Ban on referral fees paid to agents is on the cards if ‘transparency’ cannot be achieved

A ban on referral fees paid to agents is on the cards, an industry audience was told yesterday.

Top civil servant Matt Prior said that an announcement will be made “shortly” on referral fees.

He told the Guild of Property Professionals at its annual conference: “The Government wants transparency on referral fees.

“If this can’t be achieved, and if it is doesn’t work, we will look at the case for a ban.”

Prior, leader of the Ministry of Housing’s home buying and selling team, also said the Government is set to start researching how it can trial reservation – or ‘lock-in’ – agreements.

It will do research with consumers on how much they would be willing to pay to try and secure a transaction, and said that the Law Society has drafted a two-page legal agreement that could be used as a reservation agreement.

Prior said: “The Government is keen on reservation agreements. One of the key features of the current system is that it takes so long.

“The amount is yet to be decided, it could be a percentage of price or a few hundred pounds.

“The idea is to have a demonstration of commitment to lock parties together.”

Under the Government proposals, both the buyer and seller would pay towards a lock-in agreement, with a dedicated dispute service to be set up if there are disagreements over who is at fault for a transaction collapsing.

Iain McKenzie, chief executive of the Guild, said the trade body would be keen on partnering with the Government on this.

Prior also said that Lord Best’s working group review of the home buying process, which will cover referral fees, regulation, standards and estate agent qualifications, will be published “later this year” and will be followed by a consultation on any changes.

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52 Comments

  1. nextchapter

    Why is it ‘ban referral fees‘ to Estate Agents?  It’s ludicrous.  Referrals and referral fees can be found everywhere in every aspect of life in every sector! It’s how the world revolves.  Here’s some business. Oh thanks. Here’s a fee to say thank you.  What the f***k is the problem? So what!  Actually ban ALL referral fees in every sector for everything. It’s insane that it’s specifically Estate Agency focussed.

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    1. Typhoon

      Soon the government will legislate that agents have to pay sellers and landlords for the privilege of acting for them.  Absolutely nuts. The government has no clue of the ecconomic mechanics of the property world. With the ludicrous pressure on fees due to volumes and insane on-line “rubbish options” ( DEFINATELY NOT IN THE CONSUMER’S INTERESTS) most agents would be bust without referral fees.

      Ehen an agent has a strong bond with a good supplier of conveyancing and mortgage sources, they work hard together  as a team. Our average fall through rate is 14%. The industry average reported last week was approaching 50%

      That number (50%) is a by-product of shocking no customer care or service by on line agents who can’t afford to employ staff to do the job properly, and what has been the case for years, conveyancing solicitors who don’t give a stuff about their clients, don’t do their jobs and don’t communicate with agents.

      Perhaps the government should look first at the balls and chains good agents are shackled with, as a result of the other so called “professionals” involved in transactions  failing to do their bit  When we have strong referral arrangements clients, benefit hugely

       

       

       

       

       

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    2. Will2

      If you don’t understand why bribes are wrong you just won’t understand the problems with referral fees. Criminality is also rife in all areas of life; it does not make it right. Banks and PPI highlighted the problems.  If you wish to consider yourself a professional you should act in your clients best interest without hiding anything, such as back handers/referral fees.  I know my view will be incedibly unpopular but do you want to be known as a professional estate agent of a house flogger with Del Boy standards?

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      1. Typhoon

        Our referral fees are disclosed up front every time. None is bribery and as we demonstrate time and time again, our clients benefit hugely from the professionals we link them with. I made an error in my earlier note regarding our annual fall through rate. It is 9% not 14%.

        And this is massively influenced by dealing with real professionals who charge fair fees and deliver outstanding customer service.

         

        The industry should not be branded as cowboys and sharks because of the actions of what will be a small percentage of agents. Hunt them down and punish them for their wrong doings.

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        1. Will2

          The real question is one of total transparency.  If you clients fully understand the amount you receive and are happy with the arrangement fine.  If it is not disclosed and the amounts it is deceptive. If you provide best advice the it is not a problem.  If you give instructions to those providing the highest reward it is wrong.

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          1. Mothers Ruin

            Our buyers/sellers don’t pay any more in solicitor fees in my area since the solicitor absorbs the cost of the referral fee to get the business from us and in turn our clients get a better service from solicitors as otherwise they would have us to answer to. As long as this is declared upfront then it shouldn’t pose a problem. If, however, we get shafted again with a ban because some agents are receiving ridiculous referral fees of £150 and above then that will be a problem. I responded honestly to the consultation on this and hope that this is just a threat that agents will listen. If everyone like me over the age of 50 with over 30 years of experience thinks about what’s happened in the last decade despite  surviving a downturn then maybe it’s time we retired and left the rest of them to it…….

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  2. Rob Hailstone

    More transparency is needed re referral fees (a client needs to know if their £800.00 is going to their conveyancer or if a high percentage of it is going to the introducer). However, a complete ban would only drive referral fees underground. I recall seeing many a brown paper bag be handed under tables in various waterholes back in the late 70s and early 80s! Not with my fingerprints on I hasten to add!

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    1. RealAgent

      Why do they need to know? We have market forces to ensure conveyancing fees remain broadly in line, the customer has the right to shop with their feet so to speak, so why then should a company that decides to hand over part of that fee to their introducing agent be penalised over the firms that don’t?

      You could of course argue that if a company making a referral fee can charge a market level price and still pay an agent for the intro then those that don’t are blatantly ripping customers off!

      Of course what will come now are the comments about quality of service or recommendations for profit not ability which of course are all cobblers because there is absolutely no proof that a firm that decides to make bigger profits from their conveyancing department is any better than one that chooses to share their fee….

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      1. Rob Hailstone

        As most consumers buy and sell property rarely, presumably they would want to know if they are paying for and would therefore expect to receive an £800.00 coveyancing service, or if they are paying for an £800.00 conveyancing service and are only likely to recieve a £400.00 conveyancing service.

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        1. Richard Hair

          Exactly. We are very much in danger of going the way of lettings fees. Paying hundreds of pounds to agents from a conveyancing fee is close to criminal and we MUST tell the clients every time we have an earning opportunity. WE already do for our sellers so why not the buyers.

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        2. RealAgent

          So have you any evidence whatsoever Rob that the conveyancers that are sharing their fee with their introducing agents are “overcharging” their clients by that equivalent amount?

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          1. Richard Hair

            I think that would be difficult to show but they may well be providing a £500 level of service at a £1,000 fee. Not exactly transparent

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        3. Typhoon

          The proof will always be in the pudding. If the custoner is unhappy that they did not get value for money they have a redress system to deal with that. But a customer can never know what the level of service will be until they have had it.
          When we intorduce our customers to other professionals, “WE” know they will get top notch service and a acompetitive price, otheerwise we would never refer them.

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          1. RealAgent

            That’s rubbish, how can possibly say that one event is probable and another one is guaranteed BEFORE they’ve taken place. What you mean is you TRUST the one you know and can’t say that about one you don’t. But that’s an entirely different comparison don’t you agree?!

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    2. MichaelDay

       

      Rob. I don’t have an issue with transparency. Conveyancing firms and agents are required to reveal fees now.

      It can be well argued that referral fees have actually improved services in the Conveyancing sector – I don’t recall any lawyers offering fixed fees or no move, no fee before agents used their positions as catalysts for the transaction and took control.

      Many conveyancers have now invested hugely in people and technology and their processes and management of cases is infinitely better than the days of the “jack of all trades” solicitor who was never available, slow, expensive and inefficient – many even have fax machines now!!

      A referral fee actually covers much of the costs that a conveyancer would otherwise have to spend speculatively in order to win business.

      Being “given” new clients for a fee is much more cost effective that spending money on marketing in the hope that a “client” calls!

      Conveyancers are now required to publish their fees on their websites – like letting agents – are they? Clearly commercial suicide to quote lower fees than being charged by their introducers and so most will publish an artificially high fee and bury in the dark recesses of their website in order to avoid creating conflict.

      Of course, Conveyancing is just one of dozens of areas in the property sector involving “referral fees”

      The Government is hell bent on – it’s words – mending the broken property market – the levers it is seeking to pull might grab headlines but, as with all interference in the sector, are at risk of damaging rather than mending.

      In 1979 the estate agents act became law but doesn’t cover letting agents, section 22 demanding levels of competency has never been introduced. Successive Governments have preferred competition to competency.

      The best thing the Government could do for the housing market is stop interfering and encourage more house building – however Help 2 Buy which is simply a sop to developers may cause issues when it ends and we possibly have negative equity scenarios for example.

      The levers pulled of stamp duty are also crude and have wider consequences.

      Time to stop throwing stones in the pond and seeing the splash – watch where the ripples are going!

       

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      1. Richard Hair

        I’m sorry but that argument dioes not wash. We need complete transparency or we will end up with nothing – ask the letting agents losing 100k plus income.
        I do agree however about Govenment interference. They always get it wrong. We need to make sure they don’t have an excuse with this.
         

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  3. MisterP76

    It’s all about transparency.

    Your client should know if you are recommending someone because they do a good job or pay a fat fee for intros.

     

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    1. ArthurHouse02

      But how do you qualify this? I am sure the bods at Fox and Sons tell their vendors/buyers they are recommending PPL becuase they are good.
      I refer to the same solicitors now that i did before referal fees came about. I didnt ask for a fee, but because they are paying other agents, they have to pay me.

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    2. MichaelDay

      Referral fees should be transparent but would be commercially suicidal to risk a £4000 sales commission for a £200 referral fee by recommending an inefficient law firm.

      A good working relationship (with fees) between agent and conveyancer usually helps resolve issues – the agent’s “buying power” should not be underestimated!

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  4. ArthurHouse02

    This isnt about transparency this is about punishing the little guy. Personally i dont care if referral fees exist or not, but any ban will hit the small local independents that are genuinely recommending the local solicitor because they are good and get a referral fee. The big companies PB, countrywide, F&S etc will still pass business to PPL CPL etc and get a monthly “retainer” probably linked to the amount of cases passed through.

    Transparency is a word now heavily tarnished in my opinion, and about anything other than being clear about what some companies do. Honesty is a better word

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  5. TwitterSalisPropNews53

    Transparency is key, then the public can say “we don’t trust that referral cash trading relationship, we shall pick our own lawyers”.

    As for a ‘reservation agreement’, they are destined to fail. There is a reason they have never caught on. Unless you make them mandatory, but they would become a complete distraction to just getting on with the legals/mortgage/survey, and would only lead to “but I consider I can have my money back” to “I am losing my job so I cannot proceed” to…..some other ‘we want our money back’……the last thing anyone wants.

    Just vet the buyer properly at the start, and avoid using mediocre conveyancers…….every conveyancer and every estate agent already knows who the mediocre conveyancers are in the system. You are even thinking of them as you read this!

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  6. Chris Wood

    The law and ombudsman scheme rules already have transparency of referrals built in. Agents must declare if they are receiving an instructor commission/ payment/ goods or services in return. The problem is, as always in agency, enforcement.

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    1. DarrelKwong43

      100% Agree

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    2. Woodentop

      I wondered when someone was going to raise this point!

       

      Just like Brexit there are two side of the story, both valid BUT as many have come to expect it often isn’t Politicians that are the driving force but the entrenched civil servants in a position of power who as Michael Day put it “Time to stop throwing stones in the pond and seeing the splash – watch where the ripples are going!”

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  7. Peter Ambrose (The Partnership)

    As someone who has been involved in the referral fee discussion for many years, this is a little problematic.

    Proportionate referral fees are completely acceptable – we know from first hand experience that successfully recommending lawyers is a non-trivial task especially in the London market and it is fair for agents to be incentivised for this.

    Unfortunately, as has been pointed out, for many agents (who tell us on an almost daily basis) they are shackled to non-negotiable company agreements and this does need to be addressed.  I spoke to a London agent yesterday who had to apologise because he was forced to recommend a law firm even though he told me it was “not in his clients’ interests to do so”.

    This madness has to stop but unfortunately, as the only tool they are suggesting is a hammer everything looks very much like a nail …

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    1. Rob Hailstone

      Well said Peter. I remember many occassions when an agent work referrer would want to recommend me (or A N Other) rather than the conveyancer they were told to recommend because of the financial incentive and pressure their employers put them under.
       
      An established client’s daughter once phoned me and said “You acted for my mother when she bought a few years back. She is now selling but has had a stroke. Despite this the agents are insisting that she uses their preferred conveyancing firm, she really wants to use you again. Can you help?”
       
      I phoned the agent who for a while steadfastly refused to allow me to act. Only when I said “Mrs Jones has recently had a stroke, don’t you think she has suffered enough already” did they relent.

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    2. Chris Wood

      “not in his clients’ interests to do so”.
      Which is a breach of the 1979 estate agents Act and a criminal act. The negotiator/ manager has a legal obligation to refuse to refer if that is not in their clients interests. Stating it was company policy will be no defence if the client ever brings charges against the company.

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    3. RealAgent

      I’m sorry Peter I dont buy that arguement. “referal fees are accetable provided they are proportionate” So in other words if a conveyancer offers an agent £50 from their fee you will be ok with it, however if they have taken a commercial decision to actually pay over £200 and work on a lower margin, higher turnover business model, then you have a problem with it?
      It seems to me that offering that as an arguement simply says  that as long as a company doesn’t create competion that you deem unfair to you personally, then you are ok with it. 

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  8. Rayb92

    They must be brainstorming ideas weekly on how to attack landlords and agents now ..  desperate vote chasing

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  9. Chris Wood

    A repeat of an answer I gave above but this is such an important point that could save negs’, managers and LPE’S from getting a criminal record.

    Under the 1979 Estate Agents Act, all agents must act in their clients best interests even when that is against the agents advice or agents best interests/ financial benefit. Not to do so is a criminal act. The negotiator/ manager/ LPE making the referral has a legal obligation to refuse to refer or recommend if doing so is not in their clients best interests. Stating it was company policy will be no defence if the client ever brings charges against the company or individual.

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    1. Will2

      Chris,  I wish you good luck in trying to bring back TRUE PROFESSIONALISM.

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      1. Chris Wood

        I’d be happy if more agents just acted legally more often, consistent and widespread professionalism seems a distant pipe dream much of the time.

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    2. Woodentop

      I’d go one further if they do not declare referall commission they have to hand it over to the client.  
       
      Its seems todays generation need to go back to school. Not intended as an insult but some comments do make me wince about correct practices which have been around for decades and only the older generation seem to remember.

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  10. Property Poke In The Eye

    The onus should be on the supplier confirming how much referral fees are being paid to whoever.  The agent just needs to state as a blanket one liner that they receive marketing/introducer fees from suppliers and the exact amount will be disclosed by the supplier.

    I don’t see anything wrong with this.

    Like  FCA regulated individuals clearly state what fee the mortgage or insurance provider is paying.

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  11. smile please

    Rightmove increase fees

    Tenant Fee Ban

    The slow expensive regulation of our industry

    Ban on tenant fees

    Insurance increase

    Rent increase

    Utility Increase

    Rate Increase

    Referral Fee Ban

    Staff wage increase

    All of this happening as we speak. During this  time we are also:

    Investing in new websites

    Rebranding

    Sending staff on training

    Spending more on photography

    Spending more on virtual tours

    Battling fees with onliners who offer a fraction of the service but say they offer the same.

    I joked in the past we are turning into a charity sector but we are becoming, profit is not a dirty word. I bet PB, Emoov and Tepilo would like to make some …… Look whats happens if you do not.

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    1. Woodentop

      You know how to make someones day, lol.

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      1. smile please

        Try being me! lol

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        1. Woodentop

          No thanks I have enough to worry about when I look in the mirror every morning!

           

          Just to add to your list:

          Pension contributions

          Regulatory training costs and fee’s

          Free immigration checks (snitch)

          Free landlord tax reporting (snitch)

          Tablets!!!!

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          1. smile please

            ****, now i do want to top myself!

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  12. Will2

    OK.  To throw in another perspective and get loads of dislikes!. Referral fees are basically open bribes.  You are getting money to use someones service.  If I employed an agent I would like them to be professional. Professional means if I  employ you I expect you to act in MY BEST INTERESTS, not dine out on back handers.  If you are taking bribes, referral fees and your client is not aware of this your are providing the services of a “street market barrow boy” not a professional.  This is why estate agents are disliked by the public and do not hold public trust.  We have all used agents where clients are bullied into using their appointed or “so called Approved suppliers” or lose their purchase.  By all means recommend those you KNOW provide excellent services; this benefits your client. Some agents have been known to sell to other applicants if a purchaser doesn’t agree to the agents approved suppliers.  The large agents are worst as their business is about money rather than standards and professionalism.  I hold the view that ALL referral fees and similar should be banded in ALL business’s.  If you believe taking bribes, referral fees, incentives or the likes without your client knowing exactly what is happening is a good thing you are not a professional.  I accept this has been going on for years and many will consider it normal part of business so will find my point of view incomprehensible.  Building societies, banks etc are all barrow boys, Del Boys of the financial markets and the PPI claims illustrates this big time.  So are you a professional agent or a “House Flogger taking bribes”?  What is the public’s view of your services?  There you go cat among the pigeons! and yes I have had a life in the property profession working for companies that provide a professional service WITHOUT referral fees or back handers. Go on pile on the dislikes!

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    1. RealAgent

      So perhaps answer me this: how many estate agents, perhaps the company you work for, pay their sales staff on commisison? Is that different in absolutely anyway at all? Can you guarentee that the fact a negotiater is earning commission doesnt taint their view on the level of an offer?
      More than that you are making a huge assumption that additional income streams are not passed on to customers by way of a more competitive commission rate. If as an agent I am earning £*** from the Conveyancing referral, £*** from the mortgage referral does that not allow me to bring my fee from what might have been this to in fact this?
      Have you seen the advert where a certain toothpaste brand is recommended by a so called dentist?…why because reall its the ONLY toothpaste you should use or because he is paid to say so??………..It’s how a capitalist society works!!!  

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      1. Will2

        Well RealAgent there is a difference between commission and referal fees. Commission is an incentive to provide a good service and hopefully your negotiator have hight ethics; encouraging to be that little bit more helpful. If you employ a rogue member of staff that does not act in the interests of your client you get rid of them.  As long as your client knows exactly how much you recieve it is their choice whether to use you or not.  If you are not advising of the facts (as required under the legislation) your fees may be higher than your competition and client will not be able to compare fees. The main question revolves around transparancy.  You can have a capitalitist society without hiding payments.  It depend if you believe you provide a professional service or a flogger of services.  Advertising of toothpaste has no relevance.  I did say my comments would not be like!

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  13. WiltsAgent

    Let’s hope a ban on referral fees is extended to the price comparison websites like moneysupermarket etc. Martin Lewis the financial ‘guru’ has made a multi million pound fortune based on nothing but referral fees.

    Personally I’ve never charged or accepted referral fees and I’m not just polishing my halo, I have never been comfortable with them. I’d rather be in a position to drop a supplier if they fail to perform.

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    1. Woodentop

      Well said WiltsAgent.
       
      As with lettings agents fee’s, the main problem with referall fees was the big boys, not in the main small independent gents. They spoilt it for everyone … again. 

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    2. DarrelKwong43

      I think the difference with Money Supermarket is that they do not charge a fee

      They are directing custom, and its pretty clear to a consumer, how they make money.

       

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      1. WiltsAgent

        And not so clear they give preference to who pays the biggest referral fee.

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  14. SLF

    They should be completely banned.

    Presumably all agents promote and recommend a particular solicitor solely because they will offer the best possible service to their clients, the lines of communication are good and the solicitor is quick and efficient. The referral fee shouldn’t come into it if you are doing right by your clients.

    Referral fees with some agents can be £300 a pop. If I was a buyer I would never use a solicitor who gave a third of my fee to an estate agents who I’m already paying (if i’m selling)

    I’ve worked for three large agents all of whom really, really pushed conveyancing even down to holding training courses on how best to sell their legal services and overcome objections. Are they doing that because they are convinced that their solicitor is the best one out there and it’ll make for a smooth transaction or is it about the money.

    It might make money but that doesn’t make it right.

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  15. aSalesAgent

    Prior said: “The Government is keen on reservation agreements. One of the key features of the current system is that it takes so long.
     
    Not sure how taking a deposit will speed up the process. Maybe they should instead have a word with the local authorities that are taking 5+ weeks to produce a search, or the management companies that only accept payment by cheque and then take several weeks to produce a leaseholder pack.

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  16. Woodentop

    The point is there are those, just like tenant fees who have milked the system for their own personal financial advantage. We all know who they are!! Staff are told to only use this and that company and no other because the employer gets extra income and has nothing to do with the consumer getting  a fair deal, often they do, often they don’t. Some employers put pressure on their staff by paying less than the minimum wage and use the extra sales commission as an incentive not to have enough money in their wage packet at the end of the month. Shocking practice. Then there are the others, again we all know who they are, who get paid more for volume business and staff are targeted to achieve results which are often unattainable restarting month by month. Shocking practice.  
     
    It is time this practice was stopped. We have never received any referral fee but I will admit that at X’mas we would see a box of shortbread or the odd bottle of wine from local conveyancers, but money …. never.

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  17. J1

    Ban them.

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  18. kittygirl06

    I am struggling to understand what a landlord is now able to charge for.

    Does damages include

    End of tenancy clean

    Professional cleaning carpets and oven

    Garden ie if grass not cut etc

    Removal of rubbish and items left

    Defleaing if pets have been allowed.

     

    Currently these cost breakdowns are stated in my tenancy agreement

     

     

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  19. Simonr6608

    So what about price comparison sites, which, uswitch, money saving expert they all get a kick back if someone goes on to buy a product they recommend. cant remember ever seeing a disclaimer stating they will get a fee, just automatically assumed they would. Happy to be corrected

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