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: