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The end of conveyancing referral fees?

Conveyancing referral fees can be a nice little earner for a sales agent, but they could be under threat, says Lawrence Higgins.

Property Drum

conveyancing

Whilst the vast majority of an estate agent’s turnover comes from its raison d’être – fee income from house sales – the by products that are required for that sale to go smoothly have provided a healthy additional form of income. Referral fees from the likes of surveyors, removal firms, mortgage lenders and, of course, solicitors can account for as much as 20 per cent of turnover for some of the more efficient companies.

According to Reallymoving.com, the average Briton spends £8,264 – or £20,739 in London – moving house. With £4,104 of going to directly to the agent in their sales commission and £2,280 going to the Government, there’s a healthy £1,480 of fees for the agent to take a percentage of.

“We are happy to provide introducers with gifts. It has been a significant reason for myhomemove’s success.” Stephen Hayter, myhomemove.com

conveyancing

Stephen Hayter, myhomemove.com

In the case of conveyancing referral fees an agent can receive around £300 from the referred solicitor’s practice from a typical £805 bill to the customer. But recently this time honoured perk has come under scrutiny – if not quite attack – from the public and officials and has been threatened by online progress giving consumers far easier access to a conveyancing practice of their own choice (see Online Relationships).

Following the Government’s decision to ban personal injury claim referrals to curb the compensation culture in this area, the Law Society called for conveyancing to be added to the ban. The potential of losing this source of healthy income caused some panic in the profession.

Other stakeholders, officialdom and quangos also entered the bun fight over estate agents commission and whether gaining commission from conveyancing referrals should be allowed to continue is currently the subject of a consultation paper from the Council for Licensed Conveyancers (CLC).

The Law Society demands that referral fees end. The Solicitors Regulation Authority (SRA) report a significant lack of compliance with the rules governing referrals whilst the National Association of Estate Agents defends the practice, provided it is transparent.

The Office of Fair Trading (OFT) investigated the practice of estate agents getting a commission for referring buyers to other providers such as solicitors. Its research suggested there was a clear theoretical problem with estate agents earning income from ancillary services sold to buyers. It found that there was the potential for distorted incentives that may create a conflict of interest with the estate agent’s duty to act in the best interest of the seller.

The OFT considered a number of remedies, including introducing an outright ban on referral fees, but has said that at this stage there is insufficient evidence to properly conclude what is actually needed. However the body has recommended that the Government consider a statutory response to the issue, perhaps as part of its review of the future of estate agency regulation.

But with a concerted campaign from sections of the media including a vociferous crusade from the Daily Mail and the Sunday Times and then Law Society saying that, “Consumers are paying substantial sums of money for no benefit. They are paying for the packaging, rather than the service”, it is clear that some action had to be, at least, seen to be taken.

“Working with estate agents, our headquarters team helps everyone achieve positive results in a difficult market.” Ian Fletcher, Move with Us

The CLC has followed the Government’s line and says, “The current lack of evidence of consumer detriment means that to consider a ban on referral arrangements/fees is unjustifiable.”

This was backed up by the SRA research which found that when referral fees were paid the consumer usually paid less overall for their conveyancing – they also found no evidence to suggest that the quality of conveyancing services is reduced because of referral fees. There is also a fear that a ban could lead to ‘under the counter’ inducement fees.

So what is happening? The CLC’s consultation document on how best to proceed went out at the beginning of December 2012 with a call for final responses by March 1st 2013 and sets out the case for increased disclosure requirements to be placed on firms to help the consumer make an informed choice. It also proposes that all referral arrangements should be in written form but will not require each individual agreement to be published.

The CLC is also reviewing whether current disclosure and publication requirements, and compliance monitoring provisions, are fit for purpose – ie, do they reduce the likelihood of detriment to consumers as a result of allowing referral fees, referral arrangements and fee sharing.

At present research indicates that there is understanding from the consumers as to what is happening between estate agents and conveyancers and that money is generally changing hands in return for a successful referral: Legal Ombudsman complaints data for April 1st 2011 to March 31st 2012 showed that 15.6 per cent of complainants regarding the services provided by the CLC regulated companies complained about a failure to advise them correctly – this compared to 16.8 per cent across all regulators. 9.8 per cent of those that complained cited the fact that they had not been given sufficient costs information – this compares to 8.3 per cent across all regulators.

This level of complaint, and compliance, led to them justifying their decision not to impose a blanket ban – this is only provisional though pending the outcome of the consultation. It also led it to the conclusion that the current regulatory requirements do not go far enough to ensure consumers are consistently provided with sufficient and timely information which allows them to make an informed choice.

The consultation paper sets out proposals as to how to expand upon the current requirements. These are: all referral arrangements between the conveyancers and the agent must be in writing; consumers will be provided with information on the nature of the arrangement, the name of the referrer/referee, how any payment is calculated and how they are affected financially or in any other way by the arrangement; the customer has to be told all of this before they have actually accepted the referral and they must be told their right to shop around.

Overall the proposals are extensions to what is already happening – to a lesser or greater degree – and seek to impose higher levels of transparency.

So it appears that for estate agents their perks of referral fees are safe – provisionally – provided they let the consumer know exactly what they are doing and how much they are getting. Or, keep calm and carry on.

Estate agents can have their say on the referral fee proposals at www.clc-uk.org.


Online relationships

The growth of online conveyancing caused consternation among estate agents; how to do the timehonoured deal with the local solicitor when the customer could just go online and choose conveyancers based anywhere around the country at a knock down price.

But all that was required was just a change of tack – estate agents worked with the online service providers and income has boomed.

When Harry Hill, creator of Rightmove, developed his conveyancing business, In-Deed Online, there were fears that agents could be cut out of the loop. In-Deed was launched on AIM in June 2011 as a non-traditional online conveyancing service which bypassed agents. The consternation increased when the online doyen acquired an existing practice, Lewis & Thomas saying, “We deliver fantastic, personal service and proven London expertise – without the eye-watering price tag.” Mild panic then, if there would be no room for commission – but then soothing words followed from senior partner Matthew Lewis who said, “I’m looking forward to partnering with London’s estate agents to deliver a fantastic conveyancing service to our clients.”

The company then announced that it would be using £4.5m secured through the flotation to buy high street law firms, and now seems happy to work with agents as introducers.

Meanwhile property services firm Move with Us has handed a record £200,000 to Arun Estates for just one month’s referral fees in August 2012. Move with Us conveyancing director Ian Fletcher says, “It’s down to the estate agents we work with as well as the team here at headquarters that have made this possible, helping everyone achieve positive results in a difficult market.” The Cambridge-based company has a network of over 1,100 agents and managed around 40,000 conveyancing transactions over 2012.

Conveyancing firm myhomemove chose a novel referral rewards scheme by giving out prizes to estate agents during the Olympics based on medals won by Team GB, through its ‘myrewards’ scheme. Staff from 62 different agents, including Andrews, Goadsby, Intercounty and London & Country, participated.

Introducers were awarded points which could be redeemed for the likes of holidays and iPads. Stephen Hayter, myhomemove’s sales director, says, “We take nothing for granted, and are happy to provide a means of  rewarding introducers with gifts of their own choosing. It has been a significant reason for myhomemove’s success in recent years.”

February 21, 2013

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