Open Letter to The Property Ombudsman – Agents Operating Illegally

by Mark Alexander

9:47 AM, 7th September 2012
About 7 years ago

Open Letter to The Property Ombudsman – Agents Operating Illegally

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Open Letter to The Property Ombudsman – Agents Operating Illegally

Dear Property Ombudsman

I am very concerned about the number of readers letters that I receive from both landlords and vendors of properties who feel they have been ripped off by unscrupulous and unlicensed agents calling themselves “Property Sourcers“.

There is very little I can do about this other than offer sympathy as Property118 is neither an arbitrator nor a regulator.

How landlords are ripped off

These “Property Sourcers” (which sometimes also refer to themselves as “buyers agents, property mentors, property clubs etc.) regularly use the phrase “Instant Equity” or “below market value” in advertisements for investment properties for sale. I am not convinced that many of these deals are even a bargain, let alone how it can be possible to justify advertising properties using such terminology. Surely a property is only worth as much as somebody is prepared to pay and if a vendor could get a better deal they would do so?

If people or businesses claim to act as an agent for a buyer or a seller of a property, my understanding of the Estate Agency Act 1979 is that they are “Estate Agents” regardless of what other fancy title they want to dress up their activities as and should therefore comply with The Estate Agency Act 1979 in terms of registering with an Ombudsman service and satisfying the criteria of membership. I quote a section from the OFT website (in blue text below) which, to my way of thinking, is quite clear on this:-

Who is an estate agent?

By law, you are an estate agent if:

  • you deal with people who want to buy or sell freehold or leasehold property, throughout the UK: this includes commercial and agricultural property
  • you do this as part of a business
  • you act on instructions from a client.
The complaints I most often receive from landlords are:-
  • Wasted valuation and legal fees when mortgage valuations do not match the agents claims on value
  • Agents are not registered with an Ombudsman
  • Agents take reservation fees from purchasers and refuse to refund them if the buyer pulls out of a transaction, even if the results of “due diligence” (such as a mortgage valuations not matching the claims made by the agent) are the reason for not proceeding

My questions to the Ombudsman are:-

  • Does the Ombudsman agree that people or businesses working for a vendor of a property or a purchaser of a property should be registered with an Ombudsman scheme according to the Estate Agency Act 1979?
  • How can people check whether a person or business acting as an Estate Agent is registered?
  • What can be done when a person or business is found to be breaking the law of the Estate Agency Act 1979 in terms of none registration?
  • If readers of Property118 report business offering services such as those described above which are not registered, or which appear to be in breach of the rules, will the Property Ombudsman Service undertake to take action and refer complaints to the relevant bodies for them to be investigated and dealt with?
I look forward to reading your response in the comments section below.

Yours faithfully

Mark Alexander
Founder of property118.com


Comments

12:21 PM, 8th September 2012
About 7 years ago

Dear Mark

This does appear to be an area of agency work where there is continuing confusion when actually the legislation is quite clear.

In response to your four questions:

1. In short, yes. The Estate Agents Act 1979 (Section 1) applies:

“…to things done by any person in the course of a business (including a business in which he is
employed) pursuant to instructions received from another person…who wishes to dispose of or acquire an interest in land:

a) for the purpose of, or with a view to, effecting the introduction to the client of a third person who wishes to acquire or, as the case may be, dispose of such an interest; and

b) after such an introduction has been effected in the course of that business, for the purpose
of securing the disposal or, as the case may be, the acquisition of that interest;

and in this Act the expression ‘estate agency work’ refers to things done as mentioned above to which this Act applies”

The subsequent Consumers, Estate Agents and Redress Act 2007 (CEARA) required any person or business carrying out ‘estate agency work’ to register with an approved redress scheme such as TPO.

A recent consultation by the Department for Business, Innovation and Skills (BIS) has indicated that the definition of ‘estate agency work’ may be relaxed in the future. I do not consider this to be a positive change as consumers will not draw a distinction between a business that looks and feels like an estate agent but is not one. My concern is that if such a relaxation of the definition occurs, consumers could be misled into a situation where, having paid money for a service in relation to buying or selling a property, different laws and differing levels of consumer protection will apply.

However, as the law currently stands, any person or business carrying out ‘estate agency work’ is required to become a member of an approved redress scheme such as TPO.

I should also stress that there is no legal requirement for letting agents to register with a redress scheme. That said, 9,523 letting offices have voluntarily registered with TPO and follow the Code of Practice for Residential Letting Agents, which we estimate represents around 65% of letting agents in the UK. Of course, this does raise questions about the level of standards and consumer protection offered by the remaining 35%.

2. There are two approved redress schemes which cover ‘estate agency work’. Consumers can check TPO’s website http://www.tpos.co.uk or Ombudsman Services’ website, both of which have search functions to determine whether a person or business is registered either as a full member (i.e. they have voluntarily agreed to follow TPO’s Codes of Practice) or under the basic requirements of CEARA.

3. Given that annual membership of TPO costs just £170 (plus VAT), it still surprises me that there are businesses conducting ‘estate agency work’ who have not registered with TPO. However, my jurisdiction does not extend to performing the role of regulator or consumer champion. As the Property Ombudsman my role is to consider disputes impartially and independently on a case by case basis. Enforcement of regulations and legislation falls under the authority of Trading Standards.

4. When a non-registered person or business is brought to my attention, our membership team will write to that business explaining their obligations under the current legislation. If we do not receive a response we will refer the matter to the local Trading Standards office. Any list of such businesses provided by Property 118 will be dealt with in the same way.

Yours sincerely

Christopher J Hamer
The Property Ombudsman

Mark Alexander

14:26 PM, 8th September 2012
About 7 years ago

Dear Mr Hamer

Thank you for your considered and swift response.

If readers of Property118 wish to report businesses which seems to be operating illegally as Estate Agents (not being registered with one of the two Ombudsman schemes), what is the email address they should use to report their concerns to you?

Regards

Mark Alexander

15:31 PM, 8th September 2012
About 7 years ago

Dear Mark
Membership queries can be sent to membership@tpos.co.uk . This is also the email address for any unregistered agents who wish to join the scheme. Alternatively, unregistered agents can go to http://www.tpos.co.uk/join-tpo.php to sign up online.
Complaints from consumers relating to agents already registered with TPO can be made here http://www.tpos.co.uk/contact.php or via email here admin@tpos.co.uk However, consumers should always ensure they have already raised the complaint with the agent, as I am unable to consider the dispute until this has occurred. Moreover, it is only fair and reasonable to give the agent the opportunity to respond in the first instance.
Regards
Christopher J Hamer
Property Ombudsman

23:58 PM, 8th September 2012
About 7 years ago

Dear Mark
Membership queries can be sent to membership@tpos.co.uk . This is also the email address for any unregistered agents who wish to join the scheme. Alternatively, unregistered agents can go to http://www.tpos.co.uk/join-tpo.php to sign up online.

Complaints from consumers relating to agents already registered with TPO can be made here http://www.tpos.co.uk/contact.php or via email here admin@tpos.co.uk However, consumers should always ensure they have already raised the complaint with the agent, as I am unable to consider the dispute until this has occurred. Moreover, it is only fair and reasonable to give the agent the opportunity to respond in the first instance.

Regards

Christopher J Hamer
Property Ombudsman

1:02 AM, 9th September 2012
About 7 years ago

As someone who has recently worked for 2 companies specializing in BMV investments I wholeheartedly agree with Mark.

I resigned from both companies due to the dishonest ways they operate, i.e. over inflating values/rental values, using "dodgy" surveyors and solicitors etc and when the client then do their own due diligence and wants to pull out are refused refunds of pre-paid fees due to one clause or another in the T & C's.

In general, there is stock out there that can be purchased BMV due to whatever circumstances and produce healthy yields but they are not that easy to come by and the key is not to pay upfront fees and ensure they carry out their own due diligence

Mark Alexander

1:10 AM, 9th September 2012
About 7 years ago

@d2a255a0fbc2284b2ac702da09997147:disqus do you know whether those companies were registered with an Ombudsman scheme? If not they were clearly illegal operators and you may wish to report them.

Annette Stone

3:20 AM, 9th September 2012
About 7 years ago

Mark. Surely if they are operating as professionals these people should have professional indemnity insurance. I would never work with anyone on a professional basis who did not have this. Mine costs an absolute fortune as I am covered for managing property and as a letting agent (not that I do my own lettings most of the time) and then separately for my business of dealing with the purchase and sales of freeholds for clients and negotiating lease extensions for both freeholders and lessees. My husband also has to be covered as a chartered accountant who is FSA registered. This is the absolute minimum I would expect from anyone dealing with things on my behalf

Vanessa Warwick

5:43 AM, 9th September 2012
About 7 years ago

Just wanted to thank Mark for raising this topic and for Mr Hamer for answering and engaging with the landlord community in such a helpful manner.

I have met Mr. Hamer several times and he is always approachable and very visible at events, so thank you Mr. Hamer for all you do.

We have had this same discussion on Property Tribes and have taken the liberty of copying Mr. Hamer's reply across to our thread to ensure that the PT community is aware.

http://www.propertytribes.com/should-property-sourcers-by-law-registered-as-estate-t-4063.html#

I have linked back to here so that people can read the source information.

Thanks Mark and Mr. Hamer for some really important information.

Mark Alexander

10:03 AM, 9th September 2012
About 7 years ago

I am going to forward the marketing emails of all suspect companies to the Ombudsman (two sent this morning) with the following message:

The Ombudsman's preferred email address is
admin@tpos.co.uk

Dear Ombudsman

Please advise whether the business advertising below is registered with
an Ombudsman and carries PI insurance.

First glance at their marketing materials leads me to believe this
business may well be breaching several of the rules under the Estate Agency act
1979 and also advertising standards.

Mark Alexander

11:05 AM, 9th September 2012
About 7 years ago

Dear Ombudsman

Many of the suspect property offerings my readers bring to my attention use the phrase "Instant Equity" in their marketing materials. What the agents appear to be suggesting is that properties can be purchased below market value with the benefit of 100% funding. That was possible in the last decade with a variety of lenders, particularly Mortgage Express which promoted a scheme whereby it was possible to purchase a property for cash or with bridging finance and then instantly remortgage it based on a professional open market valuation. However, the scheme and also Mortgage Express came to grief and lenders significantly tightened their lending criteria to prevent this practice. There was major concern that valuations were being inflated through manipulation of comparables and multiple valuations being instructed and the highest valuation being presented to lenders. This put valuers in a very difficult position, especially if they knew they would be able to secure significantly more valuation business by valuing high.

The remaining schemes offering effectively 100% financing that I have investigated appear to involve concealment of vital information from mortgage lenders and hence mortgage fraud.

Leaving the mortgage fraud issue to one side though, the Advertising Standards Agency now appear to be taking a stand against use of the phrase "Instant Equity" and treating that as an unfair advertising term. Please see our report on the case of ASA vs Property Secrets >>> http://www.property118.com/index.php/bmv-instant-equity-adverts-unfair-says-as/26503/

I am interested to understand what action you would take if one of your members was found to be promoting properties on this basis please?

I suspect that many of the businesses promoting properties in this way are also committing several other infringements of the Estate Agency Act 1979, in particular, failing to register with an Ombudsman service and having Professional Indemnity insurance. Your guidance on how to report suspect companies is very useful and has been picked up by several other property forums.

A better understanding of the consequences of breaches, particularly for any of your members found to be advertising "instant equity" would, I have no doubt, prove incredibly beneficial to the property community.

I look forward to your response.

Regards

Mark Alexander

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