Whose Side Is Your Agent On?

A few years ago we saw a spate of estate agencies charging fees to their buyers rather than to their sellers. They were able to win instructions by offering to sell houses free of charge but of course this wasn’t really true because the buyers would simply deduct the agent’s fee from the price that they offered. A lot of angry words were written on this topic in the trade press but ultimately it died a natural death when the housing market switched from a seller’s market to a buyer’s market.

Such conflicts of interests have always existed and probably always will.   There was a huge row a few years ago when a prominent national estate agent opened up their own buying division.  It seemed bizarre to me at the time that a firm that earned most of their fees from buyers could open up a division whose USP was that they could source properties that were not on the open market and advise buyer on how to buy them for below market value.  The new business operated from a room that was right next door to one of their sales offices. When challenged about the potential conflict of interests they sent out a long press release about Chinese walls and how these would protect clients from any wrongdoing.  So far as I know both businesses are trading from adjacent rooms in the same building to this very day.

We are often asked to sell land and new homes businesses and huge potential conflicts of interest can arise in this sector.  The main issue is that some land agents genuinely work to achieve the best price for the client who has instructed them to sell the land without regard for what further fees they might earn from the sale of the finished houses and all the ancillary income arising from this.  Other land agents blatantly tell potential bidders for the land that their offers will not be considered unless they sign a binding sole selling rights contract giving the land agent a guaranteed fee on all the resales.   Businesses which have secured such contracts sell for far more than those that just rely on a handshake for the resales but how can this behaviour be justified to the client who is selling the land. ?

These problems do not just arise in estate agency.  I went to a furniture auction the other day where both the buyer and the seller pay a significant percentage of the sale price to the auction.  I was just left feeling resentful that I was asked to pay a fee to an auctioneer whose job it was to act for the other side. What was I getting in return for my money ?

I am now beginning to see the same thing happening in the business sales market. A number of new brokers have popped up and they are offering to sell businesses for nothing and taking their fee from the buyer. You may well have been approached by one of these people. Their opening gambit is to say that they have a retained buyer who wants to buy your business at a premium price. You need to be very cautious because responding to such an approach is very unlikely to result in you achieving the best price. Saving a broker’s fee is of course tempting but the only way to achieve the best price for a business is to run a proper competition between multiple buyers.

Some of the new brokers are also charging a fee to both the buyer and the seller. It means that they can offer sellers a much reduced fee but it is contrary to the most fundamental principle of agency. An agent must act for one side or the other. If they don’t, then a horrible conflict of interest will occur.

Another variation on the theme is the brokers who are offering a selling service and a buying service. Again, this creates a horrible conflict of interest. How can you spend three or four months helping a buyer to buy a business at the lowest possible price in order to justify a fee, then a week later switch sides and persuade the same buyer to pay a premium price for a business that you are selling on behalf of the seller? It’s just impossible to avoid a conflict of interest here. My industry is relatively new and unregulated, and it is very important for potential clients to realise that the fundamental principles of agency apply to business transfer agents as well as to estate agents . If you are offered a free or a heavily discounted service, then alarm bells should ring immediately. And if anyone asks for an upfront fee, you should run a mile.

Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years.