EXPERT: ‘It’s time Propertymark and RICS overhauled sole agency agreements’

Are 28-week sole agency agreements a good idea? My short answer? An emphatic ‘No’, with a side of eye-rolling. With few exceptions, long-term sole agencies are terrible for everyone involved, including the agent and especially in a faltering market. And they can potentially damage the market as well. Let me explain.

The only credible reason for a sole agency lasting half a year is the agent’s lack of confidence in finding a buyer quickly. Logically, this could be because they accept instructions from vendors who have inflated ideas about the value of their homes and want to ‘test the market’.

NOT GUARANTEED

However, a seller is not guaranteed to drop to a sensible price later. Any agent who plays along risks their investment in the property’s marketing and their brand.

Agreeing to market very overpriced properties is a bad strategy for all involved, especially owners, who may eventually achieve a lower price than if they had marketed at a sensible figure in the first place.

We all know there are shadier reasons for long-term sole agencies.”

However, we all know there are shadier reasons for long-term sole agencies. The dodgiest is the practice of overvaluing homes to win instructions. Unable to attract business relying on their professionalism, some agents inflate their ‘valuation’, deceiving owners into thinking other agents are under-pricing. Agents like this believe that the more proverbial they throw at the wall, the greater the possibility that some might stick.

In these cases, sales at the original asking price would be unlikely without divine intervention. Cynically, they insist on long-term sole agencies because those give them enough time to chip away at asking prices until they reflect the actual marketplace.

The property equivalent of death by a thousand cuts. Don’t believe me? A casual look at stories by exasperated agents writing on LinkedIn will show this is an issue.

BELIEVE IN SANTA

Presented with those circumstances, human behaviour broadly falls into two categories: those who question why one agent’s valuation is significantly higher than others and take a sensible view. And those who still believe in Santa Claus and are blinded by the promise of an unrealistic price, so much so that they don’t bother reading or questioning their agent’s terms. They behave like moths to candles, apparently desperate to get trapped and burnt. Were it not for the consequences of overvaluation, it would be tempting to let them learn the hard way.

Most vendors will eventually sell for less than they might have achieved.”

Consequences of overvaluation mean that as time rolls on, the gap between their asking price and market value widens. With very few exceptions, in a falling market, most vendors will eventually sell for less than they might have achieved had they asked for a more realistic price in the first place.

They will take time to realise their mistake, and unless they give up on moving, a sole agency with months to run will leave the vendor with no option other than to accept their agent’s ‘advice’ to reduce their asking price. The longer they take to acquiesce, the more they will lose.

Vendors will likely develop a deep dislike of their estate agent.”

Vendors will likely develop a deep dislike of their estate agent. Understandably, nobody enjoys being trapped by a web of broken promises, especially when those interfere with life planning, moving to a new job, growing families, losing their dream home, etc.

The agent’s brand and reputation will also suffer. When agents work in their own interests, they’ll discover the conversations around dinner tables and in the pubs will not be favourable.

MARKET SUFFERS

The property market suffers. The term ‘Supply and Demand’ was bandied around when prices increased following COVID. Now that the tide has turned, what appears to be an oversupply of saleable homes really isn’t! Instead, there is a massive supply of unsaleable, overpriced homes that people won’t buy because they are out of reach. The effect is like having two property markets. The well-priced homes are fewer, and those do sell.

Overpriced homes are no more a viable supply of properties than a mirage will provide water in the desert. But the effect of what seems like an oversupply is that overpriced homes depress the market because people see them all as one market. The more overpriced homes on the market, the longer it will take to recover its balance.

ECONOMY hurt

The economy suffers. When the property market stalls, so do sales of washing machines, carpets, and other goods. Job losses occur, and fewer people enjoy the ability to buy. The market declines further. Dominos fall. The economy declines.

CHALLENGE

I challenge Propertymark and the Royal Institution of Chartered Surveyors (RICS) to take a leadership role and jointly agree on a Code of Practice relating to Sole Agency agreements.

At least, with a framework for what sole agency term would benefit everyone concerned, agents who do their best to advise clients would have a point of reference to discuss in their communications and media output.

Propertymark and RICS will find considerable support from their membership if they act.”

More agents play with a straight bat than those who game the system. Propertymark and RICS will find considerable support from their membership if they act.

Professional agents are otherwise at the mercy of bucket-shop cowboys who appeal to the baser instincts of human behaviour. Leaving the public, those blinded by Fool’s Gold, to go through a certain amount of pain until the penny drops that they’ve been had. No wonder our industry has such a rotten reputation!

LOBBY FOR LEGISLATION

Another suggestion would be for the professional bodies to lobby for legislation requiring agents to include a large-print sub-heading at the top of their Terms of Business, saying something along these lines: “If this Sole Agency agreement is for a term longer than eight weeks, please enquire why the agent thinks your property will not sell sooner”.

The point would be to encourage discussion around the vendor’s commitment to their agent. The purpose would be like that of the Health Warning on cigarette packets. The benefit would be that agents would become much more circumspect with their price advice; vendors would be alerted to ask the right question, resulting in agents moderating their initial advice so that a level playing field is created and vendors select the agent for good reasons rather than spurious ones. There would be no upside for the agent in deliberately overvaluing a property to win instructions on a property it knows won’t sell in a reasonable time.

TURN THE PAGE

Let’s turn the page on the drama of very long-term sole agencies. With real leadership, it cannot be beyond our wit and will to create an industry that can always be trusted to give its best advice, to put clients first and to find better ways for agents to impress than peddling false hopes of stupidly high prices.

To the few agents who deliberately overprice, I say, test the market if you want to, but if you believe what you tell clients, have the courage of your convictions and do not tie people in for an eternity.

John Durrant is an industry veteran. An estate agent for 37 years he is a former FNAEA and an author for RICS and Founder of DCTR.co.uk