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How four estate agents combined to keep a price-fixing cartel in place for seven years

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  • 28/01/2020
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Penalty payments, policing rivals, performance targets and monitoring meetings were all part of how a cartel of estate agents artificially held prices for seven years.

 

The competition regulator outlined the lengths the firms – Michael Hardy, Prospect, Richard Worth and Romans – went to in maintaining the arrangements which eventually led to them being fined a combined £600,000.

According to the Competition and Markets Authority (CMA) investigation, the difficult market conditions in 2007 and 2008 prompted a number of estate agents in the Berkshire area to discuss the need to increase commission fee levels.

In summer 2008, emails and meetings began between several estate agents in Berkshire with proposals to maintain a minimum fee of £2,500, a minimum commission of 1.75 per cent, and a multiple agency fee of three per cent.

A director of Prospect wrote in one email: “This is obviously not a cartel as the public has plenty of choice in terms of cheap, poorly-performing agents to go to. This is not a fixed fee either, but a minimum fee.”

 

The agreement

Eventually it was agreed between the four firms concerned that they would not charge below 1.8 per cent in the Wokingham area, which then expanded into further locations.

During the seven years the agreement ran, the minimum commission was adjusted in three of the locations: Wokingham started at 1.8 per cent, later 1.75 per cent; Winnersh was 1.8 per cent and later 1.75 per cent; Crowthorne was 1.7 per cent and later 1.5 per cent; Bracknell and Warfield 1.8 per cent all the time.

A director of Romans told the CMA: “As far as I can remember, the first meeting held between the four estate agents focussed on the Wokingham area, and going forward, Wokingham was always the nucleus of the arrangement, as it was where the four of us were the main competitors and had offices there.”

A meeting was then held with branch managers who ran the offices to understand “the four companies in the room were in agreement over minimum fee levels and that they needed to abide by the agreed fee parameters,” said a Prospect director.

“The branch managers understood the situation and raised no objections. They were to put the agreed minimum fee arrangement into practice.”

 

Policing and monitoring

Once the arrangement was in place, the four firms monitored and policed each other’s compliance with the system and regularly met to discuss the cartel’s operation.

Meeting appointments were put under different subjects in calendars “to conceal the true purpose of the meetings” which was to discuss the minimum fee arrangement, one Romans director told the CMA.

If there were queries about the fees charged, these were raised directly and addressed at these meetings.

Copies of the signed sales agreement were taken to meetings to prove either that the minimum fee had not been adhered to or that it had not been breached.

There were also occasions where questions about maintaining the fee would be resolved one-to-one, either by email, phone or in-person, if these involved only two of the parties.

One example of the system being policed was in January 2014 when Prospect launched a promotion which offered 30 per cent off its commission fees if the property was not sold or let within six weeks from marketing.

A director at Romans noted this “went against the spirit of the minimum fee arrangement” and it was discussed with Prospect, but it “was decided that as it was a short-lived offer we would just move on from it”.

The attempt to reduce the impact of competition on the market appeared to work as one email from a Prospect area manager noted: “We are sticking to the 1.8 per cent when we are up against Romans but when [two other estate agents] are offering one per cent then we are doing 1.5 per cent.”

A Prospect director also noted that a four-month zero per cent commission fee offer by an estate agent that was not party to the arrangement “could have an impact” on the fee agreement within Warfield and Brackell.

 

Penalty payments

A penalty payment mechanism was agreed for non-compliance from the start of 2011 to 2014 to maintain compliance.

Directors from the four firms all agreed that that if a participant in the minimum fee arrangement was found to have charged a commission below the agreed minimum then they would be obliged to make a payment to the estate agent who had lost out.

“I cannot recall who exactly came up with the idea, but we all agreed this at one of our meetings and we all thought it was a good idea,” a Romans director told the CMA.

 

Director performance objective

Maintaining the minimum fee arrangement, as well as seeking opportunities for similar arrangements in other areas with other agents, was made part of performance objectives between 2013 and 2014 for one director of Romans.

The CMA noted that copies of performance reports show that this objective was monitored on a bi-monthly basis between 2013 and 2014 in face-to-face meetings with another Romans director.

However, by early 2015 the arrangement was breaking down and the performance objective had been removed.

 

Competition breakdown

This, the CMA was told, came down to increased competition from new agents entering the market, both traditional and online.

One large estate agent was planning to open a Wokingham office with an expected zero per cent commission offer, as it had done in other areas.

Meanwhile, online agents who charged less than £1,000 per property were causing “downward pressure” on fees and the CMA’s prosecution of another estate agent cartel.

The CMA concluded that it “found that the clear objective aim of the minimum fee arrangement was to restrict price competition between the parties for the provision of traditional residential estate agency services” in the areas.

 

 

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