It is no surprise that an enforcement agency such as the National Trading Standards Estate And Letting Agency Team would want to see mandatory disclosure of referral fees by estate agents. They are an entity that purely exists on the basis of policing rules and so the more rules the better from their point of view, I guess.
The headlines grabbed by the NTSELAT’s advice to government this week though, may portray a sense of compulsion – that this recommendation is now a requirement whereas, for now, it is merely a recommendation by this one body.
The rationale of the NTSELAT is that the consumer is better protected by such transparency in that if you as a home buyer are told that the agent is earning a referral fee from introducing you to a conveyancer or mortgage broker, you are able to utilise maximise scepticism in your choice as to whether to engage that recommendation or not. Transparency is important, yes. But before the government accepts a somewhat Big Brother approach from NTSELAT there are some things to consider:
Firstly, the consumer is not naïve. They realise that a recommendation means favour and that favour means commercial advantage. They’ll already be filtering an agent’s introduction with a degree of open-mindedness.
Secondly, an introduction does not bar the consumer from shopping around still. A referral is certainly not a diktat and consumers understand this.
Third, introductory commissions are not dirty. In fact, many businesses are built on this approach and research suggests that the consumer does not care – precisely because they deem themselves intelligent enough to understand what’s going on. Mobile phone companies, holiday firms, comparison websites, insurance cross-selling, car sales financing etc etc… these all exist on the basis of inter-dependent referral commissions.
Fourth, I have to ask whether this initial push by the authorities is a slippery slope? What I mean is that today’s transparency becomes tomorrow’s cap – what’s to stop NTSELAT and government deciding arbitrarily that, say, £200 in conveyancing referral fee is ‘too much’? If we get to that stage then we surely have to ask ourselves what happened to our free-market economy?
Fifth, enough already. The property industry has been bashed relentlessly in past years – Section 21, tenancy fee bans, stamp-duty hikes, stamp duty penalties for investors and foreign buyers, tax relief removal. For a government that says it understands the importance of a healthy property market underpinning the wider economy especially right now, it has a funny way of showing it.
At a time where international corporations don’t pay their fair share of corporation tax, MPs seem to believe they are above the law and tends of thousands of homes lay worthless several years after Grenfell because the government has not got its act together to make these homes safe, aren’t there other more important things to focus on financially than pulling the rug further from our industry?
Alas, if James Munro at NTSELAT gets his way and manages to over-regulate the legitimate earning power of estate agents in their quest to assist their customers with parallel services, we will be ready. Our platform has been built to seamlessly introduce ancillary services and revenue to agencies’ contacts and we are already able to ensure that the 100% of fees that we earn are passed on to the agent and that this is documented transparently for the consumer to see, if this step becomes necessary.
The question is, should it be necessary at all and should the authorities continue to squeeze estate agents until the pips squeak at the same time as nannying the consumer to a such an unnecessary and ridiculous extent?
Adam Pigott is an estate agent veteran of many years and CEO of OpenBrix.
Comments (27)
The client gets the Client Care Letter at the outset and it must contain details of any referral fees paid for the instruction. The client is able at that point to withdraw if they wish.
David (above) does not make it clear when such a referral fee is paid. By implication their Client Care letter states it has already been paid. That seems odd. When do their clients get to see this letter? is it only after a client has committed? Nonetheless I accept the higher standard and general transparency from conveyancers. The problem lies with agents lining their pockets with neither standards they feel obliged to follow nor a willingness to be transparent to consumers.
What is also very odd in this debate is that the law firms already have an obligation from their Regulators to include the details of the referral fee in their Client Care letter – i.e. that a fee has been paid to X for the referral – so the fee is not hidden.
I don’t understand the objection to transparency. A hidden referral fee simply becomes a sly back hander in the eyes of the consumer. Agents should be giving unbiased professional advice to clients. Not advice secretly driven by who pays the most.
‘Not advice secretly driven by who pays the most’.
And there lies the problem with secrecy of referrals and for some would be very embarrassing if the consumer ever found out.
“trifling issue of referral fees”
What better comment could we have from a conveyancer to demonstrate the collective “snouts in the trough” mentality whereby consumers, in their ignorance, have to live with second rate service. NB this is not directed at this correspondent’s company specifically. If agents want to offer a service whereby they can be seen to act in the best interest of their clients at all times, there is no room for referral fees without complete transparency.
Why else would there be such obvious efforts by some of the major players to disguise or hide their relationships ? How many agents would dare tell their potential clients the proportion of their income from sales by comparison to their referral commission, or the proportion of time the sales staff are having to focus on meeting their referral targets ?
There are some great examples here of the kind of Dickensian attitudes from conveyancers that are much more problematic than the trifling issue of referral fees. I stand by my comment that in nearly all cases the interests of law firm, estate agent and client coincide. A good lawyer must always think about the worst case scenario but that does not mean that they treat every case as if it IS the worst case.
Why does paying a referral fee to the recommending party helps with alignment of interests ? Its almost like saying that without the fee the interests do not match up ? I dont understand
like most things … the greedy few have ruined it for the honest many
I am not sure this is correct. Firstly, let’s remember that we lawyers are on the same side as the agents (and indeed the client) in wanting the transaction to be progressed as quickly as possible. The examples of genuine conflict of interest are rare and, naturally, any law firm that was prepared to prejudice a client for their relationship with the agent would not deserve to continue in business. Alan is quite right about some of the panels though where the amount taken out is unacceptable. Interestingly if you look at the panels run by the big 3 estate agency groups, they do not succeed in steering the customer to the panel solicitor in about 50% of cases. The local agents vote with their feet and will not recommend a bad law firm whatever the orders from on high. Leaving the big panels aside, I do not see a wider industry issue here: this is very small beer.
You are not sure my comment is correct? Well I wouldn’t have gone to the trouble of writing it were it not. In fact you only seem to have thought of clients best interests as an afterthought by putting them in brackets. We act for clients on their instructions. If those instructions are to go slowly or put a hold on matters for a few weeks we do it. That may not be in the best interests of an Agent who wants a transaction through asap to get paid. But that is not our problem, we DO NOT ACT FOR THE AGENTS, NOR ARE WE NECESSARILY ON THE SAME SIDE. I don’t even fully understand what that comment means, or how anyone who is a passionate true conveyancer who puts his clients first can say that?
Plenty more examples where the one I quoted came from. I stand by what I said above, if you have any queries contact me directly.
Well said indeed Alan
I could write so much about this to show that referral fees are an evil to be purged, but that would take too long. I note also there is little acknowledgement of the fact that referral fees are bad for clients. Barely a mention of the consumer in fact, who should be the number one priority in all this.
Clearly the original article was written by someone who has never worked as a conveyancer for any period of time, and is trying to defend them from an Agent’s side of the fence. There is a very good article to be written on the subject of referral fees, particularly in reference to those Companies who exist on them as “middle-men” buying and selling clients. One day someone will write that article correctly.
To make some quick points. Firstly consumers are naiive. Particularly first time buyers. They are precisely the type of purchaser who should not be guided to bad Lawyers simply because of the fact they are paying more to the Agents than to the local High Street Solicitor. If clients were not naiive, the factories would not exist. Because nobody who has any knowledge of the market in the Surrey/Hampshire area where I work, would instruct a Firm in the north of England unless carefully steered by someone with a vested interest.
Secondly negociators usually have clauses within their Employment Contracts stating they must send clients to panel Solicitors. The amount of times I have heard local Agents state they know they are referring to poor Solicitors but they have no choice. It’s all about money, not what is best for the customer. Take those fees away and the clients will at least have a chance to make their own decisions.
Worse we have in my area several Companies paying Agents for referrals, quoting them and then charging Solicitors for that client. Because of all the fingers in pies, the client is in some cases paying £500.00 per transaction (so £1000.00 on a sale and purchase) before any work gets done by the Solicitor. Who probably takes £300.00 at completion of a freehold purchase, and as a result has to pile the files high to make the arrangement worthwhile, so diluting the service to all clients. So £1000.00 is being paid out to people doing no work in the chain. I would love someone to justify that payment? Take it away the client benefits by paying money to a Solicitor who actually earns his fee working on the file. In many cases the referral Company, because their staff are paid on commission according to how many clients go through them, do not even explain the situation to the clients, who naively sign up to it thinking the first Agent referral to the Middle-man was to a Solicitor.
Finally there is definitely a conflict of interest involved. I know because I have seen it many many times. I used to work at a Firm who took instructions from a large local Agent. Just to quote one example. The title we were buying was defective and I advised my clients not to buy. A telephone call was made by the Agent to my Senior Partner. Next day the file was mysteriously exchanged by him. Basically the Agents had a habit of telling us they were our clients, sending us a huge amount of business, and if we didn’t act in their best interests the work would go elsewhere. So as far as the partners of the firm were concerned business trumped clients every time. An arrangement I eventually decided I could not live with.
Unfortunately referral fees have been around for so long it is frightening to wonder how many clients have received the wrong type of advice as a result of them. The sooner they are disposed of the better, for the best of the clients.
Adam suggests that clients are not naive. But unless they are regular participants in housing transactions, they are unlikely to query what might be in their best interest if they were aware of what goes on behind the scenes once an agent has persuaded them to appoint them.
We have encountered agents insisting upon an EPC for listed buildings (not required), for which the fee is already inflated, and failing to disclose their true relationship with businesses to whom business is routinely referred. A quick search at Companies House revealed several agents with their snouts in the trough through their failure to disclose their ownership of the Mortgage provider to whom their staff were targeted to refer all business. Some even have the gall to declare that “no referral fees are paid to the agent” when they are “trousering” their commissions through their associate company.
We have also seen their lowering of standards as regards property inspections. This has been a direct threat to the traffic they need to see as each and every applicant is targeted for the sale of financial services. Hence we are often asked why we apply the MHC&LG guidance when others don’t.
These are high profile, well-known companies that are waving two fingers at the guidance issued last year, so the sooner banning orders are introduced, the better. It will come as a step change in presenting our industry as professional.
The scandal was allowing ‘corporate agencies’ to get away with this for decades, everyone knew what they were up to. Independents received referral fees but nothing like on the scale, as they were unable to provide the volume that paid big bucks. Conveyancing and Mortgages were a classic example not necessarily in the client’s best interest and in lettings the collusion over utility companies was illegal practice in any event for tenants.
Should referrals be allowed. Yes, but be transparent. The only reason to be so secretive ….. embarrassed or fearful the customer will see they are being ripped off.
Not forgetting The Estate Agency Act terms of business requirements (applies to the vendor, not the purchaser) ………..
In addition to estate agency services, ‘XYZ Agent’ may directly or through any connected person or company offer to arrange insurance or other products (“financial services”) and/or mortgages for prospective purchasers and be entitled to retain commission or earnings in respect of such services arranged. ‘XYZ Agent’ will confirm in writing to the vendor promptly and accurately all offers from prospective purchasers and will not prefer one such purchaser above another solely because he or she has agreed to engage ‘XYZ Agent’ to provide financial or other services. ‘XYZ Agent’ will send the vendor, in writing, details of such services or mortgages, which have been applied for by or agreed to be provided to any prospective purchaser. This will include all such services provided by ‘XYZ AGENT’ or a connected person or company or provided by any other person or company which will result in ‘XYZ Agent’ (or a person or company connected with ‘XYZ Agent’) gaining a financial benefit.
Yes….it is..
Newsboy is spot on.
Deep selfish interests are at stake here.
If referral fees are pushed downwards it increases your profits?
Sorry if you’re not a conveyancer, your moniker suggest you are.
Thans but we don’t need to pay referral fees.
As a conveyancer I certianly would not dream of taking a payment from anyone I recommend. Mortgage advisers, estate agents, surveyors removals etc. No way. And yet conveyancers receive the lowest fee in the whole process so why dont they, if it is what agents do? That is up to them.
Instead I recommend only those who I feel would compliment my own quality and thus delight the client. That is a win win, as the client will tell everyone they know how impresssed they have been…….by both the agent and me. And that is where I make money. By simply being paid for my conveyancing.
It is why we do so well at conveyancing, our clients are dleighted and tell everyone they know including agents, who then use us too.
Do I want referral fees banned? Moot, as they cannot be banned, unless you ban ANY fianancial or other in kind payments going from law firm to estate agent, as otherwise all I need do is place an advert on their website or window and pay £10k/£20k etc for it.
A well written summary. Point 4 is the most valuable.
Having to be transparent is guaranteed. The argument over “how much is too much?” is next.
It’s hard to disagree with a word Adam says. Talk about a sledgehammer to crack a nut. Compared to the agent’s commission referral fees are not a significant income for agents, and most agents rightly prefer a speedy conveyancer over a referral fee. As Adam says, given the scale of corporate abuse in other spheres is this really a priority? The fallacy is in thinking that an estate agent would refer work to a bad conveyancer, thus putting at risk the transaction, just for a couple of hundred quid! The truth is there is no real conflict of interest here, and it is just another example of bureaucrats trying to justify their existence.
“The truth is there is no real conflict of interest here”.
You are kidding!!!!!!!
Many times in the past has a negotiator said to me, I would love the seller to instruct you Rob, but my hands are tied and I need to reccomend our panel firm, even though they are rubbish!
True. When I worked for a corporate, negs were targeted on referrals to a conveyancing subsidiary. The firm was/is abysmal, and would negatively impact our agreed sales, but managers insisted we continue to recommend them.
The solicitor I recommend now does not pay referral fees (sadly), but I continue to recommend her on all our sales because she offers a fantastic service to our customers, and updates me regularly.
Strikes me as either:-
a. A very naiive response
b. A response from someone who is a businessman first and very much a Conveyancing professional with the best interests of his clients at heart second, and lacking the passion for the job that true conveyancers put first.
c. Someone running scared that transparency might be costly in terms of his business?
“The fallacy is in thinking that an estate agent would refer work to a bad conveyancer”
Quite the contrary if you work for Countrywide. All conveyancing referrals go to (the generally pretty useless) Countrywide Conveyancing Services. Staff are (or were) not allowed to refer elsewhere and were targeted and incentivised to refer to CCS.
The is NO excuse for delaying transparency in referral fees. The only people against this are those with deep selfish interests.
Let’s get this stain on our industry removed before public confidence evaporates completely