With all the recent political focus on letting agent fees and whether they should be banned, the issue of referral fees paid by conveyancers to estate agents has quietly reared its head.
In a new online thread relating to the Law Society Gazette, solicitors are wondering why such fees do not fall foul of the Bribery Act.
The answer is that while conveyancing fees are a very emotive subject, they are fine as long as they are not hidden (see the two links).
However, when putting together this report, Eye was startled to learn that it is not just referral fees from conveyancers that some agents take (we are talking about the large corporates here).
We are reliably told that they even dictate to their pet conveyancers which search company they should use, thus earning commissions from the search provider as well.
Conveyancers do not seem to do particularly well out of paying estate agents referral fees. However, if they provide their services in sufficient bulk, the business model clearly makes sense.
Not surprisingly, though, cost-driven conveyancers have to look at the bottom line. Understandably, they will use graduates to do the legwork.
Out of a £500 or £750 conveyancing bill that a consumer pays, £200 typically goes to the agent.
From the agent’s point of view, if the conveyancing service offered by one of the ‘bulk’ firms is no better and no worse than that offered by a local high street firm of solicitors, then why not take that £200?
The fact is that many agents, and not just the corporates, see conveyancing as a revenue stream and set targets for their staff.
One agent told Eye that in their time at a corporate business, there were particularly tough targets to meet (10% on top of banked income) on selling the ‘in-house’ conveyancing service.
Yet there were apparently many complaints about the service that was in fact provided by the panel of conveyancers used.
The oddity is that there is nothing wrong with letting agents’ fees to tenants as long as they are transparent and the agent complies with the Advertising Standards Authority ruling.
And, of course, so far there has been little media interest in the referral fees paid to letting agents by contractors, and the extent to which landlords know about these.
We fully realise we are playing devil’s advocate here but while everyone from Generation Rent to the Labour party is rounding on ‘hidden’ fees to tenants, we do wonder whether they are barking up the wrong tree.
Fees charged to tenants are not hidden at all, as long as agents comply with the ASA ruling. And after all, such fees usually genuinely cover costs such as independent inventories, which protect both tenant and landlord.
As usual, we would be very interested in your views.
http://www.sra.org.uk/solicitors/handbook/code/part3/rule9/content.page
http://www.lawsociety.org.uk/advice/practice-notes/publicising-solicitors-charges/
(see clause 3.4.1)
Comments (9)
Some interesting opinions. My view is that a free market is just that. What agents should be required to do is disclose the amount they will receive before the solicitor is instructed as, rather like tenant fees, this is at the point of a transactional making decision.
Likewise, I hear from some buyers that agents advise that the vendor will accept their offer provided a certain time-frame is met, and that this can only be met if they instruct the 'in-house' conveyancer.
No buyer should be coerced into using a firm on the basis such a decision may affect the outcome of their offer.
I am of the opinion that sometimes the amount a conveyancing firm earns net of the introduction fee is not always conducive to them being able to employ the best staff. Certainly with the complex leases with which we were faced in parts of London, inexperienced staff were a constant source of frustration to the other side.
In short, I feel agents should disclose anything which may affect a customers decision before they are bound by this decision.
Three of my Bold Legal Group member firms have commented:
1. “I recently spoke to an agent (large corporate firm) who apologised for the solicitors that were acting for the sellers. He said that he would never recommend them if he had the choice as they were very slow in actioning matters and dealing with post (I was finding that they would take at least a week to answer every letter/question and even then it was incomplete). He explained that he had no choice as his company insisted that they try to have clients and buyers use that firm as much as possible to benefit from the referral fees. Surely it is a breach of the agent’s duty to his client (the seller) if they are referring solicitors that they would not recommend if they did not receive a fee? In this instance they are recommending a firm even though they believe that they will not deal with the matter proficiently?”
2. “Referral fees are bribery and I will not pay them. If we cannot get referred on merit then I don’t want to be referred….. I have had certain EA’s, generally those tied in with xxxx, that tell me that they would really like to refer to me because even they cannot get to speak with their lawyers! However an individual referring to an outside lawyer would be “out of favour” with the hierarchy in the establishment.
As a potential buyer myself at the present time, it has been hinted to me that if I want the house of my dreams, then I need to be paying a “finders” fee to the agent – so they want it all ways, commission from the seller at anywhere between 1% and 2.5% of the sale price, a finder’s fee from the buyer in a similar percentage, and a referral fee from the law firm of nearly 30% of the fee actually received and the only person within the whole of the process who has to be qualified, regulated and have trained staff (5 – 7 yrs training not to mention ongoing experience) is the conveyancer!”
3. “We do pay referral fees to some estate agents – on the grounds that if we didn’t, one of our competitors would. We do not want to do this, and we do see them as something which should be banned across the board – at least then we would all have a level playing field.”
My personal view is that referral fees should not be banned as they will go underground as they were in the 70s (I recall brown paper bags full of cash being handed over!). They should be capped, at say 20% maximum of the conveyancers fee. If too much is paid, corners can be cut and staff levels may be too low. In addition, estate agent employers should not penalise staff if the recommendations they want to be made are not done so for good reason.
This issue does beg the question, if conveyancers charged/kept more could they take on less work and process the work they do have quicker?
One other thing, ampersat, I would say that the chain can also be as slow as the most complicated legal (or other) issue takes to resolve?
Please clarify the '10% on top of banked income' as someone not from a large corporate I would like to know what this is in the real world?
So is it the same rules for portals that send emails about other companies conveyance, insurance and other services. Maybe government should bring portals from the sidelines and apply on portals the same rules and regs agents run under. The size of some portals they must be making much much more than 1-2-3 branch agencies
The question may have merit if the client was likely to receive a lower conveyance bill as a result of the pay away being abolished. However I think we all know the answer, lawyer banks an additional £200. Please also bear in mind the client is free to use any lawyer they wish and the agent can only suggest, not force. So as long as it remains a matter of choice for the client then I think it is a non issue.
Surreymac is clueless to the problem. The lawyer is giving some of his fee to the agent, the agent is just a greedy little creep or large greedy corporate.
The people to blame are actually the lawyers themselves.
If they didn’t pay what can only be viewed as a bribe to the Agent they would not have any leverage. The average conveyance charges around 7-800 for a purchase or sale compared to 6-10 times that charged by the agent!
Estate agents are just house dealers, same as car dealers, shove a sign on for sale, stick an ad in the local rag, shove a picture on right move and that’s it apart from ironing an extra large collar and brushing some chicken fat through their hair. No university or college, no degrees (maybe a degree in poor dress sense) usually lacking in education generally.
There are agents in Brighton, especially the larger ones, that do force you to use their chosen solicitor and will not let you purchase unless you do. This is plain corruption and means that they are not marketing correctly for the seller who is paying them.
Conveyancing over the last 10 years has not even kept up with inflation. Email and lying estate agents, coupled with unrealistic client expectations has made conveyancing a thankless task.
Qualified legal executives and solicitors who practice conveyancing have worked for their qualifications and are the ones who ensure that the huge purchase of your home is all in order. Do you really think the agent gives a toss? The reason delays sometimes occur, is because the agent has mis-represented the property and the solicitor who is acting in your best interest by the way, is the only one to do so out of all parties concerned, has happened to ask a question of the other side who is a panel “lawyer” or monkey with headset! Wait a month for the answer as the monkey has to ask the one qualified person out of the 20 working on the panel and it all grinds to a halt.
So choose a local conveyancer who is recommended by a friend and never an agent. Call some for a quote and listen to what they say, you will get a feel for a good one. Refuse to use the agents preferred solicitor as they may be based 200 miles away from your property with no local knowledge at all.
Use cheap online conveyancing services at your peril and if you do so then you may as well get a will kit from WH Smiths whilst you are at it!
Once you find a good conveyance stick with them, they are actually a rare commodity these days.
A chain is only as fast as its slowest solicitor.
Fully accept the content of this article – what is missing however is the benefit of an agent increasing their control of a sale/chain by using an effective conveyancer, which often results in a quicker turn around? Surely a quick sale is all that the buyer and seller want? Fees are an emotive subject, but should not play as the main drive for the business. The clients should always come first…
AD, Respectfully a quick sale is all the agent wants.