Mortgage brokers warn conditional selling by estate agents is 'endemic'

The practice, dubbed 'conditional selling', involves an estate agent telling a prospective buyer they have to use the agent’s in-house services - such as a broker, or solicitor - in order for their offer to be put forward on a property.

Considered an 'undesirable practice' in the rules governing estate agent business, in extreme cases agents which fail to pass on offers when required to do so can face a formal warning or a banning order from the regulator. 

Despite this, independent brokers have reported an uptick in the practice. With a lack of housing stock, competition for clients has become fierce.

Independent advisers reporting recent cases of conditional selling have claimed the situation has left vulnerable clients in tears. They also claimed properties have sat on the market for longer than they needed to due to the tactic, in some cases, putting off buyers entirely.

Normally you ignore it. But it’s happened to me twice in the past week.Imran Hussain, Nottingham-based broker

Propertymark, a membership organisation for estate agents, said it made sense for buyers to be vetted by in-house financial experts on behalf of sellers, but these checks can also be done with external brokers.

"It is not illegal to ask someone to verify their information especially in today's market where multiple offers will be on the table, the agents needs to be able to discuss the suitability of buyers with the vendor," said Nathan Emerson, Propertymark's chief executive.

"But an agent cannot say they will not pass on an offer unless someone is taking their services."

FTAdviser has spoken to six brokers across the country who claimed their clients have been conditionally sold to in the last month. All eight instances related to one of Connells’ 1,250 branches, a firm which touts itself as the largest estate agent network in the UK following its acquisition of Countrywide last year.

A spokesperson for the firm told FTAdviser: “We are concerned to hear the allegations of conditional selling being made against eight of our estate agency branches in our 1,250 strong branch network. This is not company policy and any breaches will be investigated, with any necessary action taken. 

"Although the number is low, this of course does not minimise the seriousness in which we are taking this and if we do receive a customer complaint directly it will be thoroughly investigated in accordance with our complaints procedure.”

‘Twice in the past week’

For some brokers, conditional selling is happening too often these days to ignore. On a private, national mortgage broker Facebook group, 38 brokers said estate agents had tried to conditionally sell to their clients via a poll conducted earlier this month (February 3). 

In some cases, an agent will remove the offer condition to speak to their broker if a client calls them out on it but in other cases, the client might lose out on the house.

“Normally you ignore it if it only happens once or twice a year,” Imran Hussain, a director at Nottingham-based Harmony Financial Services, explained. “But it’s happened to me twice in the past week.”

In one of Hussain’s cases, he said he called the agent to question what he was doing. “They soon backed down and the client continued to use me,” he said.

It's an endemic problem.Lewis Shaw, Mansfield-based broker

In the other instance, the client had options for multiple properties so decided to walk away and buy another property. The property they walked away from was still on the market at the time of writing, according to the broker.

Hussain claimed it all stemmed from the current fierce competition for houses. “There’s pressure on corporations to meet tough sales targets,” he said. “I’ve seen the adverts. There’s a constant pressure to get broker appointments.”

Less choice

While independent brokers can go to any lender on behalf of a client for a mortgage deal, in-house brokers are tied to a select panel of lenders. 

This means the danger is customers who go with an in-house broker could be presented with fewer mortgage options, and hence potentially worse deals. 

“It’s taking away a client’s free choice by bottling them in,” Hussain said. 

You almost get the feeling that if you don’t use them, your offer is no good.Unnamed client

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, also said he experienced two cases of conditional selling in one week this month.

“It's an endemic problem and agents should be aware as mystery shoppers may be reporting directly to regulators,” said Shaw. “They may find themselves in very hot water without a leg to stand on.”

‘It’s why I left corporates’

Kate McTernan, founder of Redditch Mortgage Advice, showed FTAdviser an email from an agent justifying an appointment with one of its brokers by saying it needed to qualify the client financially, and that “if you were to offer with any of our properties you would have to have this arranged anyway”.

It ended the email by saying if the client did not wish to take the appointment, it would rearrange their viewing for the second round.

Our clients were very stressed about the pressure put on them.Karen Guler, Sandhurst-based broker

McTernan said conditional selling was the biggest reason she will not have any formal and paid referral agreements with estate agents. “I’m reluctant to have clients sent to me under these circumstances,” she said.

Karen Guler, owner of Envision Financial Solutions, said: “I think it’s gotten worse with the shortage of properties being available and these branches having to hit their targets.”

One of Envision's clients, a first-time buyer, wanted to put in an offer on a property up for sale this month. She claimed they showed the agent their agreement in principle, but were told they wouldn’t get an offer accepted unless they sat down with the agent’s in-house broker first. 

“I ended up calling them to explain they shouldn’t need to as we have qualified them already so they backed down,” she said.

“We still don’t know if they will get the property at this point, and our clients were very stressed about the pressure put on them. The agent even cheekily booked them the appointment with their adviser for the next day, which was a Saturday. I cancelled it.”

‘My client was in tears’

In some cases, conditional selling has left prospective buyers on the brink of tears. Pamela Brown, a mortgage broker on Bicester high street, took on a mother and her daughter as clients.

They were allegedly told they would get a better mortgage deal with the agency than with Brown, despite already having an agreement in principle from a lender in their hands.

“I had four months of bank statements and had already gone to nine lenders that morning,” said Brown.

“Their broker had a 20-minute conversation with my client and didn’t even take down her salary. How can their broker know what they can get the client when they don’t even know any of their details?”

She claimed the mother came into Brown’s office crying, saying her daughter - also in tears - thought her offer wouldn’t be accepted after the broker made her think she couldn’t put her offer in.

Prabhakar Kapadia, a mortgage and protection adviser at P&M Financial, highlighted the conflict which can arise if an estate agent goes as far as to ask to see a customer's agreement in principle. 

“I always explain to clients they will probably have to explain their financial situation to the estate agency and possibly their in-house broker," he said.

"No issues with that. Where I draw the line is when they are told you 'have to show your AIP and deposit to put an offer in'. It means the agents know exactly how much my clients could go to! How is that fair to the viewer or the buyer?”

Chris Costello, a Liverpool-based mortgage and protection adviser, showed FTAdviser an email sent by one of his clients in which they said they had to post a letter through a seller’s door to get their offer accepted, after they said they were pressured to use an in-house mortgage adviser.

“You almost get the feeling that if you don’t use them, your offer is no good with them reading between the lines,” the client told Costello over email.

The National Trading Standards team told FTAdviser any brokers aware of an estate agent breaching their legal obligations can report this to the Citizen’s Advice Consumer Service in England and Wales, Advice Direct in Scotland, or Consumerline in Northern Ireland.

ruby.hinchliffe@ft.com

Note: 

The stock photo originally used to accompany this article has been changed as of Tuesday 8 March. 

This was because it featured the windows of a Guildford Branch of an estate agent.

While the estate agent's name was not visible in the photo, FTAdviser was contacted by the estate agent in question, Bourne Estate Agents, expressing concern about their branding inadvertently appearing alongside this article. 

The company has never conditionally sold mortgages, nor does it engage in such practices. In fact, it works with an independent advice firm, which provides professional financial advice, to help clients get the very best service.

Any association of its branding with the subject of this article was purely accidental and as a result FTAdviser has changed the photograph.