portal traffic.”
“Our users kept asking if there was any way they could get on to Rightmove – we were as disappointed as they were when we kept having to say ‘no’.”
“We looked at the traffic figures for the major portals provided by independent monitors such as comScore, Hitwise and Nielsen and concluded that we could reach at least ten times as many buyers if we had access. That’s when we decided to reinvent ourselves as online estate agents.”
“So far, it’s been very successful. Our clients understand that maximum marketing exposure is crucial in a slow property market and realise that online agency is the only way they can get it at a reasonable price.”
What does an online estate agency get you?
So what do you get if you choose the online estate agency? “Essentially, you get the same service that you would get with a high street agent,” explains John.
“We send a surveyor to take photos and draw up floor plans, before preparing property particulars in the normal way. We value the property, book viewings, get buyer feedback, negotiate and progress the sale through to completion. The only difference is that sellers conduct their own viewings.”
With just 2 per cent market share, thousands to be made in savings and the support of the OFT the popularity of online estate agency looks set to grow dramatically in the next few years.
And with internet-based private sale never really taking off due to lack of portal access, perhaps we finally have a viable alternative to the monopoly of the high street agent – a chance to shift power back to the house seller in the way that the internet was always meant to?