Legal questions raised about online estate agents

This was first reported by Property Industry Eye:

A leading barrister has raised several questions about the duties owed by online estate agents to their customers.

In the Opinion, prepared for the UK PropTech Association (UKPA), Ian Rees Phillips of 6 Pump Court explores how the nature of up-front payment for estate agency services may create a conflict of interest between the online estate agent and property vendors.

The opinion concludes that the online agents owe a fiduciary duty to home seller clients and that there is a “significant danger that breach of fiduciary duty is baked into the online estate agent model.”

Those online agencies who operate with self-employed agents in the field are in even more “danger” of their clients “bringing a claim” against them.

Eddie Holmes, chairman of the UKPA, said: “It is extremely important that founders operating new business models, enabled by technology, bear in mind the legislative environment in which they operate. The world of PropTech is no different to any other in this regard.

“This Opinion  by Mr Rees Phillips serves to highlight some fundamental questions about the online agency business model.

“We urge those businesses operating in this space to consider these questions as a matter of priority and communicate what steps they take to protect their customers – something which should, ultimately, help those businesses create competitive advantage for themselves.”

Oxford Property Blog believes that this relates primarily to their financial model whereby fees are taken up-front irrespective of whether a property is sold.  It is reported that some online agents sell just 30% of the houses they list, meaning that 70% of vendors pay the agent a fee, but fail to sell their house.  Whereas, most high-street agents only charge a fee on the completion of a successful sale and they would routinely budget to sell no less than half of the properties they list, with the best-performing achieving 60% or more. 

The online model breaks the link between the vendor's financial interests and that of their agent - no sale: no fee ensures those interests are aligned throughout the process.  Up-front fees, reduce the need for online agents to remain focussed and committed to a successful completed sale, and may encourage above-market valuations of property in order to secure a listing.