Home » News » ‘Be more transparent about referral fees or face prosecutions or even a ban’
Regulation & Law

‘Be more transparent about referral fees or face prosecutions or even a ban’

Warning to estate agency industry comes in latest advice from a senior legal expert at the National Trading Standards Estate Agency Team

Nigel Lewis

Estate agents who refer customers to other businesses but do not make it clear that they are earning a fee, retainer or gift in return for the referral are open to prosecution, the National Trading Standards Estate Agency Team (NTSEAT) has warned.

In its latest briefing document it says that under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) failure to tell clients about such referrals may lead to a criminal prosecution.

It also informs agents that they may be in the last chance saloon, warning them that unless they start being transparent about referral fees, the government may ban them altogether.

Referral fees

Estate agents are now expected to include details of any referral fees in their standard terms and conditions sent to vendors, and within sales particulars sent to potential buyers.

“The disclosure must be made in a way which is clear, intelligible and unambiguous and have no lesser prominence in documentation than other important terms, conditions, or information,” the briefing document says.

“Plainly the most important information in deciding whether to accept a service is the price of that service.

“Any practice by an estate agent which hides the real price of a service is capable of being found to be an unfair commercial practice under the CPRs.”

mark hayward naeaMark Hayward (left), Chief Executive, NAEA Propertymark, says: “We have long called for greater clarity and transparency on referral fees.

“It’s essential that if you are referred for financial or legal services by your estate agent, you understand that they are receiving a commission, and how much this is.”

 

March 1, 2019

2 comments

  1. I am not about to become paranoid, but following on from an earlier comment I made on Countrywide’s woeful balance sheet, two days ago we
    now have the Trading Standards Estate Agency Team, confirming that in its opinion – to be tested by case law – that failure to tell prospective clients about referral arrangements could make all estate agents (including Countrywide) face criminal charges.

    Pandora’s box is at last open, in the name of transparency, those very helpful folk at the NTSEAT feel that if estate agents for instance fail to tell a prospective vendor that the solicitor they are recommending, gives that agent a fee as a referral, then the agent could be open to a criminal court action under the CPRs and probably action by NTSEAT who could close them down.

    The new NTSEAT (14 page) guidelines are that ‘estate agents must be transparent and plainly communicate to a prospective client: –

    (a) The price of its services, including any “compulsory” extras; and

    (b) Where a referral arrangement exists, that it exists, and with whom; and

    (c) Where a transaction-specific referral fee is to be paid, its amount; and

    (d) Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction.’

    This sounds on the face of it a really good idea, let the consumer know all.

    But, if you are a huge corporate like Countrywide, Connells, etc, and you do refer your solicitor business to a certain solicitor, how will it sound if the agent has to say, ‘Mr vendor we feel you may want to use XYZ solicitors, you do not have to, but be aware we get a £120 referral if you do, and annually (and this is the kicker) we as a company receive 2M a year from that solicitor for recommending them.’

    Do you think the agent will get many takers?

    It is not just solicitors referrals, that the NTSEAT are talking about, it will cover everything where a referral exists, EPC’s, surveys, you name, the agent will need to declare a monetary interest and an annual sum that they receive.

    In Countrywide’s case I am informed that for every £1 of revenue generated by the sale fee, an extra 40p of revenue comes from other income streams, solicitors, mortgages etc.

    So, I assume that referral fees are at play in this 40p of revenue. What happens if this golden goose, stops laying?

    On a separate topic, what I find most fascinating in the NTSEAT guidance notes is the sentence …

    ‘Plainly the most important information in deciding whether to accept a service is the price of that service’

    So,trading standards want to protect the consumer, as the starting position for all consumers is knowing the price of the service?

    My thoughts are, consumers would actually like to know the quality of the service, relative to the cost?

    And what I mean is this. An agent gets £120 for referring a client to a solicitor, and the company earns 2M a year in referral fees. So, that could look to be a questionable practice.

    Much better that the client uses some other solicitor, and the agent earns no fee and there is tie up between the agent, the conveyancing of the sale, and the vendor.

    Is that a better system though? A vendor uses a solicitor who is unknown, they may be great they may be not too good, they may speak to the agent as the sale progresses, they may not.

    Or, an estate agent recommends a company that it has a massive connection with, yes it receives a referral fee, but due to the huge volume of business, there is also a commercial incentive to get Mr or Mrs Vendor exchanged. Not only this, – there are highly developed software and hardwired processes in place, and management teams both within the estate agency and the solicitors, all with a common aim of getting as many properties exchanged.

    This interdependence I think is not a bad thing; having had solicitors and conveyancers over the years who never return a call or seem to do anything at a pace (not all) I would rather place my clients sales in the hands of a fully focused large solicitor practice who has the staff and the technology to perform.

    Luckily, those days are behind me, but my fear is that in the pursuit of transparency, agents might find they are ‘pushing’ clients away from using their preferred solutions – a brilliant solicitor solution, a brilliant survey solution – and ‘pushing’ clients out into the unknown.

    I could be wrong, but if clients no longer take up the recommended suppliers of other related services, because of the money that the estate agent gets as a referral fee, then this lost revenue stream could see many agents struggling.

    Lastly, referral fees exist in many, many areas of commerce, so will trading standards be searching these out and making the world transparent for all folk, including the beleaguered estate agent? Thoughts anyone.

  2. Just a thought, but …

    Under the new guidelines – when a local property expert – (who is a self-employed individual) goes and list a property for Purplebricks, will he or she have to say to the vendor, as soon as you sign this agreement I get £200 plus as a referral fee, and if you have accompanied viewings I get £X, etc.

    And each time Mr Vendor I sign a new listing up, I annually receive a referral fee of £40,000 (well in the good old days) from Purplebricks.

    Or as a collective all the LPE’s referral fees added together will be around 30M, being 25% of the total revenue charged upfront by PB to vendors in 2019.

    Might this be the death knell of online agents?

    It is one thing for a traditional agent to say we get £120 as a referral fee for using our solicitor should you want to Mr Vendor, and you have the choice.

    And quite another to say, I definitely get as a referral fee from Purplebricks the moment you sign up, sale or no sale, £250.

    If the Local Property Experts were employees the fee, would not be a referral fee, it would just be a fee, but as the LPE’s are outside of the company framework, this fee, or commission, ( know PB do not like the word)- will need to be disclosed to vendors every single time before a vendor signs on the line that is dotted.

    So the NTSEA transparency drive may be the start of Purplebricks hidden commissary coming out into the open.

    Maybe that share price is about to get hit again?

    And maybe those TV adverts will need to have qualifying banners all over them, obscuring ladies diving face first into cakes, or potters ruining their latest creation on a potter’s wheel.

What's your opinion?

Please note: This is a site for professional discussion. Comments will carry your full name and company.

This site uses Akismet to reduce spam. Learn how your comment data is processed.