Be fine not fined: estate agents’ legal obligations

Be fine not fined: estate agents’ legal obligations

Ignorance is no excuse for breaking the law. Or so say the old bill. Therefore, it’s vital to know what estate agents’ legal obligations are before you fall foul of a judge’s hammer. The sound of a gavel calling for order, when you’ve been out of order, is enough to send a chill down any self-respecting agent’s spine.

Although estate agents don’t have the same level of onerous legal obligations as some professionals, breaching the industry’s code of practice could still have serious implications. For example, you could face fines of several thousand pounds or have your mugshot plastered across the local papers. The result? Your reputation will be in tatters. 

Therefore, we’ve put together the following guide to help you stay on the straight and narrow. We’ll look at the industry’s code, discuss estate agents’ legal obligations, and reveal some of the punishments dished out to careless agents by the courts. Basically, it’s a must-read. You could say it would be criminal to miss it. 

The estate agents’ code of practice

Estate agents’ governing body, The Property Ombudsman, has a Code of Practice that all residential agents in England and Wales are supposed to follow (Scotland has its own Code). It’s only six pages long (excluding the glossary) so it’s well worth re-familiarising yourself with its contents if it’s been a while.

Essentially, agents should “provide a service to buyers and sellers consistent with fairness, integrity, and best practice”. Meanwhile, they “should not seek business by methods that are oppressive or involve dishonesty, deceit or misrepresentation”. Sounds straightforward enough, right? But there are a few individual titbits that are easy to forget. These include:

• You must record when viewings have taken place and give feedback within an agreed timescale.

• Sellers must be told if you, an employee/colleague, or an associate is interested in a property you’re marketing.

• You have to warn buyers if you intend to sell them financial products, insurance and/or conveyancing services.

• It’s against the rules to favour buyers who take up these services or discriminate against those who don’t.

• You must never, ever, deliberately misrepresent the market value of a property; all valuations must be supported by evidence i.e. recent sales in the area.

• All information you give about a property must be full and accurate; you can’t, for example, forget to mention that a home is located next to a trainline, busy road, or directly under a flightpath. 

Most of the Code is common sense, of course. For example, your fees must be transparent (and state whether they include VAT) from the start. However, it’s easy to trip up if you become complacent, especially when it comes to key areas like handling offers…

Offers

Handling offers is one of the most important things that agents do. It’s surprising, therefore, that the rules are less than black and white - especially when it comes to how much agents can reveal when multiple parties are interested in the same property. 

The one thing we know for sure is that agents must pass on all offers made within 24 hours. They must also keep a record of all offers made. But did you know that you have to tell anyone who’s made an offer on a property about the existence of other offers (unless their offer was rejected outright)?

This creates a bit of a dilemma, as you’re not strictly supposed to reveal what rival offers are. And you’re certainly not allowed to mislead potential buyers over where their offers stand in the pecking order. So, what guidance can you actually give?

Basically, agents need to be up front at all times, and fair to all parties, without giving away too much confidential information. You’ll therefore have to talk about other offers in general terms, giving price ranges rather than exact figures, in the hope that potential buyers can read between the lines.

This is a strange dance, and all your words will need to be carefully considered. You can’t drive up offers by being disingenuous (even though full disclosure is not permitted), and you technically need permission from the seller before you reveal specific details about other bids anyway. What’s more, if you do give specific information away, then all bidders must then receive exactly the same information. 

Confused? You wouldn’t be the only one. That’s why it is a good idea to read the Code again and again to avoid any potential sanctions.

Ombudsman penalties

Although the Ombudsman can’t take legal action against you, or throw you in jail and lock away the key, penalties for violating the Code can be quite punitive. For example, the estate agents’ governing body can award wronged parties up to £25,000 in compensation for quantifiable losses, aggravation, distress or inconvenience caused by an agent.

You can also be expelled from the body in extreme circumstances, especially if you fail to pay any compensation owed. This obviously isn’t a good look for reputable agents. Your reputation would be ruined before you can say “sorry, guvnor”. Consequently, it pays to know the Code like the back of your hand. 

Money laundering

Now we move on to more serious, criminal, matters. And it doesn’t get much more serious than money laundering. That’s why estate agents’ legal obligations include putting in place procedures to anticipate and prevent money laundering via property transactions. Indeed, you have to undertake Customer Due Diligence (CDD) on all buyers and sellers before a relationship can even be established. Agents also need to appoint an individual to be responsible for anti-money laundering measures. And this must be a heavyweight - someone who is on the board or in a senior management position. 

Failure to comply with these rules can lead to big fines. In fact, it’s not uncommon for agents to be fined £5,000 to £6,500 for failing to implement transparent procedures. Bigger organisations have received even harsher penalties. Purplebricks, for example, was fined a whopping £266,973 in 2020 for failing to have the correct “policies, controls and procedures” and not “conducting due diligence” stringently enough. Similarly, Countrywide was fined £215,000 for similar offences in 2019. Ouch. 

Price fixing

Another big no-no, which can land you in water hot enough to boil an egg, is violating competition laws. Perhaps the best example of this came in 2019 when The Competition and Markets Authority exposed three agents in Berkshire for fixing commission rates - something they did for seven years until one of them blew the whistle. 

These unscrupulous agents colluded to fix commission rates at 1.8%. This prevented sellers from finding a better deal and cost them thousands of pounds. The agents even set up a penalty system for any agent that broke the agreement. 

The watchdog obviously took a very dim view of this practice. One of the agents was fined an eye-watering £268,765 and another was fined a not insignificant £142,843. The whistle blower escaped financial penalty, which just goes to show that honesty pays - even if it does take you years to come clean.

False advertising

Albeit not as serious as health and safety or money laundering, agents can also find themselves in the dock for breaching marketing rules. It goes without saying, of course, that you should never advertise properties unless you’ve been given a formal instruction. The penalty for this can be thousands of pounds.

Another thing to look out for is flyboarding. This is the practice of putting up ‘for sale’ boards without permission from the local council, especially when it comes to blocks of flats. This transgression can cost you £1,000 or more. 

For some agents, however, false advertising and flyboarding aren’t enough on their own. Instead, they do both at the same time. An agency in South London, for example, was once fined £14,000 for putting up Sold and To Let signs outside more than a hundred homes that weren’t even on the market. We assume that they just wanted to look busy. Sadly, they got Trading Standards and the local magistrate busy, instead.  

The right way or the highway

Whilst some of the examples above might seem amusing - it’s easy to laugh at others’ misfortunes - they’re a sombre reminder that agents can, and do, receive crippling fines on a fairly regular basis. And sometimes it’s simply down to ignorance, complacency, or the temptation to push one’s luck.

So what’s the answer? Senior staff in your agency probably know the drill already: stay up to date with the Code and never forget estate agents’ legal obligations. However, junior members of your team or newcomers to the industry may not be familiar with all the above. Therefore, if a little voice in their head starts telling them to cut corners, or erect ‘for sale’ signs randomly in all kinds of places, tell that voice to shut its trap before your agency falls into a legal trap. 

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