Estate agents should disclose referral fees upfront to both buyers and sellers, including – for the first time – the actual amounts and who the arrangements are with.
Agents should make the disclosures, in pounds and pence, at the first possible opportunity.
This will be in the form of terms and conditions to sellers, and in the particulars to make potential buyers aware.
New guidance from the industry regulator, the National Trading Standards Estate Agency, apparently relates only to estate agents, as NTSEAT does not regulate letting agents.
However, because letting agents are also bound by the Consumer Protection Regulations, NTSEAT told EYE that the new guidance also essentially applies to them as well as sales agents.
NTSEAT will be tracking progress in updates to government ministers, ahead of a possible outright ban on referral fees if the industry fails to put its own house in order.
The new guidance spells out the potential dangers for agents who breach Consumer Protection Regulations or the Estate Agents Act.
“Failure to disclose referral arrangements may render an estate agent liable for criminal prosecution under the CPRs and/or action by NTSEAT for warning or prohibition under the Act.
“Ultimately, only a court may decide whether any particular set of circumstances amounts to a breach of the CPRs. However, NTSEAT offers the following recommendations as a statement of desirable practice:
An estate agent should disclose in plain terms
(a) The price of its services, including any “compulsory” extras; and
(b) Where a referral arrangement exists, that it exists, and with whom; and
(c) Where a transaction-specific referral fee is to be paid, its amount; and
(d) Where a referral retainer exists, an estimate of the annual value of that retainer to the
estate agent or its value per transaction; and
(e) Where the referral is rewarded other than by payment, an assessment of the annual value
of the reward or the value of the reward per transaction.”
Disclosures must be made in writing to a seller as part of the terms and conditions, and to buyers by being incorporated into, or annexed with, the property particulars.
The new guidance also defines referral fees as being where an agent recommends another business to a seller or buyer, and that business rewards the agents for the referral.
The reward does not have to be pecuniary – for example, it might be hospitality, tickets to events, contributions to the agent’s children’s school fees, or bottles of Champagne at Christmas (an example actually cited) – but the agent should still declare the referral arrangement and try to quantify it.
The advice documentation also includes a pro-forma which it is strongly recommended agents use to declare referral fees.
The disclosure form makes it obvious to consumers that they are not under any obligation to use the suggested business.
The advice was put together with the help of the Property Redress Scheme, TPO, Propertymark, RICS and marketing group the Guild of Property Professionals.
The guidance follows a warning from housing minister Heather Wheeler that referral fees could be banned if transparency is not achieved by the industry.
James Munro of NTSEAT said: “It is important for customers to be aware of any referral fees that an estate agent is receiving for recommending a service such as conveyancing, legal services or other connected service, so that they can make an informed decision about whether to take up the offer or shop around.”
Mark Hayward, CEO of Propertymark NAEA, said: “We have long called for greater clarity and transparency on referral fees. The guidance is a triumph for consumers and an important move in improving the house buying and selling process.”
Hayward told EYE: “NTSEAT is absolutely categoric that the sector can achieve transparency within 12 months; if not the Government will seek to ban all such arrangements.”
He added: “We have negotiated an opportunity for the sector to avoid an outright’ban unlike tenants fees but with clear implications if the industry seeks to be ‘creative’ or just ignores the guidance.
“In addition NTSEAT is actively encouraging whistle blowing by the compliant on those who are not.”
The full advice is here:
https://www.nationaltradingstandards.uk/site_assets/files/Guidance%20for%20EABSs.pdf
Comments (18)
Every dog has its day
I say this as a conveyancing solicitor of over 30 years standing but not ever having paid a referral fee and now witnessing all the squirming and wringing of hands
“The referral fee only becomes an issues if referred solicitor is rubbish” Had to check it wasn’t April 1st. The referred “school leaver” is always rubbish. That’s the business model. The referring estate agent doesn’t care as long as he/she gets the kick back
This might be true with faceless Companies but it’s absolutely not true for us. We only refer to 3 local solicitors (referral fees of less than £100 and similar savings for clients) and can state quite honestly that this is a recommendation based on service and that there is no benefit for anyone using rubbish solicitors. I’ll start declaring the actual amounts straight away but I will also say that our clients are offered a reduced solicitors fee because the solcitors value our business and I will keep evidence of this.
Thankfully it’s a non-issue for my business as I don’t do “referral fees/gifts/school fees etc” (really? school fees!! I must be living/working in Lapland).
However, any legislation needs to be equally applied across all business sectors.
…..and applied to the Government/Ministers etc, re “any type of benefit/payment or gift received” ….for any type of “business/service/consultancy work referred/awarded/tendered for”.
I can’t imagine how those “wheels are oiled” in the stratosphere of Government/Contractors/Service Provision etc.
I’m daft obviously as I just charge a fee for my services and don’t engage in “an exchange of greasy palms”.
Now when I take my GoodLady for Dinner or buy her a Gift she’ll need to fill in a form stating the “benefit received” (don’t go there!) plus of course a section on the form to complete where she can apply for some form of Government Compensation of having to live/put up with me.
Siri/Alexa? WTF!
Is this why Kenny Bruce is on the next plane over to the UK?
I wonder how PB will cope with this because if they add their eye-watering conveyancing referral fees or ‘administration’ fees for non-use to their quoted fees are they likely to fail so much quicker?
Looking forward to seeing how money PB make as a whole from all their combined conveyancing referral companies not as individual LPE’s as they do not get the lions share of income?
Is Kenny PB’s ‘creative’ Director?
Would this transparency help the independent sector more as they are less likely to recommend the factory type conveyancers who pay much higher referral fees?
As Chris Wood and others have said previously. Popcorn out.
PS. Perhaps PB should also promote the total value of fees paid from users who failed to move as a consequence of their endeavors as these customers are likely to have to ‘refer’ themselves to proper no sale, no fee estate agents as once bitten twice shy?
The first to comply will have to be the corporates and online agents as they are sitting ducks – this should be interesting !
Maybe they should also show the fees they have to pay to the portals as well to even things up!
Next year they will include wanting you to register who sent you a Christmas card and what salary you paid yourself.
Yes I’m so happy I sold my business too, these idiots that run Tpo, Nseat etc do so because they can’t or couldn’t any longer walk the walk but my God, can’t they talk and bully under the canvass of “improving the house selling process”. Good luck all those left sailing in her, the rats left to run the governing bodies.
Please help me out here……. Why are the government not ‘going after’ funeral directors for their florist and car referral fees? Why are they not ‘going after’ wedding venues for their ‘catering referral fees? Referral fees are part of business life if they legislate it out of our sector they would be showing gross bias if they don’t take action in all sectors.
I’ve often wondered that. Maybe it’s because Housing is firmly on the Agenda and changes can win political votes. If only people knew about them…..
Solicitors unlike CILEx and CLC (as we are regulated to a far higher standard for the public’s protection) are already obliged to have a written agreement with estate agents whereby the estate agent disclosed upfront the referral fee. So making estate agent disclose, would also cover CILEx and CLC.
However, as we can all think of, there are many many ways to pay an estate agent a ‘referral fee’ (e.g paying them an overinflated £Xk a year for an advert in their magazine or website) and so a ban on referral fees will simply fail unless it is as prescriptive as saying
“no business offering conveyancing services may pay to the estate agent ANY financial payment to an estate agent whatsoever, not even the payment of the estate agent commission [which will now be the responsibility of the seller]”
But will that happen? Of course not, so referral remuneration will carry on.
Posted this on another thread but more apt on this one.
So what happens if PB buy/merge with a major conveyancing business?
Would you only have to declare a much smaller LPE referral commission then?
Coincidence?
https://www.propertyindustryeye.com/mega-merger-of-conveyancing-firms-will-create-stand-out-powerhouse-market-leader/
Good luck enforcing this. More regulations the public have no awareness of and probably if they are honest dont really care about. The referral fee only becomes an issues if referred solicitor is rubbish.
Housing laws 2022 – Estate agents must sell properties for free and wherever possible pay clients for their instructions.
As ever, spot on ArthurHouse02.
Consumers are only being ripped off when agents are referring lawyers who they know are substandard but are forced to by their management. Not only is this a clear conflict of interest but is also illegal under the Bribery Act.
True but they have made it clear that if it doesn’t happen then there will be a complete ban.
Another nail in the coffin. So glad I sold up. Pity those independents whose livelihoods are coming under increasing threat every day.
The estate agency business is going to have massive change in the next three years and a huge cull is on the cards. Sad.
Whilst there doesn’t appear to be a start date the Guidance does say: “Compliance should be seen as an immediate priority.” It will be interesting to see how this plays out. Will the public baulk at agents receiving part of the conveyancers (and others) fee, will the majority of agents comply, or will there be a complete ban on referral fees imposed this time next year?
Here goes, 4 received from grateful window cleaner
http://plonkreview.blogspot.com/2012/04/tesco-value-bitter.html