When an estate agent sells a house currently, their client is not the person who is moving in!
This is what needs to be changed in the near future, if we are to correct the flaws within all housing markets across the UK.
What is needed instead is the situation, whenever a buyer moves into a newly acquired house it is HE or SHE who is paying the estate agent – the agent who found it for them!
Only then will they be happy with the service they obtained and of course, the property which they have just purchased.
This treatise explains precisely how such an outcome could be swiftly and economically achieved.
Sweeping reforms are now sought from those in government if we are to achieve this.
This is the precise answer to the ongoing housing crisis. It deals with severe buyers’ problems, directly resulting from the present methods of marketing residential property.
House price rises are being driven by lax bank lending restrictions following the relaxation of bank and building society lending regulations in the mid 80’s, then all markets suffered the effects of QE following the financial crash of 2008. These two factors, when combined, are the primary cause for all the housing markets in the uk to overheat price-wise.
Just as importantly, the way in which properties are ‘traded’ on the market should be the subject of urgent improvement and reform by adding a new regulatory framework to agency.
Originally published: 5 December, 2013.
(Last updated by PH: 3rd June, 2021).
True market prices can only be determined by supply and demand in a perfect marketplace. The present UK housing market as a whole is very far from perfect. The House Price Virtuoso Solution is the best way to finally resolve this failure.
As part of the required process of change, substantial amendment to The Building Societies Act 1986 as subsequently amended, is required because demonstrably, it is causing housing marketplaces across the country to overheat price-wise. The 1986 act is therefore no longer fit for purpose as it stands today and so needs substantial revision.
A main aspect of the financial deregulation as enacted by The Building Societies Act of 1986 was intended to widen access to homeownership by providing increased access to finance for house purchase. However, by doing this, more risk was introduced into the marketplace. The risk/choice balance was tilted more towards risk, arguably to try and correct the inefficiencies within the supply-side which was slow at housing construction. Unfortunately, the 1986 Act caused the benefits of deregulation to result in swiftly rising house and land prices – the very thing that should have been guarded against.
The new financial regulations set out within the 1986 Act also altered the relationship between the housing sector and the rest of the economy by making household equity more liquid, or more easily turned into cash by allowing increased borrowing. The pricing out of the dream of owner occupation for many people from less well of families which resulted is now plain for all to see.
It is this that the following proposal for improving the housing marketplace is aimed at rectifying.
As explained above, the economic importance attached to increasing total housing wealth was behind the drafting of much of the 1986 policy but so was the rush to increase homeownership. Sadly, these two aims run in direct conflict with each other and so, looking back, or in hindsight, this issue is what should now be fully addressed.
If you agree with this, having read what is outlined on these pages, please take the plea for change to your own MP to try and build support for bringing about wholesale change to make the housing market fully efficient going forward.
Here is the answer:
The House Price Virtuoso Solution – otherwise known as The Hendry Solution
In brief it is essentially about engaging one single estate agent to ‘find’ your next house, negotiate the best terms AND sell your present house too! This is a relatively simple but a profoundly important proposal, though nobody else has proposed it before.
By doing this, a much closer degree of relational parity between what you pay and what you get for your existing house could be maintained and, gazumping should be practically eliminated.
We must change the way we decide house prices from that of depending on how much each buyer might be able to borrow, to how much they each prefer to afford.
It would be a simple change but with profound consequences.
A fact: The definition of affordable homes is currently decided on ‘the market’ but sadly, the prices arrived at are not truly affordable to those who require housing in very many specific localities around Britain.
Instead of this happening, prices, especially at the entry level, ought to be based on what people on low incomes can afford locally.
Unquestionably, in each local area we must have housing that is genuinely affordable to those living and working in that area.
It is simply not feasible to try and remedy this problem and correct this lack of affordability by constructing huge numbers of new houses in a short timescale. In any case, the price problem itself is a market economics problem not a simple supply problem. The shortage of housing supply is, in fact, secondary to the market economics issue described here. Aside from this there aren’t the skilled craftsmen currently available to build upwards of the 300,000 good quality new private and social houses suggested to be needed each year for the next 10 years!
Also, the idea that ‘the market’ might correct for the shortage of housing by facilitating the building of more houses as and when prices rose, is not what has actually happened. The market has patently not done so and has failed to achieve that.
Improved market economics are now required. They are needed to improve the efficiency of the housing market itself.
This could be done quickly and without large government expenditure which is the preferable solution. As explained, we should re-organise how house prices themselves are arrived at. This would lower them in areas where local affordability would require this.
It can only be done by changing the way agents work when selling and letting houses that are currently on the market. It should involve referencing these properties to affordable prices in each local housing market. Now is the time to recalibrate local housing markets in this way and put in hand an economic solution which is of paramount importance and is described below.
As explained just now, new construction should only be a secondary remedy, to help to ensure that house prices never again spiral up to the unaffordable levels that we have currently been seeing everywhere in England, Wales and even in Scotland and Northern Ireland. The primary fix for this is to improve the way houses are bought & sold as well as rented & let.
Each individual local housing market requires this and the best way to accomplish it is to legislate for a complete new breed of estate agent (instead of attempting to build thousands of new houses in a vain attempt to satisfy a supposed national demand).
The fundamental problem with present day selling agents (or estate agents) is, that not only do they maximise house prices by leveraging buyers’ offers ever upwards; they also maximise mortgage loans by dealing in the procurement of ever increasing mortgage borrowing. This further boosts house prices!
The House Price Virtuoso Solution deals with both these problems by facing them head on. It does not however interfere with the operation of the market economy itself and it completely avoids the use arbitrary and inefficient price and/or rent controls.
For the purposes of this paper let’s call these new agents, “Registered Housing Agent(s) or RHAs”.
The main job of these new agents would be not only to sell or indeed let owner’s houses but more importantly to find and secure the houses which their contracted client(s) are seeking for both themselves and their families – whether these clients are wishing to buy or to rent.
How could this be achieved?
RHA or Registered Housing Agent’s Moving Contracts (or MC agreements) should replace the traditional vendors’ selling contracts. These would effectively be buyers’ agency contracts.
Similarly, ‘Letting Contracts’ (or LC agreements) would be the instructing instruments for agents advising tenants wishing to move from one rental property to another.
All this would be a relatively simple but a game-changing improvement to the way in which residential property transactions occur at present.
The proposal is that we should now do away with old estate agents’ sole selling contracts altogether and bring in Registered Housing Agents’ ‘MC agreements’, where each RHA or Registered Housing Agent engaged would be contracted to work to facilitate a vendor’s complete move from one property to another. The aim of this would be to bring greater satisfaction to all those in the throes of moving house and to get the whole UK housing market operating far more smoothly – in all possible economic conditions and, it should be said, without the need for government-backed mortgage guarantees for those requiring to get onto the first rung of the housing ladder either.
MC agreements of RHAs would always include a mandatory clause stating that as part of offering their services, they undertake not to negotiate any mortgage deals on behalf of any prospective buyers at any time or in any way whatsoever.
As a professional valuer (although now retired), I am claiming that this new method would help to stabilise house-prices broadly, across all regions, instead of tending to make them rise a lot in some areas but not anything like as much in others. That alone would be a very significant market improvement.
In addition, the new version of estate agents (RHAs), would be fully empowered by becoming more responsible for ‘the progress’ of sales and lettings of properties across the whole UK and would gain more control of the volume (or throughput) of house sales and lettings completions.
By contrast the earlier government’s plan (and this government’s one too), to increase the availability of mortgage finance, including to people becoming first house owners was and still clearly is not the right approach. As has been seen subsequently, that resulted in higher prices; the very thing that buyers simply do not need or want, either then or now.
‘Help To Buy’ government mortgage guarantee schemes have more recently been taken up in substantial numbers. This is resulting in upwards pressure on house and land prices as more money in the form of long-term loans must have this affect on asking prices by definition.
In some locations, the excessive price levels which we have recently seen, have been generated, in part, by significant corporate purchases of larger residential properties as investments, some financed by business loans. These loans were mainly advanced to private landlords for buying and renting out multiple units and not for owner-occupation. This has been another one of the catalysts for the general increase in house prices as well as dragging up rent levels.
The issue just described is in addition to (and separate from) the unregulated way in which current day estate agents negotiate and agree terms of sales with unsuspecting house buyers. These people are generally unaware of the scope of other offers (if indeed there actually are any) claimed to be being made on the object-property around that time.
A certain amount of regulation in the marketplace would go a long way to helping resolve these serious drawbacks.
With appropriate regulation, Registered Housing Agents could improve themselves in competition with other agents by becoming more efficient and more factual.
They could, for example, correlate from the current data they would have available from all the applicants, the maximum sustainable rents or buy price levels currently feasible and deduce using their training and expertise, exactly what the mean – mode price should be on any specific property to be acquired.
Having selected the best applicant for the property in question, they could then advance the most suitable offer to be made on behalf of each buyer and be in a position to stop inventing higher offers to help secure the deal their firm aspires to winning!
If the seller (or landlord) agrees, the offer would then be formally accepted and the whole transaction process (exactly as described here) would commence.
As explained there would be no question of agents ‘tweaking’ buyers’ (or tenants’) offers upwards any more as to do this would contravene their business ethics as well as putting them in jeopardy of their licensed (or newly regulated) business registrations.
Here are the three main benefits of using this new marketing solution.
Included below are the most significant advantages which the various different local housing markets around the country could derive benefit from. They could be used to increase sales and lettings throughput right across the whole of the country.
- First-time buyers (or renters) of both new and second hand houses, would not have to budget for agency fees when making their house purchases because these buyers/renters would not need to engage a buying agent or sign a Moving Contract (or MC agreement) with any agent. The arrangements would not therefore penalise first-time buyers financially. These applicants should simply approach the agent marketing the property in question. (The agent involved would already have a fee arrangement with the person moving from that property to their next one.)
- Registered Housing Agents would benefit since it would become more difficult for owners or landlords wishing to transact their own sales, purchases or lettings without using them. Indeed with this system, it would even be possible for government to declare that such a practice would be banned if they should decide there is a need to do so. The extra sales/lettings throughput generated by making all of the local housing markets around the country more efficient would further enhance RHAs’ profitability.
- It would also be possible to identify, specifically, all those transactions that involve house purchasers who are moving a long distance, when in the process of buying the house in question. Additional taxation could thus be applied to second home purchasers if it was deemed appropriate. For example the government could start to levy a tax on all second home buyers. This would tend to help reduce prices in those areas where second home buyers have been pricing local residents out, thus helping first time buyers as well as raising taxes for the government.
Below is a brief description of the new ‘RHA’ or Registered Housing Agent’s strategy including using the House Price Virtuoso Solution:
We need something considerably more effective than the current Neighbourhood Plan’s H1 The affordable homes provisions and H2 The full-time Principal Residence restrictions, to help bring local house prices down further towards levels affordable to the local workforce and especially to assist local key workers. I reason that prices of full freehold registered titles of ‘affordable homes’ are still well beyond the reach of most key workers within their sectors.
The need for The House Price Virtuoso Solution (otherwise known as The Hendry Solution), is because price levels in basic housing stock everywhere are currently driven by and depend upon how much any individual buyer can afford, including the most that buyers might be able to borrow at the time!
To correct that as far as local buyers are concerned the new buyer-agents advocated here would be called Registered Housing Agents (RHAs) and they could operate from either retail-based premises or online, or both and would replace present-day estate agents.
Facet 1 of explanation:
All agents (RHAs) would work by operating on behalf of buyers rather than being paid by sellers as happens at present. Their fee income would be solely from finding buyers the next houses they seek.
In other words all RHAs would have to forgo signing to act as a selling agent completely. This would include not acting to sell a house that the client they’ve just found their next house for, is still needing to sell. This is probably the most fundamental change being advocated here.
Facet 2 of explanation:
Nevertheless, there would be no restrictions on buying agents advertising or displaying for sale, houses on behalf of non-clients in order to introduce more enquiries by the buying public or from other buying agents. This would be a free of charge (FOC) or non-fee producing activity only.
All free of charge (FOC) advertising would have to wait for another RHA (with a signed Moving Contract arrangement with the buyer) to bring a buyer forward and by doing so the introducing agent would earn their sole fee payable on completion.
However, and this is critical, each agent or RHA could introduce any of their other signed-up buyers to purchase those properties – and thereby earn a second fee from a different successful purchaser in that way. A valuable second income stream would result.
If the house was one that the RHA had been advertising free of charge (FOC) for an earlier client, then the introducing RHA would be negotiating the BUY price on that house, acting for the new buyer – not the seller. Whilst different RHAs may often be working simultaneously on various chains of purchases, they would always be working solely for their respective buying clients of course.
In other words because the buying agent would be working for different clients in each case, (albeit on a chain of purchases) there would be no conflict of interest.
To emphasise the main change, all agents would always be negotiating for buyers rather than sellers.
Facet 3 of explanation:
Another aspect of this is that all agents would be looking carefully over all properties being marketed, in search of its good qualities, both structurally and from locational point of view. They would always be representing their buyer-clients’ best interests in the process.
Prices paid would therefore better reflect the condition of each property currently on the market as well as better reflecting the prices which buyers might be prepared to pay.
Facet 4 of explanation:
The new Registered Housing Agents (RHAs) would need to modify their existing agency skills and abilities, to be able to best represent buyers and negotiate (generally to lower the purchase prices) on behalf of their clients instead of trying to maximise them. This would clearly involve new training schemes for any existing estate agency staff to include both the different emphasis and the extra skills required.
Facet 5 of explanation:
An important point is the actual prices being obtained would be decided primarily by different buyers’ offers, with buyers operating in competition with one another for any one individual property, using the services of multiple buyer agents (the RHAs), simultaneously having to consider the various written offers involved and get their clients instructions on which ones to accept in writing.
Facet 6 of explanation:
Borrowing levels by individual buyers ought to be a significant factor and excessive borrowing requirements should naturally weigh against some higher offers being considered. That is another reason why there should be new government initiated restrictions on such lending, including rules for lending institutions wishing to make loans specifically for housing occupancy purposes. This would help to create a more level playing field for all buyers. That ought to particularly help local buyers, because the prices they could afford would tend to become the benchmark price levels for each separate locality. This is a very important aspect of the implementation of the House Price Virtuoso Solution and should not become a secondary or separate matter at all.
Facet 7 of explanation:
Fixed-fee terms of commission must be mandatory for all licensed or RHA agencies and must be a requirement of all agency contracts made to facilitate a buyer moving from one location to another i.e. complete Moving Contracts or MC agreement would be required – please see the main explanation below for further details.
In other words, no percentage fee commissions should be allowed, as otherwise these would provide an incentive for agents to try and edge prices up which is the practice requiring to be curtailed. Also reverse percentage fees must similarly be disallowed.
Facet 8 of explanation:
The anticipated effect of this new house marketing solution would be to increase house sales turnover across the nation, reduce the amount of abortive work experienced by present-day selling agents and in so doing, increase the actual fee income potential for all licensed agents acting for buyers. This method would breathe new life into what are currently, moribund housing markets in most localities around the country.
AND The $64,000 Question is:
HOW can this solution bring house prices down in your area?
As explained above this can only work if existing estate agents, acting for sellers, are exchanged for agents acting exclusively for buyers instead. These agents would have to be registered or licensed to trade under a process of national registration. To distinguish these new agents from agents that no longer have a mandate to deal with housing they should be named something specific, for example, “Registered Housing Agents”. All house agents registered would be required to carry out business in accordance with the rules laid down by the registration authority.
The first difference would be that each house being sold (owned by different sellers of course) would also have several different Registered Housing Agents (RHAs) sending in offers for the present owner’s consideration.
Buyer’s agents or (RHAs) appointed by local buyers are likely to have received offers at broadly similar levels to each other.
Buyer’s agents or (RHAs) working with clients wishing to come from further afield may have higher or even much higher offers in respect of the subject property.
The existing owner, in each case, would have the choice whether to sell to a local buyer or to refuse to and instead sell to an incoming buyer.
If they should choose to sell to local buyers they will know that the price-level is based on local affordability not incomer’s affordability whereas with the present-day estate agent system – they, the existing owner, cannot be certain of this when making their decision to sell because the lower offers are soon discounted, especially by the commission-earning estate agent.
Despite this if they are moving to an area having similar price levels they need not necessarily take a higher (incomer’s) offer.
Significantly with Registered Housing Agents, the buying agent whose offer is to be accepted will not know what the other offers were – only the seller will know that so, once again, they will be protected from coercion by agents wanting to escalate the prices just in order to win the fee.
In addition, where there are Neighbourhood Plans with restrictions on the sale of certain houses in favour of local residents, local planning departments could take enforcement action against anyone conducting a sale to an incoming purchaser if there is any breach of the requirements.
Finally, if there are occupancy restrictions applicable to specific groups or classes of house in any one location, all Registered Housing Agents would be expected to know and understand this and therefore would not take on instructions from outsiders to negotiate to buy such properties in the first place! This could thus become a self-policing issue.
I hope this illustrates the advantages of moving from a selling agent system to a Registered Housing Agent one as being the main development of the solution I am proposing.
For a 2nd (or further) explanation of this unique proposal please click on the following link.
If there remain outstanding questions relating to my proposals I’d be glad to discuss these.
Posted by: Peter Hendry, Housing Valuation Consultant
Author:– The House Price Virtuoso Solution