For most people, buying a house is one of the most important and largest purchasing decisions they’ll ever make. It’s not an everyday transaction. People may be involved in only a handful of house purchases in their lifetime. To help navigate through the house buying process many people rely on the expertise, experience, specialist advice and trusted recommendations provided by their estate agent.
It’s a considerable responsibility. Consumer research by YouGov found that more than one in four home buyers are more likely to go with an estate agent’s recommendation when choosing a lawyer or licenced conveyer. However, 59% of those who took a recommendation did not know whether or not the estate agent was paid a referral fee.
Consumer choice and industry resilience
Buying a house is a significant investment. Home buyers have a right to know the basis of an agent’s recommendation to use a third party. A more transparent approach to referral fees ensures consumers are able to make an informed decision about a third party provider. Greater transparency means consumers will be able to choose the provider that offers the best value and service that meets their needs.
The vast majority of estate agents act responsibility and take their duty of care towards their clients very seriously. However, we see some situations where customers are pressurised to use a referred provider despite the fact it does not meet the needs of the customer or provide best value. Our team has also seen cases where estate agents have failed to pass on an offer to the seller because the potential buyer was not using the referred services, in favour of a buyer who was.
The mandatory disclosure of referral fees is common in other industries. This helps consumers, and it also brings wider benefits for the relevant industries more widely.
Similarly, increased transparency and wider consumer choice will strengthen the estate agency industry by making the market more competitive: referral fee transparency will make the industry more resilient by encouraging enterprise and innovation and rewarding the best performing suppliers.
Building consumer trust and confidence
Across the estate agency industry, there is clear support for greater transparency regarding referral fees, with 81% of organisations and 77% of the public in favour of further action. Leading professional bodies in the property sector also support full disclosure.
All of us recognise the value of referral fees. They are an important way of doing business. Transparency will make them even more effective as increased consumer choice makes them even more valuable in a competitive market. This is why we want to work with estate agents to ensure referral fees are used ethically and transparently.
Our recommendations are focused on building trust and confidence in the industry. Surely this is an aim we can all support.
James Munro is head of National Trading Standards Estate and Letting Agency Team.