Please Note: This Article is 9 years old. This increases the likelihood that some or all of it's content is now outdated.

Despite a report from the Royal Institute of Chartered Surveyors (RICS) this month claiming that in July UK house prices grew at their fastest pace since 2006, after a fourth consecutive month of gains country-wide, the number of estate agents entering insolvency has shot up.

With an increase in insolvencies at around 57 per cent in the past 12 months to the end of June being reported, clients of estate agents and letting agents need to be wary.

It seems the recent pickup in the housing market has come too late for many agents who have just struggled on for too long in a market with low sales volumes.

Fewer successful sales inevitably resulted in increased competition between firms and even as many diversified into lettings and management, this was not enough to save them.

Although London agents have been helped by a generally buoyant sales and lettings market, with higher property prices and constant demand for houses and flats, particularly in central London, this has not been the case across the country as a whole.

The agents’ situation has been exacerbated somewhat by competition from the Internet as the general need for high street estate agents’ local expertise has been diminished by online property portals such as Rightmove and Zoopla. These websites now allow instant access for buyers and sellers to gain independent market information, making it more difficult for agents to compete.

The same goes for lettings, with more on-line letting agents such as Upad and providing a comprehensive on-line service to landlords. These companies often have lower overheads than those agents with a high street presence paying retail property running expenses.

With many families struggling to make ends meet in the recession, being forced into a position where they are desperate for a very quick sale, predatory companies have emerged which target these vulnerable owners.

These operators are distorting the market and putting even more pressure on genuine estate agents as these shady operators drive down sales prices, in extreme cases, by as much as 50% of the true market value. These practices have now attracted the attention of the Office of Fair Trading following their previous crackdown on sale and rent back companies. These below market value sales deals are often based on practices of a similar unethical nature.

The situation has implications for landlords who use struggling agents. When financial times are desperate, many agents will be tempted to use rents and deposits they are collecting on behalf of their landlords for working capital. When agents go bust in these circumstances, not only do landlords lose their rental income owed, they are still liable to repay back to tenants the deposits lodged with their agents.

Commenting on this risk to landlords, one industry expert has suggested that landlords need to do financial checks on agents similar to those they do on tenants, before engaging them to manage their properties. They should, he suggested, search out agents who are members of one of the recognised professional associations.  These agents can offer some protection in terms of insurance bonds and codes of professional conduct, which they are required to provide.

By Tom Entwistle

Please Note: This Article is 9 years old. This increases the likelihood that some or all of it's content is now outdated.


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