Referral Fees Transparency

5th February 2019

The background:

In June 2018 a survey was launched by the National Trading Standards Estate Agency Team (NTSEAT) to assess the use of referral fees by estate agents. It was supported by the Property Ombudsman and the Property Redress Scheme, and came in the wake of the Government’s ‘Call for Evidence’ released in October 2017.  The survey was aimed at both the public and industry professionals, in order to gather views and opinions on how the home moving process could be improved.

When the government response to the consultation was published it highlighted transparency of referral fees and the various issues surrounding them. Chris Harris of legal magazine “Today’s Conveyancer” estimates that approximately 45% of all conveyancing transactions involve referral fee payments and if they are worth £200 on average this figure is roughly £100M per year appearing in the profit and loss accounts of many estate agents and panel managers. Many referral fees are much higher and this may be a conservative estimate.

Early this year many industry publications were debating a full ban on referral fees, following on from recent government decisions in a similar vein, such as the tenant fee ban.  At the time a Property Industry Eye article had quite a heated debate on the subject and some of the opposing views on a full ban made for interesting reading, here are some of the front-runners:

The arguments for and against, where do you sit?  Full article can be read here: https://www.propertyindustryeye.com/ban-on-referral-fees-paid-to-agents-on-cards-if-transparency-cannot-be-achieved/

Ban Referral Fees No Ban
Bribes are wrong. Fullstop. Referrals and referral fees can be found everywhere in every aspect of life in every sector! It’s how the world revolves.
If you wish to consider yourself a professional you should act in your client’s best interest without hiding anything, such as back-handers or referral fees. When an agent has a ‘strong bond’ with a good supplier of conveyancing and mortgage sources, they work hard together as a team.
If you give referral instructions to those providing the highest ‘reward’ it is wrong. Fall-through rates on house deals are massively influenced by ‘referring’ real professionals who charge fair fees and deliver outstanding customer service.
Greed is wrong – some agents are receiving ridiculous referral fees of £150 and above and that is a problem. If clients fully understand the amount of the referral fee being received and are happy with the arrangement, it is fine.
More transparency is needed so a client knows what percentage of their fee is going to the introducer. The solicitor absorbs the cost of the referral fee to get the business.
They should be completely banned. The referral fee shouldn’t come into it if you are doing right by your clients. As long as this is declared upfront then it shouldn’t pose a problem.
Paying large referral fees to agents from a conveyancing fee is close to criminal. A customer has the right to shop around, so why should a company who hands over part of that fee to an introducing agent be penalised?
Clients should know if you are recommending someone because they do a good job or pay you a fee for introductions. If a company paying a referral fee can charge a market level price then those that don’t are ripping customers off.
The client should be able to say “we don’t trust that referral cash trading relationship, we shall pick our own lawyers”. Referral fees cover much of the costs that a conveyancer would otherwise have to spend speculatively in order to win business.
Professional means if I  employ you I expect you to act in MY BEST INTERESTS, not dine out on back handers. A ban would only drive referral fees underground.

The current position:

Heather Wheeler, Minister for Housing and Homelessness, outlined the government’s position on 23rd January, whilst delivering a talk at the Critical Legal Conference, stating that she is still “concerned with the lack of transparency” around referral fees.

She confirmed, however, that the Government stance at this time is that estate agents will need to be ‘upfront’ with their clients regarding referral fees and all buyers will need to be aware of any panel of conveyancers used and the cost applied to them if they use a recommended conveyancer.  Published guidance will be available in February for estate agents on this issue.

So, for the time being there is a small reprieve and all estate agents are urged to be transparent about their referral fees and empower their clients to choose their own conveyancing provider if the fee is not acceptable. It is hoped that this additional information for clients will change behaviour and a entire ban will be off the cards.  The ball, for now, appears to be in the estate agency court!

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