The Three Counties Case & The £177m Implication For OnTheMarket and Friends

Mar 23, 2015

The announcement of a substantial fine levied upon estate agents by the Competition and Markets Authority this week is significant. It could also read far, far wider than you might have initially thought.

£775,000 will be paid collectively by Three Counties Estate Agents Limited (the association); Castles; Hamptons; and Waterford’s (the agents) and Trinity Mirror (the publisher) for colluding to prevent the advertising of selling fees in the Surrey and Hants Star Courier over a nine year period or so. The findings by the CMA make it clear that such practices, in this case the prevention of consumers having visibility on estate agents’ pricing and the inability for new entrants to publicly undercut others, are unlawful.

When I learned of the outcome of this investigation, naturally it turned my thoughts to the grievance that I have raised against in a similar vein. Except that my complaint is a much larger, given the issue is national and affects many more agents and consumers than the Three Counties matter.

What’s particularly telling, using last week’s CMA conclusion as a handy industry applicable precedent, is that the fines imposed appear to follow the percentage of turnover (not profit, but turnover) remedy template, that the CMA is empowered to use in deciding the level of the fine. If you look closely at the breakdown of the penalty you’ll notice that Hamptons paid by far the most. This, it seems, is likely due to the size of its Countrywide owner in revenue terms.

The maximum fine that can be imposed is 10% of revenues. See Section 36 here

So, fast forward a few months and imagine that the CMA finds that OnTheMarket is guilty of anti-competitive behavior in banning online estate agents from its pages and imposing the ‘one portal rule’ on all its advertisers. It’s evident that OTM themselves could be in for a hefty fine. Based on 10% of what I’ve estimated to be their first year’s revenues, it could amount to a maximum of £2.3m.

But the very, very scary thought for the OTM founder agents is that they are also liable as mutual owners of the portal itself. In Savills’ case that’s a potential fine of £107m. Knight Frank £39m. Even the smaller Douglas and Gordon would see its profits wiped out with a charge of up to £2m slapped on them.

Now, I’m unsure whether the tentacles of the CMAs penal reach will extend to all of the member agents propping up OTM with their membership subscriptions. Being a mutual, it is very possible.

However just in the case of Savills, Spicerhaart, Strutt & Parker, Knight Frank and the rest of the original cartel of Agents Mutual instigators alone, I’ve calculated that the possible total fine that could be sought if the parties involved are proven as wanting as far as the Chapter One Competition Act provisions are concerned, is a whopping £177million. For publicly listed businesses such as Savills, this revelation could cause some consternation amongst shareholders.

I’d dearly love to know if such an eventuality was ever considered by the then Agents Mutual hierarchy? And whether the extent of this has been conveyed to all its participating agents? However I’m betting that such a situation has not been factored into each firm’s 2015 cash-flow.