Referral fee arrangements between estate agents and conveyancers can deliver benefits for consumers, but firms must do more to ensure they are properly documented and fully transparent, according to interim findings from a review by the Council for Licensed Conveyancers (CLC).

The review was launched following last year’s BBC Panorama investigation, Undercover Estate Agent, which raised concerns about so-called “conditional selling” – where buyers are allegedly steered towards in-house mortgage or conveyancing services as part of the home-buying process.

While referral fees remain one of the most contentious issues in the property sector, the CLC stopped short of calling for a ban. Instead, the regulator concluded that referral arrangements can play a legitimate role in the conveyancing market, helping consumers access services more conveniently and supporting closer working relationships between estate agents and legal providers.

However, the review also identified shortcomings in how some firms record and disclose referral arrangements, creating what the CLC described as a potential regulatory “blind spot”.

The findings are based on a review of 12 licensed conveyancing practices of varying sizes. Investigators conducted interviews with 15 lawyers, analysed information gathered during regulatory inspections and examined annual compliance returns submitted by firms. Input was also sought from the CLC’s professional and consumer reference groups.

All 12 firms reviewed operated referral arrangements, underlining how widespread the practice remains across the sector. However, five of the firms were unable to provide written referral agreements when requested, while disclosures made to clients were not always complete or available for inspection.

The review also highlighted the varying degree of reliance on referrals within the conveyancing market. Three firms said referral arrangements generated at least 85% of their work, while others obtained less than 15% of instructions through referrals.

Referral fees have long been a source of debate within the property industry, with payments reportedly ranging from around £50 to more than £1,000 per transaction. Critics argue that they can create conflicts of interest and encourage steering, while supporters maintain they provide a legitimate marketing channel and help create a more joined-up customer experience.

Alongside its interim findings, the CLC has proposed a series of recommendations aimed at strengthening transparency, improving record-keeping and ensuring consumers have a clearer understanding of any commercial arrangements that sit behind professional referrals.

For estate agents, the review is unlikely to end the debate over referral fees, but it does signal that regulators are focusing less on the existence of referral arrangements themselves and more on whether they are disclosed clearly and operate in consumers’ best interests.

“Consumers do appear to be informed of the existence of referral arrangements within a practice’s terms and conditions, as part of the client care or engagement letter,” the review found. “However, this is likely to be too late in the process for the consumer to make an informed choice about their provider.”

The review noted the responsibilities of estate agents in disclosure and recommended working with both trade and consumer organisations to improve awareness.

Although it was unable to determine whether higher referral fees impacted conveyancing fees or service levels, it concluded that this did raise important ethical questions about how such incentives operate in practice.

“No one spoken with admitted that high referral fees were passed onto the client through higher conveyancer fees” although it suggests that there may be implications for how some practices absorb these costs and sustain investment in service delivery.”

The review also found that the 12 practices’ websites did not consistently meet the regulator’s rules on costs transparency and suggested a wider web review to assess compliance.

The review’s interim recommendations, which will now be discussed with stakeholders before being finalised later in the year, include earlier and clearer disclosure of referral arrangements so consumers can make informed choices at the outset, strengthening expectations around written agreements and record keeping, working with the property sector and consumer bodies to improve awareness of disclosure responsibilities, and targeted monitoring to assess how effectively any changes are operating in practice.

Stephen Ward, the CLC’s director of strategy and external relations, said: “Given the strength of feeling we have encountered in our research, and the diverse opinions held by stakeholders, we feel it is important to take a sounding on our interim findings and recommendations, invite any evidence not already shared with us, and provide further opportunity for discussion with the sector having had the benefit of seeing the interim report.”

You can read the interim findings in full here.

Panorama exposes conditional selling by estate agents