Conveyancing Services Regulation in Europe Presentation at DG-Competition: The Economic case for professional services reform December 13, 2006 by Christoph.

Conveyancing Services Regulation in EuropePresentation at DG-Competition: “The Economic case for professional services

reform”December 13, 2006

by

Christoph U. Schmid (ZERP, University of Bremen) Gabriel S. Lee and Steffen Sebastian (IREBS, University of Regensburg)

Marcel Fink and Iain Paterson (IHS, Vienna)

PTV 250K Vs Regulation Indices

SE

FI

EW

SC

IRDK

NL

CZ AT

DE

ES

FRBE

SL

IT

PL

GR

HU

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 2 4 6 8 10 12 14 16 18 20

Regulation Index = MERI + MCRI + MII

Per

cent

age

of L

egal

Fee

s to

Hou

se V

alue

Actual valuesPredicted Value

R2 = 0.30

R2 = 0.48 without HU

Objectives

• To analyze the relationship between professional legal fees

and legal systems for real estate markets

NordicNordic LawyerLawyerNetherlandsNetherlands

NotaryNotary

Objectives

PTV 250k Vs Regulation Indices by Legal Systems

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

0 2 4 6 8 10 12 14 16


Pe

rcen

tag

e o

f L

eg

al

Fee

s t

o H

ou

se

Va

lue

Actual Values

Predicted Values

R2 = 0.75

Nordic

Lawyers

Netherlands

Notary

Objectives

• German Case Study:

• To empirically analyze entry effects on competitive conduct (markups) of notary profession in Bavaria, Germany.

• To estimate changes in markups of existing firms when

additional firm enters.

• To estimate changes in geographic coverage when

markups change.

Outline

• Regulation Indices• Market entry regulations (MERI) • Market conduct regulations (MCRI)• Mandatory Intervention Index (MII) • Consumer Protection Index (CPI)

• Market Outcomes: Transaction Costs• Legal Costs

• Regulation Indices and Market Outcomes

• German Case Study: Bavarian Notary Profession

Regulation Indices

• Qualitative information on regulation in form

of quasi-quantitative measures.

• Four regulation indices for each state and

each profession providing legal services

in the conveyancing process.

• Each index has a range of “0” (no regulation)

to “6” (highest grade of regulation).

Regulation Indices

• Market entry regulations (MERI)

• Quotas or economic needs tests (50% weight)

• Licensing rules (exclusive and shared exclusive

tasks) (25% weight)

• Professional education requirements (25% weight)

Regulation Indices

• Market conduct regulations (MCRI)

• Rules on fees/prices (50% weight)

• Location and diversification, on form of business, and

on inter-professional co-operation (each 11%: 33%

total weight)

• Restrictions on advertising (17% weight)

Regulation Indices

• Mandatory Intervention Index (MII)

• “0”, if no mandatory intervention applies

• “2”, if a mandatory intervention is necessary for a

certification of signatures only

• “4”, if further tasks have to be handled by one

professional in the conveyancing process on a

mandatory basis

• “6”, if more than one professional have to be

consulted

Regulation Indices

• Consumer Protection Index (CPI)

• “Compulsory indemnity insurance” the highest weight

(38%)

• Conduct/quality control (25%)

• Continuing education (25%)

• The obligation to provide services (12%)

Regulation Indices

Overall regulation indices for legal services in conveyancing: four “worlds of regulation”

Group MERI MCRI MERI MII MERI CPIMarket Market +MCRI Mandatory +MCRI ConsumerEntry Conduct Intervention MII Protection

N Greece 6,0 6,0 12,0 6,0 18,0 2,6Portugal 5,0 6,0 11,0 4,0 15,0 3,0Belgium 5,7 5,0 10,7 4,0 14,7 4,5Poland 5,6 4,7 10,3 4,0 14,3 3,0France 5,1 5,2 10,3 4,0 14,3 5,3Germany 5,7 4,5 10,2 4,0 14,2 5,3Italy 5,4 4,7 10,1 4,0 14,1 6,0Spain 4,8 5,2 10,0 4,0 14,0 4,5Slovenia 4,9 5,0 9,9 2,0 11,9 5,3Austria 5,9 3,2 9,0 2,0 11,0 6,0Average 5,4 4,9 10,3 3,8 14,1 4,5

D Netherlands 1,9 1,2 3,1 4,0 7,1 6,0Average 1,9 1,2 3,1 4,0 7,1 6,0

L Hungary 3,3 2,3 5,6 4,0 9,6 3,5Czech Republic 3,8 3,6 7,4 0,0 7,4 4,1Scotland 1,9 1,0 2,9 0,0 2,9 5,3England/Wales 2,0 0,7 2,7 0,0 2,7 4,3Average 2,7 1,9 4,6 1,0 5,6 4,3

S Denmark 2,0 0,8 2,8 0,0 2,8 3,8Sweden 1,2 0,0 1,2 0,0 1,2 4,5Finland 0,5 0,7 1,1 0,0 1,1 5,3Average 1,2 0,5 1,7 0,0 1,7 4,5

Market Outcomes: Transaction Costs

• Total Transaction Costs (nominal)

• EU average: 9.8% of 250k€ property value

• 3% - 7% : Czech Repulic, Denmark, England, Ireland, Scotland,

Slovenia and Sweden

• 7% - 10% : Finland, Germany, Italy and the Netherlands

• 10% - 15% : Austria, France, Hungary and Poland

• 15% above : Belgium, Greece and Spain


• Professional Fees (nominal)


• 1% - 3% : England, Ireland, Scotland, Poland and the

Netherlands

• 3% - 5% : Begium, Czech Repulic, Denmark, Finland, Germany,

Slovenia, and Sweden

• 5% - 9% : Austria, France, Greece, Hungary, Italy, and Spain


• Legal Fees (nominal)


• 0% - 0.4% : Czech Republic, Denmark, Finland and Sweden

• 0.4% - 1.0% : Austria, England, Germany, Hungary, Ireland, the

Netherlands, Poland, Scotland, Slovenia, and Spain

• 1.0% and above : Belgium, France, Greece, and Italy


Legal Fees for Conveyancing (including 100% mortgage)

(excluding Greece)

0 €

1,000 €

2,000 €

3,000 €

4,000 €

5,000 €

6,000 €

7,000 €

Nethe

rland

s

Czech

Rep

ublic

Englan

d

Scotla

nd

Irelan

d

Hunga

ry (s

olicit

or)

Poland

Germ

any

Sloven

ia

Spain

Austri

a

Franc

e

Belgium Ita

ly

Sweden

Finlan

d

Denm

ark

100,00 € 250,00 € 500,00 € average transaction price (for the respective country) indexed fee for average transaction (price index)


Comparison of legal fees (Unadjusted)by regulatory

system

0 €

500 €

1,000 €

1,500 €

2,000 €

2,500 €

3,000 €

3,500 €

100,000 €

250,000 €

500,000 €

NordiclawyerNetherlandsnotary


Legal fees as percentage of transaction value (unadjusted)

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

100,000 €

250,000 €

500,000 €

England

France

Germany

Italy

NetherlandsPol

andScotl

andSp

ainSwe

denFinl

and


Legal Fees Adjusted by Net Earning factor for Selected Countries

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

100,000 €

250,000 €

500,000 €House

Values

Per

ce

nta

ge

of

Le

ga

l F

ees

to

Ho

use

Va

lue

s (

Ad

jus

t fo

r n

et

inco

me

e

ffe

ct)

England

France

GermanyI

talyPol

andS

painSweden

Netherlands

Finland


Legal Fees Adjusted by Net Earning Factor by Legal Systems

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

100k

250k

500kHouse

Values

Per

ce

nta

ge

of

Le

ga

l F

ees

to

Ho

use

Va

lue

s (

ad

just

ed

fo

r n

et

inco

me

e

ffe

ct)

NordicLawyerNetherlandsNotary

Legal Fees and Regulation Index

Legal Fee as Percentage of Average Country-specific Residential House/Apartment Price

- by CountriesR2 = 0.2363

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0


Pe

rce

nta

ge

of L

eg

al F

ee

s to

Aa

ve

rag

e H

ou

se

Pri

ce

HU IT

DK

SC

EW

CZ

SE

FI

SI

FR

BE

ATNL

PLDE

ES

GR


• The result of this analysis is straightforward:

• A clear positive correlation between the level of regulation and

the percentage of transaction value taken by legal fees.

• There are some countries with high regulatory indices and

rather low cost percentage values (ES and DE).

• BUT, no countries with low regulatory index values and

high costs.



- by Legal SystemR2 = 0.9028

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0


Pe

rce

nta

ge

of L

eg

al F

ee

s to

Aa

ve

rag

e H

ou

se

Price

Notary

Netherlands

Lawyer

Nordic


• The correlations between the regulation indices and legal

systems.

• The relationship between the two variables is even closer: the

correlation values are 0.75, 0.84 and 0.91 for the house values

of 100k, 250k and 500k.

Case study for Germany: Entry and Competition for Bavarian Notary Profession

By Gabriel S. Lee

Objective

To empirically analyze entry effects on competitive

conduct (markups) of notary profession in Bavaria,

Germany.

• To estimate changes in markups of existing firms when

additional firm enters.

• To estimate changes in geographic coverage when

markups change.

Bavarian Notary Profession

Number

of

Notaries

0 1 2 3 4 5 6+ Total

Number

of

Districts 12 22 25 21 8 5 3 96

Number of notaries per District

• Geographic restrictions

• Additional notary office is based on previous number of

cases + other demographic and economic factors

What is an Entry Model?

• Relates the number of existing notaries to

demographics (population size) and other

economic factors (income, unemployment,

demographic profile, housing information.

– If population size is a proxy for the market size, then

one could measure the necessary market size (a

reduction in net markups) to sustain an additional firm

entry.

Data Information

Variable Description Mean Std. D.

# notaries Number of notaries per district 2.60 4.36

ln(population) Logarithm of number of population 11.59 0.53

% pop. 25 – 40 Fraction of population age between 25 - 40 19.90 1.46

% unemployed Fraction of population between 17 and 65, that is unemployed 8.56 3.01

% change in Houses

Percentage change in the number of houses between 1995 and

2003 11.02 3.72

mean income Mean Income per capita (in €1000) 58.71 8.81

Data Information

0

2

4

6

8

0

100000

200000

300000

400000

500000

600000

10 20 30 40 50 60 70 80 90

Number of Notaries Population (market size)

Population (F

irst Approxim

ation of Market S

ize)N

umbe

r of

Not

arie

s

Number of Districts by population and notaries

Correlation (notaries, population) = 0.86

Empirical Results

Number of Existing Firms to

addional firm

Net Markup Lose to Existing Firms

1 to 2 53%

2 to 3 78%

3 to 4 116%

4 to 5 75%

5 to 6 186%

• Net Markup Changes for Existing Notary

Empirical Results

Reduction in Net Markup for

Existing Firms

Total Number of Districts with at

Least one notary

82 (Actual number from the data)

10% 90

20% 88

30% 87

40% 81

• Geographic Coverage with reduction in markups

Summary of our results

• A clear positive correlation between the level of regulation and the percentage of transaction value taken by legal fees

• High levels of regulation go hand in hand with high fee levels whereas low levels of regulation are associated with low fee levels.

• For Bavaria, • There exist high net markups for the existing firms: from 53% -

186%• No negative effect on the geographic coverage even if there is a

reduction in net markups.

Some Final Remarks

• Market works! Why not give it a try!

• There still plenty of profits to be made even with

competition

• Instead of markups, why not go for Volume!

• Frictions in any market can’t be good• Reductions in transaction costs play a major role in the

development of real estate markets as well as the whole economy• See the U.S., U.K.

Thank you !

Back ups

Show these if necessary

Total Transaction Costs for Conveyancing 250,000 € sale price

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Austria CzechRepublic

England France Greece Ireland Netherlands Scotland Spain average

real estate agent technical services legal professionals land register transfer tax

Professional fees for transaction of 250,000 €

0

5000

10000

15000

20000

25000

Austria CzechRepublic

England France Greece Ireland Netherlands Scotland Spain average

real estate agents technical services legal professionals


Legal Fees for Conveyancing (including 100% Mortgage)

0 €

2,000 €

4,000 €

6,000 €

8,000 €

10,000 €

12,000 €

14,000 €

Nethe

rland

s

Czech

Rep

ublic

Englan

d

Scotla

nd

Irelan

d

Hunga

ry (s

olicit

or)

Poland

Germ

any

Sloven

ia

Spain

Austri

a

Franc

e

Belgium Ita

ly

Greec

e

Sweden

Finlan

d

Denm

ark

100,000 € transaction value 250,000 € transaction value 500,000 € transaction value average transaction value in this country


Development of Legal Fees for Selected Countries (Unadjusted)

0 €

1,000 €

2,000 €

3,000 €

4,000 €

5,000 €

6,000 €

7,000 €

100,000 €

250,000 €

500,000 €

Netherlands DEngland LScotland LGermany NSpain NFrance NItaly NSweden SPoland NFinland S


PTV100k Vs Regulation Index

SEFI EW

SCIR

DK

NL

CZAT

SL

DEES

FRBE

PLIT

HU

0.00

2.00

4.00

6.00

8.00

10.00

12.00

0 2 4 6 8 10 12 14 16 18 20


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ue

Actual Values

Linear (Actual Values)

R2 = 0.10


GR


PTV 250K Vs Regulation Indices

SE

FI

EW

SC

IRDK

NL

CZ ATDE

ES

FRBE

SL

IT

PL

GR

HU

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 2 4 6 8 10 12 14 16 18 20


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ue

Actual values

Predicted Value

R2 = 0.30



PTV 500k Vs Regulation Indices

SC

EWSE

FIDK

IR

CZNL AT

SL

DE

ES

BE

FR

IT

PL

HU

GR

0

0.5

1

1.5

2

2.5

3

3.5

4

0 2 4 6 8 10 12 14 16 18 20


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ue

Actual Values

Predicted Value

R2 = 0.34



PTV 100k Regulation Indices for Legal Systems

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0 2 4 6 8 10 12 14 16


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ues

Actual Values

Predicted Values

R2 = 0.75Notary

Laywer

NetherlandsNordic



0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

0 2 4 6 8 10 12 14 16


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ue

Actual Values

Predicted Values

R2 = 0.75

Nordic

Lawyers

Netherlands

Notary



0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

0 2 4 6 8 10 12 14 16


Per

cen

tag

e o

f L

egal

Fee

s to

Ho

use

Val

ue

Actual Values

Predicted Values

R2 = 0.91

Nordic

Lawyers

Netherlands

Notary

0

500

1000

1500

2000

2500

3000

3500

average price adjusted

100.000 € 250.000 € 500.000 € absolut fee price level

Nordic

law yer

Netherlands

notary

Back Ups

Legal Fees for Different Legal Systems

0

500

1000

1500

2000

2500

3000

3500

average price adjusted

100.000 € 250.000 € 500.000 € absolut fee price level

Nordic

law yer

Netherlands

notary

Back Ups


- by Countries

R2 = 0.2363

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

3M = MERI + MCRI + MII

PT

V-A

HP

HU IT

DK

SC

EW

CZ

SE

FI

SI

FR

BE

ATNL

PLDE

ES

GR

Back Ups


- by Legal System

R2 = 0.9028

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

3M = MERI + MCRI + MII

PT

V-A

HP

Notary

Netherlands

Lawyer

Nordic

Conveyancing Services Regulation in Europe Presentation at DG-Competition: The Economic case for professional services reform December 13, 2006 by Christoph.

Documents

regulation index slide

weight slide

worlds of regulation

spain slide

lee slide

vienna slide

level of regulation

professional legal fees