Sellers ‘could sue online agents for breach of fiduciary care’, says barrister

The barrister who has looked into the business models of hybrid agents says that the possibility of legal actions being brought against them on the basis of a breach of fiduciary duty cannot be discounted.

Ian Rees Phillips, of 6 Pump Court chambers, told EYE yesterday that he sees no immediate likelihood of such cases, and nor does he currently know that there are a lot of unhappy sellers.

However, said Mr Rees Phillips, there is “always the potential danger” for hybrid agents to face legal action because of “mismatched incentives”.

A breach of fiduciary duty allows the wronged principal (say, a home seller) to bring a claim against the fiduciary (in this case, the agent).

If there has been a conflict of interest or profit at the principal’s expense, then the remedies can include normal compensatory damages, an account of profit unlawfully made by the agent, or a full transfer of sums received, on the basis that sums earned in conflict with the principal should be held under a constructive trust for the benefit of the principal.

Mr Rees Phillips said that hybrid agents are incentivised by charging to list a property, whereas the vendors’ interest is usually to want the best possible price.

He said: “In a ‘traditional’ commission-based model, these two interests would be aligned, but that is not the case for hybrid agents

“Agents traditionally defer the whole of their fee until the end of the transaction, and it is contingent on achieving a sale.

“It could be that this is at the expense of being more expensive.

“With the hybrid model, the agent’s incentive is to list. If, after having sold and moved, a vendor came to believe that their interests had been ill-served, perhaps because the property had been seriously under-valued, then they could bring an action.

“A refund of their fee may not be enough, because property is so valuable. If a house had been under-valued by, say, 10%, that could be a great deal of money and the vendor could seek redress through the courts – the refund would not compensate them.”

Mr Rees Phillips also said that the deferred payment model – which he refers to in his opinion – could also be subject to legal challenge.

Where hybrid agents allow vendors to defer their fee on the basis that they must use a specified conveyancing service, he said that this might be challenged on competition grounds

Mr Rees Phillips pointed out that he was not presently aware of any legal cases that have been brought against hybrid agents. He expects that any that are brought in future would have to turn on their own individual merits; however, were there a “running thread” in a number of them on a point of principle, such as breach of fiduciary duty, there could be a group action against an agent.

He said: “It is very early days yet in the life of the online agent industry, but the potential is there.”

In his opinion, commissioned by new trade body UKPA (UK PropTech Association), Mr Rees Phillips notes: “In short, the online agents’ commercial interest is not to sell properties, but just to list them, and in that circumstance, it is easy to imagine a scenario where conflicts of interest or profits at principal’s expense could occur – for example, once the property is listed, there is no incentive for the agent to do any work in selling the property that a ‘traditional’ agent would do, such as following up on inquiries, consulting existing potential purchasers about new properties for sale and so on.

“It has to be the case that this would have a marked effect on the conversion metric from listing to sale when compared to a traditional estate agent.

“If, however, the online agent values its conversion metric as a marker of performance, (perhaps for marketing to potential customers or investors), but it has no interest in the price that the property sells for (as it has already been paid its flat fee) there is a conflict between the agent’s desire to get a sale and the vendor’s desire to achieve the best price, which could easily lead to properties being sold at an under-value to the detriment of vendors.”

His opinion concludes: “The mismatch in interests and incentives between principals and online agents, given the bare ‘incentive to list’ [on the part of the online agent] might mean that the fundamental nature of the relationship is likely to tend towards breach of fiduciary duty given the competitive nature of the estate agent marketplace.”

Online agent eMoov’s Russell Quirk yesterday afternoon welcomed the legal opinion and moved to distance his own firm’s business model, saying that all of its workers are fully employed, and that “our office team is predicated around negotiators and sales progressors that do the traditional part of the job that we feel is vital for the best outcome for our customers, namely achieving the best price, qualifying buyers properly and pushing each transaction to completion”.
EYE also asked Purplebricks for comment.
A new report, from Peel Hunt, tells investors that Purplebricks’ share price could rise over 50% and advises “buy”, saying it is the clear market leader in the online/hybrid sector and taking share from high street agents: “We believe it will be the largest agent in the UK within the next 12 to 24 months.”  The report says Purplebricks could have over 1,000 local property experts in due course. However, it does not believe that Purplebricks will move into monthly profitability until the second half of the 2020 financial year. It forecasts that Purplebricks will make an operating profit of £85m in 2022.

 

x

Email the story to a friend

38 Comments

  1. Chris Wood

    The issue of buyers apparently being unable to book viewings or make offers as reported on PIE is an extremely serious one which NTSEAT and TPOS need to investigate as a matter of urgency.

    Report
    1. cyberduck46

      Sounds like you want to interpret the law in a way that encourages gazumping there Chris.

      Report
      1. PeeBee

        “Sounds like you want to interpret the law in a way that encourages gazumping there Chris.”

        Not to anyone who knows anything about the Legal duties of an Estate Agent it doesn’t…

        Report
        1. cyberduck46

          So come on then, what are PurpleBricks doing that is illegal, that is not down to interpretation of the law?
           

          Report
          1. PeeBee

            Sorry – who mentioned that company?

            Certainly not me.

            By the way – it is up to LAWYERS to interpret the Law.  It is what they are trained to do.

            It is up to members of the public to report any activities that they believe to be unlawful.  The last time I checked, Estate Agents were still classed as ‘members of the public’ – both in and outside of their working hours.

            Any reported actiivities will then be investigated by the relevant authorities and appropriate action (if any) taken.

            Report
            1. PeeBee

              (By the way – I’m not much of a betting man – but on the basis that seventeen people appear to disagree with your post above, and twenty-one people seem to agree with my response to it, I would say I’m the one looking more likely to have correctly ‘interpreted’ the duties of an Estate Agent.)

              Report
              1. cyberduck46

                It could just be that those who liked your comment like the sound of what you are saying. It doesn’t imply any level of understanding. If anybody thought I was wrong I’m sure they’d just shut me up by pointing to the law that Chris believes exists. Something that neither of you have been able to do.
                 
                Chris knows that PurpleBricks will put an offer forward if you phone them up but nothing deters him from his mission. It just seems that he’s desperately clutching at straws.
                 
                Let’s go back to the “story” from the agent who claims he couldn’t put an offer in. Let’s see what he actually did? He went to Rightmove and clicked on the email agent button. You are then provided with 2 options:
                 
                1. ask for more details 2. to view a property. 
                 
                He will have chosen one of these options and he will have received an automated reply providing a phone number for any questions, a link to the booking system for the property and a link to the property brochure.
                 
                He then found the property is ‘Sold STC’ and determines that he’s unable to make an offer.
                 
                Do you not think this is a bit like somebody walking into an Estate Agents and telling the rental desk that you want to make an offer on a property and them telling you that you’ll have to speak to the sales desk but instead of doing that you go around telling everybody that the Estate Agent is breaking the law because they didn’t pass your offer onto the seller?
                 
                The agent in question is clearly being disingenuous. If he’d really wanted to put an offer in he’d have phoned them up.
                 
                Do you know who this disingenuous agent is? It’s not you by any chance is it?
                 

                Report
                1. Mark Walker

                  Calm down, Mr Woodford.

                  Report
                2. PeeBee

                  “Do you know who this disingenuous agent is? It’s not you by any chance is it?”

                  I have no idea whatsoever who this “disingenious” Agent is – but I can unreservedly state that is isn’t me by any chance or means whatsoever.

                  But it gave you another opportunity to slide your favourite word into a post… and to aim it in my direction in the doing – you’ll no doube be putting that on the scorecard – double bubble for cyberduck46.

                  Keep digging all you want, Sir – bring in all the JCBs in the world to aid your attempts at excavating what you are looking for.

                  You’ll find chuff all.

                  Report
  2. AgentV

    This is a fascinating article. I guess at some point now there will be lots of phone calls from companies along the lines of ‘we believe you have sold a house recently’.

    I sometimes get two or three calls a month telling me I have ‘had a recent accident that I can make a claim for’. Only problem is I am so busy working I didn’t notice when and where it happened.

    Report
  3. MrC83

    I can hear the T.V. & Radio ads now…Have you previously been mis-sold “Estate Agency” services? If so, you could be entitled to compensation…

    Report
    1. Woodentop

      PB and the like, may have opened the flood gates. Once the public becomes aware they can sue them with no win = no fee lawyers for misrepresenting, they will need some very deep pockets. I’ve been waiting for one disatisfied vendor to complain to TPO and my experience is there are an awful lot of them who have paid up front for no result!

      Report
      1. MrC83

        …not to mention the can of worms yet to be opened in terms of investors who have stumped up their life savings to grow these businesses having been potentially mislead through claims of success by CEO’s (radio documented, yet to be supported with supporting figures despite numerous requests), dubious % of 5* trust pilot reviews etc.  

        Report
      2. Mark Walker

        But whose Ombudsman will they be reporting to – the company or the self-employed person?  THAT’S what I want to see.

        Report
  4. FlyingSheep54

    Not all hybrid agents charge up front, just as not all high street agents are totally “no sale, no fee.

    Vendors that fall for paying up front are usually price driven without giving any thought to as to how much their property will actually sell for. Result: They end up worse off.

    Report
  5. Woodentop

    Its all in the jargon used.

     

    “We are , we will ….. etc”

     

    This infers a guarantee whether said, printed or implied. So next time any company says they will sell your property, charge you less, offer the same service etc are in the firing line, if they do not sell, do not get the best price and more importantly have not exposed the property fully to the market. No high street presence is one area that all on-liners fail on, for they can never fully expose a property and therefore say they had the chance to get the best price (duty of care) for the vendor or offer the same service and the same as the High Street, which just about puts every “on-liner only” in the firing line. AND THEY KNOW their claims are false?

     

    Pay up front is wide open to abuse and who doesn’t know that?

    Report
  6. is it just me

    The fact is Purple Bricks can not call themselves  estate agents and this articles clearly explains why.

    The sooner the public are made aware of this the sooner they will be able to make an informed decision as to how they want to sell their house.

    Purple  Bricks and the like  are really only marketing facilitators who may, depending on the experience level of their “local” representative also offer general advice relating to the sales transactions. They are not, by the nature of their model, an estate agent, who’s role is to provide all the above but are also legally obligated to work in  the best interests of their client at all time save from breaking any other laws of the land

    Report
    1. Trevor Mealham

      Rubbish, forget the article definition. The classing of an estate agent defines an agent (rather than a passve intermediary) based on what they do under CPR and BPR guidance and the Estate Agents Act.

      Report
    2. Trevor Mealham

      We want the Purple Bricks and others to be classed as agents. as such if they c*ck up, the same as any other agent they’d face penalties (which fair trade agents wouldnt face).

      Report
      1. Ric

        The very fact one of their TV advert says/answers “no no no they are proper Estate Agents” in relation to a particular question suggests they should be classed as just that.. They commissioned and made the advert therefore clearly beleive themselves to be EA’s.
        And the fact the answer above is to the question “they are just online aren’t they? ” also suggests they are missleading the public in a major way. I have just complained to the ASA about this on a personal level, as I thought like “proper estate agents” they must have a High Street Office to visit, based on the “no no no” answer to “they are just online aren’t they?”
        Let’s see if the ASA agree with me on this or even bother replying.  

        Report
        1. Malcolm Barnard

          The problem is that Rightmove believe that they are Estate Agents. This is one of the single biggest factors in the fact that they are seen as a threat/growing.
          Without Rightmove they wouldn’t have access to the audience of potential buyers that they do and therefore they wouldn’t have a business.

          Report
  7. Trevor Mealham

    Foooooey – Im one of the biggest anti-budget model critic.

    Its commonly known that budget agency typically achieves way less for sellers than commission based agency and less than when a higher fee allows extended reach to more buyers via co brokerage.

    *** A fiduciary duty is an obligation to act in the best interest of another party.

    Sellers who go the cheap agency route for its  ‘We’ll save you £housands’  pitch, do so at their own stupidity

    Its like someone buying a Skoda to take on a F1

    Its cheap as its no frills and in some cases may achieve what a traditional would if the buyer alone would have come from a portal. But cheap is no Rolls Royce for sure.

    Report
    1. observer

      “Its commonly known that budget agency typically achieves way less for sellers than commission based agency and less than when a higher fee allows extended reach to more buyers via co brokerage.”
      Prove it. Prove that a high street agent would have achieved more on any single property.
      Except that you can’t. Because you can only sell one property once.
      Also, I saw in a block of flats near me, two homes sold within two weeks at the end of last year. One by an online agent and one by a local agent. I checked Land Registry and they went for the same price (give or take £250) £552,250 vs £552,000.
      So to say “its (sic) commonly known” is just a lie.

      Report
      1. Trevor Mealham

        @ observer
        Incorrect. I don’t work under lone or sole agency. Your example is flawed as both flats sold via lone/sole agency.
        The method I use to work with agents is MLS/ Cobrokerage with ‘sub agents’ pulling more buyer applicants to the table.
        Its better for the consumer sellers and agents.
        The Yanks do this daily. The UK should too.

        Report
        1. PeeBee

          Observer – Mr Mealham states
          “Its better for the consumer sellers and agents.”
          Please note that the vast majority of British Estate Agents appear NOT to agree with him in that respect.

          Report
        2. observer

          I’m incorrect in my assertion that you can’t sell a property twice?
          Or the factual situation of two similar sales?
          So commonly known but ignored by the vast majority of agents (thanks PeeBee)?
          I can see the benefits of sub-agents for a vendor but it doesn’t prove your point in any way.
           

          Report
          1. Trevor Mealham

            Hi observer,
            To imagine main and sub agency’ being main stream, you can find great stats and research from the USA market.
            Over here, I know many agents collaborating to bring best offers in. I also pass over properties where contacts ask for my help to a main agent on the basis the listing HAS to sub out.
            So my comments are based on fact.
            Subbing in the UK can trace back to a Mr Mann in the 1890’s.
            If you’re an agent ‘observer’ try it. You might like the outcome.

            Report
  8. is it just me

     

    You may wish to allow the likes of Purple bricks  to call themselves estate agents when they clearly are not on the pretext  that ” someone ” can take them to to task at sometime,maybe, if that someone can be bother

    I alternatively do not think the public should  be misled as to the true obligations of an agent to their client, which by their model Purple Bricks can’t adhere to.

    Its not so much comparing a Skoda with a F1 car as passing off a  night on a park bench with a room in a good quality hotel. They are both somewhere to spend the night but the later has no mechanism to ensure a duty of care

    Report
  9. BobSmeaton01

    With deference to the learned friend and acknowledging the duty of care, what will they be sued for? There is a contract to sell the property, they suggest an asking price, an offer comes in and the vendor accepts. The point is they are not valuing it. As with most agents these days, of whatever type, they do not value but merely suggest an asking price and see what happens (as Peebee responds to shrewdagent170’s comment of March 17 “Surely it is just a market appraisal”).

    We all see properties put on the market at an asking price that is too high, killing the initial interest and then selling below value after a long period of time. That is an easily identifiable mistake yet I have personally never heard of a residential agent been sued in these circumstances despite the initial asking price resulting in the vendor’s house selling for a lot less than it should! Never mind online agents – how many traditional agents employ appraisers/valuers and have them on the road with little local knowledge and supervision within days of starting their employment. I suggest that it is very difficult to sue where you have a suggested asking price and not an actual valuation.

    I believe that an estate agent by law should have to give a written valuation and then discuss asking price and take instructions. The accountability of all agents whether traditional or online would then be greatly increased as would the fluidity of the market.

    Report
    1. Chris Wood

      In law, all agents are expected to have, demonstrate and execute a level of professional skill and knowledge and there is plenty of case law http://swarb.co.uk/searching/ of agents who have been successfully sued for giving poor or deliberately misleading advice (whether that was too high, too low or failing to spot further development possibilities etc.).
      Agents who set themselves up as “experts”, particularly, should be wary in any case brought as the test will be what a “reasonable person” might expect from that advertised term.
      If it can be shown that a member of the public (not just a buyer or seller) took a transactional decsion based on the advice, statement or advertisement made by such an agent (“expert” or otherwise) and suffered a loss as a result, that agent is very likely to be liable in law.
      Agents must also submit all offers in writing to owners unless they have specific written authority to the contrary. To seemingly frustrate or prevent that process, intentionally or otherwise may well be a breach of the law.
      It is truly worrying how little knowledge of the law agents must work to and within by some posters on here. Gazumping, too is horrible but, https://pzwoody.wordpress.com/2010/05/14/gazumping-the-law-of-offers-and-taken-off-the-market-what-does-it-really-mean/ 

      Report
      1. Woodentop

        Well said Chris and I partriculary like the bit in the last paragraph. Many an agent doesn’t know that certain phrases they use can get them into very hot water, even worse many an agents contract with customers leave them liable. We offer a service, we don’t ever sell property. Its this small detail that compensation lawyers are looking for to win, win, win and is an untapped but lucrative area for someone. It is the “goings on” with some TV ads that is liklely to be the tipping point for some street wise law firm?

        Report
      2. Trevor Mealham

        Quite right Chris.
        Don’t forget “Omissions” to mislead by not informing consumers too.

        Report
      3. cyberduck46

        >To seemingly frustrate or prevent that process, intentionally or otherwise may well be a breach of the law.
         

        Chris, that’s your interpretation I presume? You have no case law to back that up?

         

        I suppose closing the Estate Agency for the evening could be classed as unintentionally preventing the process of passing on an offer to the seller couldn’t it?

         
        When I read a summary on the type of law that you refer to above I saw that in this “reasonable person” test it is assumed they are reasonably intelligent and will take reasonable care to protect their own interests.
         
        I think a lot of agents think a reasonable person will go through the process of signing up with PurpleBricks and come out of that thinking they guarantee to sell your property. I’ve been through the process and I categorically state you’d have to be of below average intelligence to believe that.
         
         
        If anybody thinks PurpleBricks are open to some law suit from anybody who hasn’t sold their home with them then they need to think again. Proof of negligence will need to be shown as is the case with traditional estate agents.
         
        If anybody thinks that there are any comparibles with PPI  then i suggest they look into the details. Victims were easy to identify and were often paying many thousands of pounds for policies with maximum payouts being perhaps 50% more than contributions. Some people were paying to protect their salaries when they weren’t even working.
         
        No win, no fee lawyers won’t be interested in all the hard work required to prove negligence and then only getting a share of £850.

        Report
        1. Chris Wood

          “No win, no fee lawyers won’t be interested in all the hard work required to prove negligence and then only getting a share of £850” 
          Any case brought would be based on the incurred loss, not a simple refund of any fee paid. Do keep up.

          Report
          1. cyberduck46

            Pardon me. Yes you are correct any claim would relate to damages incurred which applies to all Estate Agents. 
             
            I appreciate the article is suggesting that Online Agents might be more inclined to be more negligent but that is debatable. Also the idea that there is no conflict of interest with a traditional Estate Agent.
             
            One conflict of interest I can think of with the commission based model is the fact that a traditional agent is more likely to encourage a seller to accept an offer. As they say no sale no fee.
             
            Also with the commission based model an agent is more likely to prioritise the more expensive properties and just leave the average priced ones and lower value ones to sell themselves.
             
            You also have to question whether the Barrister understands that some online agents have LPE’s who will be looking to develop their local reputations. Of course this applies to pure online agents too but more so for LPEs. Purplebricks’ LPE’s are shareholders with tie in periods and will be more likely to think long term and be concerned about online reviews.

             
            In fact, you have to wonder how long the Barrister actually spent thinking about the conflict of interest issue and whether he was presented with all the facts by his clients.

            Of course it’s not only conflict of interest that would be the cause of claims. The traditional Estate Agent model where communication/negotiation between vendor & buyer is via a gobetween creates more scope for error over the online system where communication would typically be direct.
             
            >>To seemingly frustrate or prevent that process, intentionally or otherwise may well be a breach of the law.
             
            Chris, that’s your interpretation I presume? You have no case law to back that up?
             
            You didn’t comment on the example I put to you which would put doubt on your theory.
             
             
             

            Report
    2. Woodentop

      e.g: Market appraise = not valuing, yet call themselves a valuer and popping around to value the property. Not forgetting that TPO Code of Practice on market appraisal is very rarely adhered to by some!

      Report
  10. Woodentop

    It is reported:

     

    In 2015 The Property Ombudsman instructed agents to pay over £800,000 to resolve complaints made in property disputes. The most common cited include communication failures, advertising errors, commission fees, conflicts of interest and agency agreements

    Report
    1. cyberduck46

      Communication failures are certainly more likely with the traditional estate agent who in my experience discourages direct communication between sellers & buyers.

      Report
X

You must be logged in to report this comment!

Leave a reply

Thank you for signing up to our newsletter, we have sent you an email asking you to confirm your subscription. Additionally if you would like to create a free EYE account which allows you to comment on news stories and manage your email subscriptions please enter a password below.