Estate Agents-(29.04.04)

The OFT sensibly decided that there was not much they could do about Estate Agents. They struggled to even come to any conclusions about whether there was any anti-competitive nature to the Estate Agency business. The key feature of the market that the OFT focussed on was as follows. First, that there didn't appear to be any price competition between agents in a local area on commission rates. This was independent of the number and size of competing firms. Second, the OFT was suprised that commission rates were higher for more expensive properties.

Although the conclusions of the OFT were probably about right, there are some simple and fairly obvious explanations as to why the market is as it is. Price competition is likely to be restricted where house sellers are actually making purchasing decisions based on qualitative rather than quantitative factors. In the case of Estate Agents this is the valuation, the ability to make a sale happen and specialism and knowledge about that area of the housing market. These factors are inter-related; specialist knowledge and a ready list of buyers for the street where the house is being sold result in an accurate valuation.

This also links into the reason why higher priced houses attract higher commission. The vendor is more concerned with having an appropriate buyer with a high gaurantee of completion than on comission rates. Similarly, the more expensive the house, the fewer buyers there are to match and the pickier that these buyers are. In this case it is the buyer that is displaying market power rather than the Estate Agents, but I doubt the OFT will start an investigation into that!