Estate agents have been accused by Trading Standards of hiding best offers from vendors and failing to disclose commission fees up front, with the head of the enforcement office, James Munro, bemoaning “a lack of resources to go out and police this effectively”.
The National Trading Standards Estate and Letting Agency Team says it has investigated cases of agents allegedly failing to pass on best offers because of commission fees earned, but warned that this type of illegal behaviour is likely to go undetected.
Many estate agents receive referral fees by recommending mortgage brokers, solicitors, surveyors and other third-party services, and this, Trading Standards claim, is causing this type of illegal behaviour.
Munro told The Telegraph: “We’ve seen commissions of 50% of the price, which is just ridiculous really. In some cases, the consumer’s getting no benefit from them.”
He issued this warning to homebuyers: “If you’re thinking of buying a property, and you go in and they say, ‘Would you like to speak to our financial adviser or mortgage adviser?’ And you say, ‘No, I’ll sort all that myself. Here’s my offer for the property’.
“Well, that employee, sometimes on the bigger agencies, is on a commission, so if they can get those referral fees they will put that offer forward. But then there may be another offer which is lower, but that person is using all of the connected services, and mysteriously the higher offer just gets lost on the system.”
He said the cases were detected by purchasers who had offers declined, checked publicly available Land Registry data and noticed that a lower offer had been accepted.
But the vast majority of buyers move on after their offers are rejected so these instances are “difficult to find out about”, says Munro.
He pointed out that the government considered banning these commissions around three years ago but said they would wait and assess the impact of putting in tougher rules for transparency instead.
However, Munro said it would “take quite a lot of resources and quite a lot of people to go out and actually investigate to give a realistic market assessment”.
He continued: “The problem is that a lot of the time they’re not displayed. It’s a difficult one to enforce because you don’t know that they’re taking fees if they’re not displaying the fact that they’re taking fees.”
I believe this practice is rife in the industry along with disappearing properties.
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I don’t
Was an agent for many years with a few companiesd
Never ever happened in my experience
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What is the evidence that the agent didn’t actually pass on the better offer? Or maybe a lower offer was accepted because the agent simply hadn’t managed the ‘best offers’ process correctly.
Or maybe the vendor just preferred the position of the higher offer.
There could be a multitude of reasons but to suggest that it is because agents are preferring to only submit the offers from buyers who are using their own brokers is ridiculous. The consequences of doing so are high and only the most stupid agents would take that risk.
I’m not saying it doesn’t go on… but I bet it’s very rare.
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“ Or maybe a lower offer was accepted because the agent simply hadn’t managed the ‘best offers’ process correctly.”
Or friend of a friend?
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Or maybe the other buyer was in better position?
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I’ve just bought a house, and the seller accepted our offer, despite a lot of interest, because she liked my partner [who lives 3 doors away]. I know it would have sold for more, but she told her daughters to go with us.
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This comment and observation from NTSEAT is long overdue and sets out precisely why referral fees undermine the notion of an agent acting in their client’s best interest at all times.
I have had to accept that such a notion will be shrugged off by most corporate agencies who rely upon such cross-selling (with the side effect of encouraging lower sale fees) but If ever we should genuinely wish our industry to have realistic claims of professionalism, we need to say goodbye to referral fees and allow agency staff to focus on getting their client’s property sold or let, rather than worry about their referral targets .
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I like many in my profession consider that the payment of referral fees contributes to a bribe under the Anti-Bribery Act 2010. Bribery Act 2010 (legislation.gov.uk).
Unfortunately, it is an accepted practice within the property industry to pay estate agents for referrals for conveyancing and mortgage services and many within the legal industry feel that it contravenes not only the Bribery Act 2010, but The Bar Council’s 2012 Judgement on the payment of referral fees for legal services. The Prohibition of Referral Fees – Bar Council – Practice & Ethics (barcouncilethics.co.uk)
1. The Bar Council is firmly of the view that the payment of referral fees in the legal market, and in the provision of advocacy services, operate against the public interest.
2. The Bar Council views referral fees as:
(1) threatening the quality of the service the lay client receives, since:
(a) willingness and ability to pay a referral fee may have more influence upon the choice of advocate by the instructing solicitor than the ability of the advocate in question, and
(b) advocates are no longer forced to rely upon the quality of their advocacy to attract work;
In late 2020, The National Trading Standards released a report Referral Fee Report Feb 2020.pdf (nationaltradingstandards.uk), basically stating that;
‘They did not call for a banning of referral fees but required transparency on the payment of referral fees.’ They basically claimed that too many estate agents relied heavily on these fees for their business model to be feasible.’
The National Trading Standards, The Council for Licenced Conveyancers and The Law Society all have seemed to have deemed that The Bar Council’s judgement only applies to Personal Injury legal services and that paying referral fees within the property market is not considered a bribe.
It is well known in the industry that individual estate agents’ have contracted referral fee targets, targeted referral fees to conveyancing companies who they would never recommend to friends nor family. One only needs to do a Google search, read the Trustpilot reviews and visit the Facebook page, ‘When Conveyancing Goes Rogue’, all of which highlights that many of the referred conveyancing companies are delivering services well-below the public’s expectations and contravenes Section 4, of the Bribery Act 2010 which outlines improper performance to which a bribe relates
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Absolutely !!
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Its not illegal practice to receive commission. The list is endless of other industries that do this and is hidden … e.g. try many of your credit card transactions!
What is illegal is when you cross the line of how you go about it. FS for example is a full disclosure, as is EA Act which should be in your vendors terms of business.
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Whilst I can imagine scenarios where an unscrupulous agent may choose not to pass on offers, even though legally they are required to, there are also many legitimate scenarios where the vendor, given all the information, may choose to proceed with a lower offer. Cash vs Mortgage, Longer Chain vs Shorter Chain, Leasehold in the chain vs not. The buyers ability to proceed and the speed within which they can complete is also a factor in a vendors decision to accept a lower or higher offer. Just because a sale does not complete with the highest offer, doesn’t always mean the offer wasn’t passed on.
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[Comment removed as it breached posting rules]
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GS168, I absolutely agree with you. Having worked for one of the very big corporates – briefly thank god – I can say that referral fees are a massive problem in the industry and that most certainly negotiators/managers/area directors are under intense pressure from the very top of the organisation to sway, cajole, pressure in any way possible vendors to accept offers where there are referral fees to be had – over and above much better offers. Everyone who has worked for these companies knows this and because these companies are so big, the numbers involved are substantial. These pratices are a huge part of the problem when it comes to giving the industry such a bad name.
Most of the self employed agents I now work alongside – many of whom have become extremely successful in a very short period of time – have all had experiences with these corporate giants and are now in the happy position to be able to stick two fingers up to them and their disgusting ways and get on with what they love doing which is selling houses and doing the best they can for their vendor clients. Which means recommending local solicitors/conveyancers and mortgage brokers who they will know personally and who they know will give the best possible service and advice.
Don’t get me wrong, I’m fine with the occasional referral fee when offered from a supplier I know and trust but I’m not reliant on them for income and would be more than happy to see them outlawed. I strongly believe the result of outlawing would be that the corporates would then be forced to increase their own fees and in so doing would have to improve ther services in order to compete with their local independent counterparts simultaneously improving the industry in one go.
Well, I can dream I suppose!
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It’s a tricky situation, as to act in the sellers best interest, we have to have all of the information and the best way to do that is to speak to the in-house mortgage advisor, but that doesn’t mean that you ignore offers that don’t or insist that they do speak to them.
And the reason that this is usually the best way to financially qualify someone is that the in-house one is trusted and you know the guidelines they have to adhere to, there are quite a few shady financial advisors out there, or there used to be anyway. The same as there are bad agents and awful solicitors, having a few that you recommend is the fuel that keeps the car going over the finish line.
Banning referral fees shouldn’t really impact it, but it probably will. The company I work for never used to have in house mortgage advisors, each branch just worked with one or two local ones that we knew were good, the same as solicitors. We didn’t get referrals as such, but they sent us probate sales, recommended us and sent the occasional bottle of wine or posh chocolates at Christmas. We now have an in-house mortgage team at Head Office, so I don’t know how that will change things…
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I’ve sold in the past many properties at a low submitted offer. Immediately the jump to conclusion was kick-back by the person who put a higher offer in and compounded by the fact that that has been publicly known/allegations to be the case with rouge agents or agents staff who are heavily subsidized on commission earnings and targets (enter cut throat corporates but hard up small agents are tempted too).
There are many reasons why a vendor may go with a lower offer based on the full disclosure of circumstances for them to make an informed decision between any offers. Highest offer is not necessarily the best interest of the vendor. Agents just need to make sure they keep records to cover their backs. Disclosure of commission should be mandatory because ……………
Yes, some agents do manipulate offers. I’ve seen it happen for decades but I did not see it as the norm, usually the same agents who knew exactly what they were up to.
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I once had a rental where someone wanted to view but I wasn’t able to get the appointment booked in before someone who was already booked in had applied. He kept saying that I should have let him apply without viewing (against policy) as he knew someone who used to live there and was ‘aware of the property’…
He accused me of letting a friend rent it instead of letting him view. I went back to the Landlord and informed her, as well as his attempts at name-dropping as he knew the charity that owned it (she had been there years and never heard of any of them!), and she said she really didn’t want someone like that living there as he would probably be more trouble than he was worth. I also mentioned to her that I don’t bring home in a month what the rent for the property was, and those friends of mine who do already own houses of a similar size! Plus, I’m ‘aware’ of Buck Palace and 10 Downing Street, doesn’t mean I can say what they are like on the inside…
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I have been an agent since the 80’s. In the 90’s I made an offer to buy a church hall, through on old fashioned and highly respected local agent.
Next call I had was that the property had exchanged to another buyer. They sold it to a developer who split it into 4 properties.
Being a bit miffed, I tracked down the priest in charge of the sale. He told me he was told about my higher offer.
So it does happen and the agent who did it to me, a little old lady, you would of thought was the least likely.
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We are only giving offer to landlord if they taking the flat fair
No flat fair no go
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I look forward to seeing you prosecuted.
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1990’s definitely, noughties, yep regularly… 15 years ago, unlikely…. now? Extremely rare. However, although equally rare, disgruntled and entitled buyers who know their rights and refuse to be qualified before making unsubstantiated offers? Always been there and always a noisy minority and our trip advisor, revenge review compo culture panders to the minority of buyers who do this. Some examples I have heard…. the law says you have to put it forward and I will report you if you don’t… my mortgage broker says you don’t need to know anything about my finances…. I’ll give you my details if they accept the offer…. I’m not giving you proof of deposit, take it from me its all there…. I’m going to the papers… if you don’t want to see yourself all over Facebook….. I don’t need to tell you anything… I’ll go round there and tell them you are costing them a sale. I would never condone bad practice or the buyer-bullying that I am sure goes on, those agents and companies should be punished to the fullest extent, every consumer has the right to be treated fairly, but the fact is that in my experience it is so rare that this goes on that even he said it would “take quite a lot of resources and quite a lot of people to go out and actually investigate to give a realistic market assessment”. So not a realistic market assessment then? A snapshot that sensationalises in the industry…..again.
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