Industry regulator says that scrapping referral fees would have more impact than tenant fees ban

The industry regulator will report next month its findings on how agents are voluntarily complying with guidance to be open about referral fees.

The National Trading Standards Estate and Letting Agency Team (NTSELAT) published guidance last February that says agents should disclose upfront any referral fees they receive for introducing customers to services such as mortgages, conveyancing and removals.

The guidance says that agents should disclose referral fees upfront to both buyers and sellers, including the actual amounts and who the arrangements are with.

Agents should make the disclosures, in pounds and pence, at the first possible opportunity, according to the guidance.

A year on, James Munro of NTSELAT yesterday said that a report monitoring compliance with the guidance will be delivered to ministers in February.

The industry has already been warned that failure to follow the regulator’s guidance is likely to result in a mandatory ban.

Speaking at yesterday’s Council of Licensed Conveyancers annual conference, Munro said: “Ministers will decide whether this particular aspect of the market needs regulation.

“If the industry isn’t being transparent that could create a ban, which will cause more upset than the tenant fees changes.”

You can read the full guidance for voluntary disclosure at the link below:

https://www.nationaltradingstandards.uk/site_assets/files/Guidance%20for%20EABSs.pdf

 

 

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21 Comments

  1. TwitterSalisPropNews

    A ban can’t work – sadly for the public.

    A referral fee ban will just make them become disguised (e.g law firms paying for overpriced advertising on a website/brochure etc)

    Accepting money (from the already lowest charging part of home moving – the conveyancer) from whichever conveyancer pays the highest amount, with no regard for how good their legal service is, is far too enticing for some agents to be given up.

    That’s why conveyancing factory outfits exist – they couldn’t do it based on their quality so they make massive backhanders – plaguing the home moving process with their awful ‘conveyancing’ attempts.

     

     

     

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    1. J1

      That’s against every regulation laid down by the law society – advertising is not allowed

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  2. NewsBoy

    So the great result for the public would be the end of cheap, poor quality, bucket shop conveyancing. Hurrah!

    Apart from anything else I cannot believe for one minute that agents are complying with the code.

    It must be mandatory and ALL referral fees need to end.

     

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  3. J1

    Get rid of these shoddy fees

    They are no good for our profession

    No good for the client

    No good for the speed of the transaction process

    and any firm that relies on them for survival is clearly no good too

    If a firm needs this supplementary income to survive it clearly shows that the Directos are taking too much for themselves – a good Agency should be able to stand in its own two feet.

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  4. Peter Ambrose (The Partnership)

    Before we throw the baby out with the bathwater …

    Referral fees are a fact of life in many industries and are primarily based on the sales time savings they achieve for the referred company – that is totally valid.

    However.

    Where referral incentives result in agents “recommending” a service that they know is not up to standard, then that is bribery and illegal.

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  5. ValueCounts31

    Banning referral fees is not realistic. There is always an ‘acquisition cost’ per customers. The referral fee paid is essentially an acquisition cost, in the same way a conveyancing or mortgage broker will pay ad-words or general advertising in the anticipation of acquiring new customers.

    The new legislation for disclosing fees was the right one. It just needs to be enforced. Funded by clear guidelines on fines for breaking the legislation. Fines fuel the enforcement.

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  6. Nemo Conveyancer

    A referral fee ban isn’t the silver bullet to solve Conveyancing issues. The large Corporates will simply buy out existing factory firms and then internalise the work, as Countrywide operate now.

    Referral fees with smaller operators will be driven underground – and to be honest they aren’t really the issue anyway.

    Not that the ban will happen IMO – if nothing else then there is no means to police it!

     

     

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  7. Woodentop

    Why should it matter how much the referral fee is, if the customer is not paying extra for it, often less? Surely the argument is over a referral that is not in the best interest of the customer.  
     
    A fee is paid because someone is recommended and that is the issue when it turns out there is deliberate coercion with the intention to financial gain, that is bad advice for the customer. Corporates have abused referrals for decades over panel lenders. Their mortgage advisers were disclosing commission and it didn’t make a difference!  
     
    Banning fee’s etc is nothing more than another draconian dictatorship hiding behind customer protection and interfering in a free market. Accountability for referring badly should be the priority.

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    1. Peter Ambrose (The Partnership)

      Absolutely spot-on ( as ever ).

      It’s when the customer’s interest is not being served where the problems arise.

      I will take issue with the criticisms of “factory firms” in previous posts.  It’s not a question of size but effectiveness and smaller firms can make a hash of things ….

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      1. Nemo Conveyancer

        I will take issue with the criticisms of “factory firms” in previous posts.  It’s not a question of size but effectiveness and smaller firms can make a hash of things ….
        This is fair comment. My point (poorly made) was more that the Conveyancing landscape really wouldn’t change all that much if such fees were banned. 
        The primary target of any ban must be the large corporate agents running panels, who will generally use large volume conveyancing firms. I can’t believe that all this fuss is down to small Estate Agents getting a few quid for a handful of referrals a month! 

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        1. Woodentop

           I can’t believe that all this fuss is down to small Estate Agents getting a few quid for a handful of referrals a month! 

           

          Absolutely but since the disruptors appeared on the scene this situation has become far worse not just with the bigger agents but the disruptors and we all know who the biggest culprit is.

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  8. J1

    Factory conveyancing, and factory agency are the two biggest hurdles to getting a transaction through to completion.

    Chasing volumes and referral fees leads to poor service and poor behaviour – too much work for too few people is never a good outcome for the client.

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    1. TwitterSalisPropNews

      Spot on. Of course ban referral fees. If I refer someone excellent, I would not dream of being paid by them. They compliment my own service and I look good, and vice versa.  

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  9. scruffy

    The simple issue for me is that agents relying upon referral fee income have to ensure their staff are motivated and rewarded through the targets they are set, all at the expense of the service they should be providing their vendor clients with. It creates obvious conflicts of interest and negotiators will be financially penalised “from “acting in their clients’ best interest at all times “.

    The referral fee income derived allows subsidised commission rates, driving down fee levels to an unsustainable level in many areas and discouraging many who might otherwise choose agency as a career, due to the hard sell they are required to push to every seller, every applicant/viewer and to anyone who comes through the door.  I have interviewed countless young people who have been thoroughly dis-enchanted by agency due to this very aspect.

    Full upfront disclosure cannot come quickly enough in my book.

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  10. brokerofexcellence

    Surely the issue here isn’t that someone is paid a fee for introducing a service, but more that some of the services that are introduced are massively overpriced and under-delivering, partly on wholly because of the fee.

    As an example, whether a client comes to us direct or through an introducing agent, they get the same service, same people and same cost. We suck up the cost of the introduction by subsidising the agent upon completion. Client is therefore unaffected.

    The wider issue is where a business offers in house services from a provider (mortgage broker/conveyancer), which then ends up being wholly more expensive than if they went direct, and often gets funnelled in to a different area of the providers business. As an example, O’Neill Patient LLP or Gorvins, when engaged directly, charge X amount for the service, and it is handled by one of their senior lawyers and ultimately, a genuinely good experience. However, if you instruct them through a panel provider (you know the ones!!!), you get a fee almost double the amount of going direct, and the file lands in the hands of a trainee associate who wouldn’t know what a section 106 looked like if it hit them in buttocks. This is because too many people take their slice of the pie, leaving not enough money for the lawyer to be able to give the case to one of their “proper” property lawyers.

    So shouldn’t, therefore, regulators be going after the middle men, namely the panels and large corporate agents that ram sub-quality brokers and conveyancers down clients throats as oppose to offering a good service for a fair referral fee which does not impact on the client in any way?

     

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    1. Nemo Conveyancer

      Perhaps, but how to do this fairly and effectively across the board, rather than targeting specific organisations?

      Personally, I’d like to see referral fees capped in some way. Referral fees need to be kept as a garnish to existing industries; panel management is an industry in itself now.

      I’d also like it to be a requirement that a client must be informed, in some clear and unavoidable way, that a referral fee is being paid, that the fee they pay may be higher due to that referral fee and that they are in no way obligated to use that service being referred.

      How that could be effectively enforced is anyone’s guess though!

       

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      1. brokerofexcellence

        I agree, on all except the point about making it clear that the fee is higher due to a referral fee. The fee shouldn’t be higher in the first place. It should be on the broker or conveyancer to pay the introducer without making the client pay more than any other client they deal with.

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  11. Andrew Stanton Proptech Real Estate Strategist

    Very soon technology will sweep away the legacy and paper based model of the legal profession, these seismic changes will deliver massive efficiencies, driven by Artificial intelligence and Machine learning. Already at a recent seminar in London it was discussed that legal documents that usually took days to find and ‘read’ could now be ‘read in hours’. The outcome of this will be that referral fees will be a ‘blip’ a nothing compared to the new landscape of agency that is far closer than most agents think. Yes, the legal profession is risk averse and the new tech will be seen as ‘possibly’ unsafe and untested, but, some really good firms are gearing up, and this will mean quick, better conveyancing, which let us face it can be done in very few hours. 25-years ago I agreed a sale on a Sunday, the new owners moved in on the Thursday, they were cash buyers, but there was no contract prepared and the sale went from zero to completion in 3.5 days, now average time is 19 weeks – madness. A madness that the new consumer will not tolerate – their nano-second tolerance level to delay, their ceaseless push to consume via that little oblong box that is ever in their hand means, industries need to change or go the way of the travel industry or other sectors. Agency and conveyancing is in the service industry for goodness sake. At present not too much service, oh, lots of service front line by great agents selling, but when the train arrives at the station of sold subject to contract, the stakeholders in the deal, have to get off the train and walk, beginning their upward crawl up a mountain of obstacles before they reach summit exchange.

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    1. RedRebel

      Bravo, well said totally agree.

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  12. Robert_May

    Interesting that the discussion focused on  one referral fee sector but ignores the  wide range of  opportunities available to agents that pay a  commission.

     

    This  has implications  for agents who will see income that’s rightfully  and reasonably theirs snuffled up by BIG data projects such as those who are now looking to grab FTB opportunities from under the nose of those who generate the channel content that attracts the FTB’s

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  13. itmakessense94

    Referral fees in their current guise is simply Bribery. Read the bribery act.

    Agents do not generally disclose the fees to the consumer and if reported may well be severely dealt with, hurrah!

    I cannot wait for the first prosecution for Bribing rubbish conveyancing factories and rubbish law firms who cannot compete without paying for volume work because they cannot survive on reputation and recommendation of loyal satisfied clients.

    Recently I was looking to purchase a house in Brighton and the agent (chain) refused to allow me to even view the property unless I declined to use my chosen solicitors who just happen to be brilliant. How can an agent refuse an interested party the viewing of a property? They are contracted to sell by the seller. They tried to force me to use their preferred lawyer and lender.

    Later, when I pushed the agent further they then stated that it was now under offer. I contacted the vendor direct who was not aware of any offer or of any interest from me.

    This is common practice in Brighton and I presume elsewhere too. The agent actually slagged of my solicitor as picky and that she asked too many questions?? I said she was brilliant already didn’t I?

    Shame on all of you duplicitous agents, I hope you all end up with huge fines or prison sentences. For all or should I say the few ( i can only think of 3 in the whole of Brighton) Honest agents may you become busier and more successful as the corrupt agents disappear.

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