£2,000 to the estate agent, or you won’t get the house!

http://www.theguardian.com/money/2015/may/09/property-estate-agent-pre-contract-deposit

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If you were buying a house would you pay thousands of pounds into an estate agent’s bank account to secure the property of your dreams? Guardian Money can today reveal the latest unsavoury practice being employed by some estate agents: demanding that prospective buyers hand over a £2,000 “deposit” when they make an offer on a property if they want to be taken seriously.

Would-be homebuyer Jessica Rose decided to blow the whistle on estate agency firm Brian Cox after being hit with the deposit demand while house-hunting in west London last month.

Brian Cox has five branches – two in Greenford, a suburb of Ealing, and one each in nearby Northolt, Harrow and Sudbury Hill – and has been asking buyers whose offers have been accepted to pay the money into a NatWest account, in return for which “the property will be removed from the market”.

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Rose described the deposit scheme as “greedy and unethical”. What’s more, it directly contravenes the estate agents’ code of practice operated by the Property Ombudsman, of which Brian Cox is a member. Section 11a of the code clearly states: “You should not take pre-contract deposits.”

The good news for current and future customers of Brian Cox is that, following Rose’s decision to kick up a fuss, this practice has now been swiftly brought to a halt. When Money approached the firm this week a senior member of staff told us it was scrapping the deposit scheme “with immediate effect”, adding: “We made an error.”

However, this probably won’t be the last time an estate agent puts the squeeze on buyers: Rose says she overheard another agent in the area talking about the possibility of introducing a buyer’s deposit scheme. While an estate agent acts for, and is paid by, the seller, it is clear some are seeking to cash in on soaring demand for homes by charging buyers fees.

Rose, 40, and her partner Wayne Gibbs live in Ealing and were delighted when they found a semi-detached house in Greenford being marketed by Brian Cox that fitted their requirements. A previous offer had fallen through and, after viewing the property, the couple put in an offer for the full asking price of £400,000. They explained to the firm that they were cash buyers and not in a chain, so were in a position to move quickly. A member of staff later phoned to say that their offer had been accepted, but then dropped a bombshell: Rose and Gibbs would need to pay £2,000, in return for which the house would be taken off the market.

The couple queried this and asked to be sent a copy of the contract, which they have forwarded to Money. It states that the deposit “is to be held by Brian Cox ... in respect of your purchase of the property below” and goes on to offer a choice of payment methods: cheque, cash or bank transfer into a NatWest account.

But there is no information about who this account belongs to, or whether it is an escrow account – ie, a separate account for client money. And it suggests the deposit won’t be refunded if the buyer changes their mind or has to pull out because, for example, they have lost their job – they would only get their money back if the vendor withdraws from the sale, or the buyer receives an adverse survey/valuation report on the property, or the local authority search throws up problems that can’t be sorted out quickly. The deposit is also refunded once contracts have been exchanged.

The couple’s solicitor advised them not to pay the £2,000, and they later received a letter saying their offer had been accepted, but the house had not been taken off the market. They say they were then phoned by the firm, told there had been another offer, for £402,000, and advised to match this and pay the deposit in order to continue to be considered.

Agents must not take pre-contract deposits. A vendor decides what offer to accept and if it is taken off the market

Rose and Gibbs were adamant they didn’t want to use the firm’s deposit scheme, and eventually concluded they had no choice but to walk away.

Before reaching their decision, Rose had gone on to Facebook to ask what other people thought she should do, and was advised by several posters to steer well clear. However, a few days later, she received a message from one of Brian Cox’s directors, accusing her of posting “slanderous” comments about the deposit system.

The director told Rose: “Not all agents take deposits, but in a marketplace where offers are made and withdrawn without good reason on a regular basis, this system helps ensure we are agreeing a sale to a committed buyer that wants to proceed with a particular property, not carry on viewing and pulling out without giving a second thought to the seller (our client) ... As a company, our abortive sale ratio has gone from 40% to 15% since implementing the deposit scheme.”

Rose, a painter and printmaker, says she and her partner were never tempted to pay the £2,000. She used to work as a consumer and business journalist, and thought the deposit scheme sounded “dodgy” from the outset.

She says they are aware developers sometimes ask for deposits for new-build properties, but that this was completely inappropriate for “second-hand” homes, and adds that they have complained to the Property Ombudsman (formerly the Ombudsman for Estate Agents). “This has wasted a good month of our lives,” she says.

Money contacted the Property Ombudsman, Christopher Hamer, who didn’t seem too impressed. He told us the current code of practice which took effect in August 2014, “stipulates that agents must not take pre-contract deposits. Firstly, it is the vendor who decides what offer to accept and whether the property is taken off the market. Secondly, the agent is paid by the vendor to progress the sale of their property, not by the buyer”.

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He says that in some cases, known as “sale by tender”, the buyer is asked to pay the agent’s fee, but adds that this is not the same as taking a deposit to progress an offer.

Henry Pryor, a buying agent and housing market commentator, told Money that demands for deposits “are much more prevalent in the lettings world – I’ve not heard of it happening a lot in the sales market”. He adds: “No one has had the balls to ask me for one. They would get pretty short shrift if they did.”

Brian Cox told Money that it started running the deposit scheme “a year or so ago”, adding: “It’s not a new idea. We saw loads of developers doing it.”

However, the spokesman adds: “I’ve told the ombudsman we are stopping the scheme and are in the process of giving everyone their deposits back ... It was an oversight. No one else has complained.” He says that the NatWest account is a client account, adding: “It’s not my bank account.”