Opinion on referral fees: First they come for the lawyers, and next it will be estate agents

Martin Niemölller 1940’s poem, “First They Came …” warned about the rise of the right-wing in Germany and started with the words: “First they came for the socialists and I did not speak out … because I was not a socialist.

“Then they came for the trade unionists, and I did not speak out … because I was not a trade unionist.”

Suffice to say, the poem doesn’t end on a positive note.

It brings to mind the news that from this December, all lawyers (especially those doing conveyancing) must be totally transparent about the services they provide – documenting on their websites the fees they charge, referral arrangements and the profile of the people actually doing the work.

This should strike a warning note to the entire property industry.

So what happened?

Behind this change is the Competition and Markets Authority (CMA), which reported a couple of years ago that consumers were often confused on how to select their lawyers.

The phrase (or a rough translation of) “No excrement, Dr Watson’s detective friend” springs to mind.

In the last couple of months the key legal regulators, the Solicitors Regulatory Authoritry (SRA) and the Council of Licensed Conveyancers (CLC) have published their requirements for how law firms will need to change.

However, the concern is that this is just the first step before further changes that could affect the entire property industry.

The pricing problem

The CMA investigation interpreted people’s complaints about poor service and undisclosed panel-management arrangements as “we need to know the price up front”.

As any person who has ever sold anything knows, price is normally the first thing people ask about.

We are very sceptical about those surveys that suggest most consumers select on service rather than price.

Typically, when polled for the reason for picking a service, people will use any excuse rather than price, because frankly, it’s embarrassing.

Admitting that you selected a provider because it was cheaper, well, it looks shallow.

And it is.

We help prospective clients avoid making this embarrassing mistake by explaining what things can go wrong, how to avoid fraud, what it takes to give good communication and understanding the process.

Not fees.

Once people start making decision on selecting their lawyer based on costs alone, then all the fuzzy “We’ll look after you” or “500 years’ of local experience” counts for nothing.

Agents will start to find that consumers are less inclined to take their recommendation and go for the cheapest.

The referral fee issue

Not only will lawyers’ fees need to be published, but a full breakdown of any referral arrangement will need to be disclosed.

Whilst we’ve always been pragmatic about proportionate referral fees and see them as a valid marketing cost, for those agents who take advantage of the questionable levels of fees offered by the panel managers this could spell trouble.

Let’s face it, if consumers knew they were paying middlemen just to pass on a client’s telephone number and email, they’d want to know how much it was and what they were doing for their money.

Which, on the positive side, might start raising the question as to why these companies actually exist.

The experience issue

In addition to fees and referral arrangements, it will be necessary to give details of who is doing the work and their experience. Which sounds like a great idea because from the consumer’s point of view, a lawyer with a lot of experience is a good lawyer.

Except, unfortunately, when it comes to lawyers, typically the inverse proportionality rule kicks in.

Whilst inexperience can result in over-cautiousness and numerous enquiries being raised, over-experience (or “dinosaur-syndrome” as we like to call it) often results in arrogance and intransigence.

What consumers are really looking for, are the Goldilocks lawyers: those that know what a CML compliant lease is but is not burned-out by the pressure that is modern conveyancing.

As Goldilocks would say – “just right”.

How will it be policed

It is safe to assume that the regulators will not have the time nor resources to police the scheme.

However, they are in luck, because they have a support network already in place – the snitching skills of many solicitors would make a Gestapo officer blush.

While we are very much in the “Snitches Get Stitches” club, we have first-hand experience of what some of these people are capable of.

No doubt the anonymous “tips” line to the regulators will be burning hot from solicitors ratting on their competition.

What could this mean to agents?

The concern is that this change could mean a further swing to a purely priced-based Amazon-style approach to house buying and selling that will engulf all aspect of the process, including agents.

Consumers will start selecting based purely on price, driving it down, resulting in even poorer quality services than we see today.

In addition to driving down fees, the requirement to publish referral fees could start to impact this additional revenue stream that agents have come to rely on, a challenge many could do without.

As Niemölller warned at the end of his poem: “Then they came for me … and there was no one left to speak for me.”

* Peter Ambrose founded The Partnership, an independent conveyancing firm which works with a number of estate agents. The firm is not a panel manager and handles all conveyancing cases in-house

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9 Comments

  1. MisterP76

    So basically this will stop “back handers”?

    I don’t see the problem in this, makes perfect sense to me.

    I get recommendations from estate agents because I do a decent job for a reasonable price, I will not pay someone to “refer” me despite having been asked on numerous occasions by some less reputable agents.

    If you want to earn more money, sell more houses….simple!

     

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    1. gardenflat

      “If you want to earn more money, sell more houses….simple!”

      I wish it was!

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    2. RealAgent

      “If you want to earn more money, sell more houses….simple!”

      And that sentence wins the prize for k**b comment of the week.

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      1. MisterP76

        Why thank you, I’m guessing you’re a long term holder of said prize.

        What I was meaning was spend more time doing what you get paid for instead of seeking undeserved commissions for paid referrals.

        Child!

        Grow up!

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  2. Jacqueline Emmerson

    As far as the SRA are concerned we must ensure that anyone who refers clients to us informs the client that a referral fee has been paid. We are also under a duty to inform the client. We inform our clients every time this is the case, we have a specific client care letter that explains how this works. The SRA check on this whenever they carry out monitoring visits. We check on this by asking clients on a random spot check basis whether or not the referrer advised them that there was a fee payable.

    Why on earth would you want to be dishonest and hide this from the client?

    If you are doing a good job for the client and we are doing a good job then the client usually doesn’t care. The problem arises where the agent offers poor service and/or the case has been passed on to a firm that takes in too much referral work. That firm will lose a lot of profit in referral fees, this affects the number of cases given to each fee earner.

    Some clients are very much aware that some agents choose their mortgage broker or lawyer based upon referral fees. They will do their own rininging around.

    ‘What I find particularly dishonest are builders and estate agents who say that you must use their broker or agent, it is a condition of you being able to buy. I have had builders sales people tell me this without knowing that I am a solicitor. The rules are there for a reason, to protect the public. So I use the builders mortgage broker, they get me a deal for a house that is over priced. I use the builders conveyancer. They don’t raise enough queries on the deal, so I am sold a substandard property with many problems on the title which I will only discover when I come to sell the property. How can that be morally right?

    The best model is not to pay referral fees to anyone ever. Unfortunately when all around you are paying such fees it puts you on a poor playing field. When it was illegal to pay such fees I can tell you that the going rate was £50.00 per case, I could tell you which firms were paying this and to whom. Our regulators did nothing about this. So the honest lost out.

    Relying entirely upon referral fees to obtain work is the road to financial ruin. Having only a small proportion of your work come in from referrers is the best model for us. It will never be the case that referral fees are banned and that that ban is enforced.

    I am old enough to remember when agents made their money from selling and renting houses. Not from referral fees and charging tenants fees. As a student it was unheard of for us to pay an agent a fee. Now it’s hundreds of pounds. What has gone wrong with the estate agency world that profits are no longer enough from selling and renting only?

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    1. NewsBoy

      What a pleasure to read such a considered response! I cannot match you for eloquence but heartily agree with all you say. I also take matt faizey’s point and believe we should all “STOP IT” now.

      These “secret” referral fees are bringing the industry into disrepute and are a time bomb waiting to go off in our faces.

      I have no problem with the fees but they must be disclosed.

      Stop it now!

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  3. mattfaizey

    EA’s being themselves with beleaguered trade unions?

    Or indeed with the ‘plight’ of socialism?

    Really?

    And in our next news story;

    ‘Ghengis kahn, has history been unkind to this slightly irritable man?’

    Maybe,

    ‘Fred & Rose, just misunderstood gardeners?’

     

    Referral fee’s are shafting the public by pushing clients into **** services, by useless entities.

    When will those doing the referring realise that the service given by the firm you refer your client to reflects on you.

    Stoppit

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    1. mattfaizey

      First line ‘being’ should be ‘aligning. Damn phone!

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  4. AgentV

    Wonder how the online lister fraternity will take to revealing the conveyancing referral fees they receive….or will they find a way around doing it openly?

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