It’s plainly obvious, there is still a crisis within the UK housing market and despite all attempts to improve things, this hasn’t been cured merely by applying financial measures alone.
Sadly the previous administration’s policies were simply not working fast enough (or well enough) to resolve the ongoing UK housing crisis.
Something else now needs to be done !!
Originally published Dec 5th 2013. (Last updated by ph, 16th July 2016.)
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The Hendry Solution
A considered argument set out with reference to all recent Conservative and Coalition budget statements.
“The best way to smooth out housing market peaks and troughs – in turnover (and also smooth out price peaks themselves of course) is fully explained in the following article.”
There IS a better and quicker way, besides that of building more houses which, by any degree of estimation, must take nearer 10 years than 1 if that is to be implemented.
The housing market is broken, with prices being forced up beyond most people’s ability to pay. It’s not just about supply and demand, as I am about to explain.
It’s about money finding its way into the housing market illicitly and without sufficient financial checks. It’s about selling agents appearing oblivious to this and a number of other problems – since their primary remit is simply to try and get the highest price possible for each property which they can sell.
Yes, estate agents may well try to maintain that house prices are decided simply by supply and demand but this does not bear any serious scrutiny at all.
Consider for a moment:
Dodgy money (or the money that requires laundering) which has caused significant house price inflation recently …
Over-borrowing The rules for ascertaining who should be permitted to borrow, for what reason and exactly how much should be tightened – especially whilst such large sums are able to be borrowed so cheaply …
Lack of valuation knowledge There’s a general lack of adequate valuation knowledge (and experience) possessed by most agents in the property sector currently …
Meaning that lies / deceit and basic misinformation is rife whilst competing agents are forced to utilise this in the hope of gaining more instructions to sell or let …
It simply cannot be denied that these unacceptable factors are playing too large a part in deciding current-day house prices and that such matters have not been addressed so far by those elected to govern.
True market prices can only be determined by supply and demand in a perfect marketplace. The present UK housing market is very far from perfect, it must be said.
“The Hendry Solution”
This is the fix to make the market work efficiently over the longer term.
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 simple but profoundly important proposal – and yet no-one else has so far proposed it.
By doing that, parity between what you pay and what you get for your existing house would be maintained and also, gazumping should practically be eliminated.
It’s akin to employing a stockbroker when you are buying (or selling) shares.
These methods are well tried and tested and could easily be rolled out across the UK housing market.
The housing market needs improvement and the best way to accomplish this is to legislate for a complete new breed of estate agent (instead of trying to build thousands of new houses in a vain attempt to satisfy a supposed national demand!
Let’s call them (provisional idea), “RHAs or Registered House Agent(s)“, (unless a better name is conceived).
The main job of the new agent should be not only to sell clients houses but also to ‘find and secure’ their client the house they are seeking for themselves and for their families.
RHA or Registered House Agent’s ‘Moving Contracts’ or ‘MC agreements’ should replace traditional ‘Selling Contracts’. This would be a simple but a game-changing improvement.
The proposal is that we should do away with old estate agents’ sole selling contracts altogether and bring in Registered House Agents’ ‘MC agreements’, where each RHA or Registered House Agent engaged would be contracted to facilitate a vendor’s complete move from one property to another. The aim of this is 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 needing to get onto the first rung of the housing ladder either.
I also claim that our method would help to stabilise house-prices across all regions, instead of tending to make them rise in some areas and not in others. That alone would be a very valuable market improvement.
In addition, estate agents would be more empowered by becoming more responsible for ‘the progress’ of sales of properties across the whole UK (and would gain more control of the volume (or lack of volume) of house sales completions.
The current government’s plan to increase the availability of mortgages, especially for people starting to become house owners cannot be the right approach. As has patently been seen in the past, it will merely result in higher prices; which is the very thing that people simply do not need currently.
[As an aside, if and when government mortgage guarantees should no longer be available and/or interest rates should rise, market prices would be adversely affected and excessive prices would have to suffer from financial withdrawal. There is no other exit strategy from this situation.]
Below is a condensed description of the new ‘RHA or Registered House Agent’s strategy:
In order to become more even-handed in their dealings, and so be of better service to all of their clients, estate agents must start acting both for buyers and sellers, instead of only for sellers or vendors.
This means traditional estate agents would need to become involved primarily in searching for and introducing the present seller to their next property as well as selling their existing one (if any).
To do this the forward purchaser’s agent would become the agent that negotiates both the terms of purchase of the next property and the terms of sale of the house to be sold as part of the move. We’re calling these ‘RHAs or Registered House Agents’. They would, in fact, be advising on both finding and selling houses for their clients in this explanation.
In order for this to happen, estate agents must stop using sole selling contracts and begin offering agency ‘Moving Contracts’ or ‘MC agreements’ for their clients instead.
This would mean that the primary work of the estate agent would become to locate and then introduce acceptable houses for each buying client, whilst at the same time, retain responsibility for negotiating the sale of the client’s existing property – the one to be disposed of as part of the proposed move. One thing this solution can do is to massively reduce the rate of sales chain failures.
To explain how this would work in practice, let’s use the term ‘the subject property’ to mean the house being sold, and the term ‘the object-property’ to mean the house to be purchased.
Two new documents would be involved with this new process :
An ‘MC agreement’ entered into by buyers initially just with one agent; or a series of ‘MC agreements’ with different Registered House Agents (instead of just having a ‘sole agency selling contract’ with one estate agent as generally happens now).
A pre-contract ‘lock-out agreement’ with a set time duration, during which the vendor of the property concerned could not accept other offers until the specified lapse-time occurs without incurring defined penalties. These would primarily be aimed at the vendor if they should default without just cause, but some form of recompense, payable to the vendor, ought also to be reserved in the event that the buyer was the party that decided to withdraw prior to actual exchange of contracts.
Clearly, all buyers would be advised to ensure that satisfactory property surveys have been carried on the object properties being bought before signing a lock-out agreement (or even a further MC agreement). Having a professional survey is normally advised for most types of residential property being purchased anyway.
Once the whole scenario is reasonably well understood, these new methods should prove to be self explanatory and quite easy to follow!
Firstly: – let’s look at the new scenario from the point of view of the person selling their existing house, ‘the subject property’.
The parties to the ‘lock-out agreement’ would be: –
(Documents to be signed at the buyer’s conveyancing solicitors)
Vendor 1 (the vendor of the property currently being sold) who would agree not to continue marketing that property, either themselves or via any RHAs during the agreed duration of the lock-out contact.
The Buyer, whom would be given the promise of a clear run to try and exchange contracts during the agreed duration of the lock-out.
Both parties would be agreeing to incur penalties if they should default.
Secondly: – let’s look at the new scenario from the point of view of the person buying their next house, ‘the object-property’.
The parties to the ‘lock-out agreement’ here, would be: –
The Buyer (i.e. vendor 1, the owner of the subject property as above) Whom again would be given the promise of a clear run to try and exchange contracts during the agreed duration of the lock-out contract.
Vendor 2, agreeing as in the earlier case, not to continue marketing that property, either themselves or via any RHAs during the agreed duration of the lock-out.
NB. Under these revised arrangements, no selling agent fees are involved anymore in either case of course. The buyer’s solicitor will arrange payment of the buyer’s RHA, on satisfactory completion of the actual sale – as is the situation at present.
In each case, it should be noted however, the ‘RHA or Registered House Agent’ is paid on completion by the buyer (instead of by the seller as happens now).
Whichever agent was working on the ‘sale’ of each property, would simply be informed (by the vendor or their solicitors) when to stop marketing at the appropriate time; that is after signing a lock-out agreement (which is broadly what happens currently when terms are provisionally agreed).
(If deemed important in the particular situation at hand, relevant ‘RHAs or Registered House Agents’ could, of course, be asked to endorse the specific lock-out agreement concerned.)
To explain in essence, this would mean there is the need for two lock-out agreements to be signed by each buyer.
One with the purchaser of the property that they are selling.
A second, between themselves and vendor of the property which they are buying.
It should be emphasised however, that each buyer should always sign the lock-out agreement relating to the house they wish to buy first.
They should sign the lock-out agreement for the house they are selling second. Both should, of course, ideally be signed at their solicitors office, at the same time, one after the other.
Doing this should not be any more complicated than owners signing pre-contract papers in general.
For those who wish this, here is a more detailed description of the new ‘Registered House Agent’ strategy:
Firstly from the vendor’s viewpoint:
A. Under the Moving Contract or ‘MC agreement’, the agent would act for vendors (as now), but instead of merely being a selling agent, would act primarily as their buying agent. In other words, the same agent would find them their next house, ‘the object-property’, negotiate the best terms with that property vendor’s agent (whether that agent has an ‘MC agreement’ or not), and also sell their existing house.
As a follow-up but unlike the existing arrangements, the RHA or Registered House Agent with an ‘MC agreement’, acting for the buyer, would request ‘the object-property’ vendor to instruct their solicitors to sell their property to buyer 1.
At the same time a three-way pre-contract agreement called a ‘lock-out agreement’ would be signed, the parties being as mentioned above.
The basis of the agreement which would be legally enforceable would provide for a set lock-out time, during which the forward vendor (i.e. the seller of the property in question ‘the object-property’) would not continue marketing the property or show any more viewers around it and agree not to accept any other offers prior to an ‘exchange of contracts’ with the named buyers, providing that this occurs within the agreed time limit. If the terms of the agreement were broken, the party disadvantaged may seek to claim the sum set down in the agreement by way of damages or compensation.
In addition to bringing more certainty in concluding negotiations between the parties, the effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time. As stated earlier one thing this solution will also do is to massively reduce the rate of sales chain failures.
[N.B. If the agent which happened to secure the best deal for the vendor, both for the sale of their existing property and the purchase of their preferred next property did not already have an ‘MC agreement’ with that particular client at the time, one could be signed retrospectively, or in other words at the same time as the lock-out agreement was to be signed by ‘the object-property’ owners; and this would effectively over-ride all other ‘MC agreements’ in the same way that a last Will and Testament over-rides all prior wills.]
B. If an existing, or alternatively a new agent were to obtain an offer involving a higher price on ‘the object-property’ – acceptance of this would become subject to the expiration of the pre-contract lock-out agreement and would merely give the existing buyer of the house in question, added impetus to make sure that a legal contract for the sale of land and buildings was concluded as swiftly as they could do so and within the lock-out timescale. There should be penalties specified in the agreement aimed primarily at the vendor of ‘the object-property’, if they should default without just cause but also in respect of the purchasers. However the opportunity to default if either party wished to would remain, as no contract for the sale of land would yet be in place.
C. In the event that the lock-out time period was unavoidably exceeded or formal contracts for sale were not exchanged in time, the pre-contract lock-out agreement would expire, or lapse.
The owner of ‘the object-property’ could, of course, then carry on using their existing RHA or Registered House Agent, and/or instruct more RHAs, by using ‘MC agreements’, both to find them their next house and sell their existing one – the one that was the subject of the abortive sale.
The vendor of ‘the subject property’ however, (i.e. the buyer whose lock-out agreement has just lapsed), may simply carry on with their search for another suitable property, again using their existing RHA via an ‘MC agreement’, or signing up with additional agents using more ‘MC agreements’ if this should be deemed necessary.
It should perhaps be explained here that existing estate agents with traditional selling contracts shall, in the interim period and while these new procedures became fully accepted, slightly confuse the picture until sufficient numbers of estate agents began offering this new and improved service. For this reason a consensus in favour of the necessary change, including Government legislation confirming this would ideally be needed.
Secondly looking at this from the buyer’s viewpoint:
1. An estate agent with an ‘MC agreement’ would initially be commissioned by a vendor as above, both to find that particular buyer their next house, ‘the object-property’ and negotiate the best terms they can on that purchase, as well as conclude the sale of their existing house (if any). Once ready, the relevant agent (or the agent offering the buyer the best overall terms), would request the forward vendor to instruct their solicitors on the terms agreed for sale, as in ‘A’ above.
The successful ‘RHA or Registered House Agent’ would be paid on completion of the combined sale of the purchaser’s existing house and the legal completion of the house being bought, ‘the object-property’, using similar machinery as currently exists with conveyancers.
A pre-contract lock-out agreement, as explained in the vendor’s example above, would be signed again by ‘the object-property’ vendors, the buyer, and their ‘RHA or Registered House Agent’.
As already explained above, this would simply provide for a set lock-out time during which the forward vendor (i.e. the seller of ‘the object-property’) would agree not to continue marketing the property or show any more viewers around it and would agree not to accept any other offers prior to exchange of contracts with the named buyers, provided that this occurs within an agreed time limit. However, as previously explained, there would remain the opportunity to default if either party wished to, as no contract for the sale of land would yet be in place.
As explained above, the primary effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time, by formalising the terms provisionally agreed between the parties which would be an extremely valuable addition.
In other words, unlike existing ‘selling agents’, the RHA or Registered House Agent with an ‘MC agreement’ would be primarily helping the buyer to find their ‘object-property’, and would assume responsibility for both transactions, but importantly, they may also sub-contract out the sale of the existing house to other RHA or Registered House Agents if this should prove to be necessary, e.g. where the RHA concerned is not active in the area in which the existing property is located.
This would mean that the active RHA or Registered House Agent with an ‘MC agreement’ would have had to have found a buyer for the house being sold (‘the subject property’) before they could conclude a deal for the forward purchase ‘the object-property’. This, of course, should happen in the normal course of events, in most cases, anyway but currently it does not always.
2. Again, if any other agent should attempt to contact the owner, or the owner’s ‘RHA or Registered House Agent’ handling the purchase of ‘the object-property’ with a different offer worth considering, they would be told the house is currently sold, (subject to contract), of course. An agreed pre-contract lock-out agreement with a set time duration would be running, such that the vendor of ‘the object-property’ could not accept other offers prior to exchange of contracts. As already explained this is designed to stop, or substantially reduce, the occurrence of gazumping within the agreed time-scale but would not be an actual contract for the sale of land so would be straightforward to have executed.
As a result, any new estate agent (even one with an ‘MC agreement’), may still offer a higher price – making the offer subject to the expiration of the existing lock-out agreement. Again, this would merely give the existing buyer more impetus to make sure a legal contract for the sale of land and buildings to them was concluded as swiftly as they could do that.
3. In the event that the time was exceeded and the lock-out period expired or lapsed, ANY estate agent may then legitimately try and finalise acceptance of a new offer and if they did so, new terms with new people would then be substituted. Under these circumstances it is easy to see why having an effective lock-out agreement would help the performance of the housing market as a whole, primarily by setting down agreed time-scales for the progression of conveyancing under the terms of the offer.
Assuming the new introducing agent was working for a different or prospective buyer but still via an ‘MC agreement’, then again a new pre-contract lock-out agreement having a new lock-out time provision would be executed with the new purchasers (to replace the expired one).
Obviously in these circumstances the earlier purchaser would, by that time, have lost their rights to conclude a purchase of that particular property.
To clarify the procedures for ‘lock-out agreements’ once again:
Where it’s ‘the subject property’ being sold first (as is normal), the parties to the lock-out agreement would be:
a) Vendor 1. The owner of ‘the subject property‘
b) Buyer 1
c) If deemed necessary, Buyer 1’s ‘RHA or Registered House Agent’ (who would get paid on simultaneous completion of the sale and purchase, by buyer 1 via their solicitors)
If it’s ‘the object-property‘ being bought, the parties to the lock-out agreement would be:
d) Again the owner of the property being sold (vendor 2 in this case)
e) Buyer 2 (i.e. vendor 1, the owner of the subject property as above)
f) If deemed necessary, Buyer 2’s ‘RHA or Registered House Agent’ (if any) (who would get paid on simultaneous completion by buyer 2 via their solicitors)
NB. No selling agent fees are involved anymore in either case.
In each case, it should be noted, the ‘finding’ or Registered House Agent is paid on completion by the buyer (instead of by the seller as happens now).
The agent which was working on the ‘sale’ of each property would be told when to stop marketing by the vendor at the appropriate time (as happens currently).
In essence this means that the agent doing the selling only has to market ‘the subject property’.
After a buyer is found, it’s the buyers agent that would do the ongoing work, including managing each purchase through to completion – instead of the selling agent as at present.
In the above situation it is then possible for the ‘failed’ buyer to conclude a deal to buy a different house using either the same (or a different) ‘Registered House Agent’ using ‘MC agreements’ with whomsoever they appoint as agents.
Flexibility for each buyer is thus is significantly increased.
Once terms have been provisionally agreed on a different ‘object-property’, and they have a purchaser for their own house, they could again arrange for a pre-contract lock-out agreement to be executed for that property.
This new method of securing an offer on a house should mean increased choices becoming available for buyers, because each buyer would have increased access to more estate agents helping them to find suitable properties.
It would also enable buyers to make final decisions based on the very best opportunities currently available, both in regard to the selling of their existing house and in regard to the purchase of their preferred next house. As just explained, this would be accomplished by enabling buyers (if they should think it necessary) to appoint multiple estate agents to work for them in their search for the property that best suits their requirements.
By freeing up buyers in this way, the housing market would start functioning more like a perfect market than it has in the past. This would be of considerable advantage to all the players involved – both business-wise, and by increasing the choice of property for buyers.
Essentially, the only thing that an estate agent would not be able to do, using ‘MC agreements’, would be to act solely for a vendor of course, and this is the primary change which I advocate should now happen.
I accept that ideally this might need the government of the day to give it their backing, if (and as is most likely) traditional estate agents are reluctant to make such a change themselves. It should be stressed however, that the advantages for estate agents would seem to me, patently to outweigh the disadvantages by some very considerable measure.
[As an aside, there would need to be a retained flexibility for those vendors without any forward purchasing intentions to sell without having to use a new ‘MC agreement’ and instead merely use an estate agent as their selling agent – as happens at present. However for this to work, there would need to be a provision in agency law that if a later ‘MC agreement’ were signed by the same client it would take precedence over a traditional sole or multiple agency selling contract and that the latter would be superseded by the former.]
Unlike the plan to build large numbers of houses very quickly, which is doomed to fail in the short-term because of the logistics of building them, this improvement to the way in which the housing market functions could be made very swiftly indeed.
TV programs such as BBC 1 Panorama’s ‘The Great House Price Bubble?‘ investigating the pros and cons of ‘Help To Buy’ mortgage guarantees, screened on Monday 11th Nov. at 2030hrs, and Channel 4’s Dispatches ‘The Property Market Undercover’ the week before, have recently investigated the current situation and found continuing serious misfeasances in the way that houses are sold. Since we are still in the aftermath of the worst financial crash since the 30’s it’s only right that something fundamental and of significance should be done to change and improve the operation of the housing market.
Let’s look at the following extracts in the news recently:
Seen 14 Oct 13:
“In the period 1997 to 2007 significantly more than a million housing transactions took place each year in England & Wales. In the period 2008 to 2012 the number of transactions has not been above 662,000 with numbers averaging 640,000 over the last five years.” These numbers quite clearly demonstrate how constrained the market has become, with many would-be borrowers citing the inability to save the level of deposit required by lenders as their primary reason for not entering the property market.
What could existing estate agents do better?
Lots of things – and they need to; before they even consider becoming new, and improved “House Agents”.
For a glimpse of some of the current and ongoing problems associated with traditional estate agency, please see the following links, which will open in a new tab or window. These would all be resolved by using ‘MC agreements’.
communicate your way to faster completions – recent pdf on estateagenttoday.
Also seen Fri 11th Oct 13:
Chris Leslie, Shadow Chief Secretary to the Treasury, said: “If ministers are serious about helping first-time buyers, they should bring forward investment to build more affordable homes.
“Rising demand for housing must be matched with rising supply, but under this Government house-building is at its lowest level since the 1920s.
“Unless George Osborne acts now to build more affordable homes, as we have urged, then soaring prices risk making it even harder for first-time buyers to get on the housing ladder. You can’t tackle the cost of living crisis without building more homes.
“Rather than waiting a year, the Bank of England should immediately review the details of the scheme. How can it make sense that a policy which should be about helping first-time buyers will allow taxpayer-backed mortgages for homes worth up to £600,000?
“And we need to know how much the Treasury intends to pocket in fees from people who take out Help to Buy mortgages. How will this money be accounted for in the public finances? George Osborne shouldn’t make struggling first-time buyers pay over the odds as he desperately tries to fill the hole in his failed deficit plan.”
So, what should now be done?
Recognise that there are problems with the hue and cry to build more houses, faster. The problems are twofold.
Firstly, as we all know, to build substantial numbers of houses takes time. This needs ‘forward’ planning. It simply cannot be done in an instant, or even in a year!
Secondly, however many houses are quickly built, they will only form a tiny percentage of the total number of houses already available and so can only have a tiny affect by lowering the prices paid for them.
Instead, the way to improve the market and in so doing, get fair prices for all is to change ‘the way’ houses are currently marketed by improving current methods.
The methods used by estate agents nowadays, have been used for several decades, without change, and understandably now need a radical shake-up.
Unlike the plan to build large numbers of houses very quickly, this could be done very swiftly.
“I forecast that by replacing traditional estate agents’ selling contracts with MCs, the housing market would quickly start recovering and the direct result of this would be, more builders starting to build more houses, as there would then be a ready market for them.”
Some More Recent Quotes:
Richard Lambert, chief executive officer of the National Landlords Association, said amount other things: “It is extremely disappointing to see The Coalition reduce the significance of housing within Government. Given the significant challenges facing households throughout the country, it is essential that housing takes centre stage in the political debate.” We agree.
And Andrew Tyrie, chairman of the cross-party Treasury Select Committee, said that ministers had failed to allay its concerns about the housing market. He warned that with the “chequered history of government interventions in residential property, great care will need to be taken”.
Also, ‘Help to Buy’ was labelled mad and “very dangerous” by the Institute of Directors.
We agree with this remark too, which then begs the question:
“Exactly what should be done, by whom, and when by?”
The answer clearly is: – The present government should bring in ‘Moving Contracts’ or ‘MC agreements’ to replace ‘Selling Contracts’ before the next General Election.
Here’s food for thought?
It’s definitely within the grasp of top estate agents to permanently improve the UK housing market now.
I’d certainly be interested in your thoughts and observations and would be happy to publish any that are constructive.
Peter Hendry, author of this report.
Recent online articles involving discussion amongst estate agents generally
Posted by: Peter Hendry, Housing Valuation Consultant