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Estate agents face mandatory referral fee transparency rules following shock report

Trading Standards has concluded its investigation into referral fees and recommended agents are forced to comply or face expulsion.

Nigel Lewis

referral fees

Estate agents should be forced to tell customers about third party referral fees or face expulsion from the industry, a Trading Standards report into the issue has recommended to Ministers.

The shocking recommendations follow a long investigation into referral fees by the National Trading Standards Estate and Letting Agency Team (NTSELAT), prior to which it had warned agents that they were in the ‘last chance saloon’. Its report has been with MHCLG, who commissioned the report, since February.

This recommends making referral fees transparency mandatory rather than advisory.

“It is unacceptable that unscrupulous practices are still taking place where consumers are not being made aware of referral fees when buying or selling a property,” says housing minister Christopher Pincher (left).

The report also recommends that agents who flout existing rules contained within the Consumer Protection from Unfair Trading Regulations 2008 should face being banned from the industry.

“At this stage we will be working with industry and professional bodies to develop guidance for agents to comply with the need to disclose referral fees,” a NTSELAT spokesperson told The Negotitaor.

“At the current time this will be based on the provisions of the Consumer Protection from Unfair Trading Regulations 2008 which make it an offence for a trader to omit material information.

“Referral fees are considered to be material information when marketing property as the absence of such information is likely to affect a consumer’s transactional decision.”

It it now up to MHCLG to decide whether to bring in additional legislation.

Regularly concealed

NTSELAT found that referring customers to a preferred service provider in exchange for a fee is ‘regularly concealed’  and that many customers are unaware of this arrangement when buying or selling a home.

“In some situations, customers may be pressurised to use a referred provider despite the fact it does not meet the needs of the customer or provide best value,” the reports says.

The key recommendations are:
  • Make transparency of referral fees mandatory.
  • Require a warning to be given to customers that they should consider shopping around.
  • A public awareness campaign to warn consumers about hidden referral fees.
  • Further industry guidance, and work with the professional bodies and redress schemes to encourage compliance in the property sector.

“We recognise that referral fees have a place in business if used ethically and transparently and with no pressure to use the referred service,” says James Munro, Senior Manager at NTSELAT (left).

“It is important that customers are fully aware of the basis and value of a referral or recommendation so they are able to take an informed transactional decision.”

Link to Redress Scheme newsSean Hooker (left), Head of Redress at the Property Redress Scheme, says: “I was on the working group with the MHCLG and NTSELAT along with TPO, Propertymark, RICS and the Guild that helped draw up guidance for agents as part of a voluntary trial of disclosure and transparency.

“Whilst the guidance was followed by many businesses, the NTSELAT report shows that more is needed to be done and whilst they have fallen short of recommending a full ban, the introduction of mandatory disclosure is required. This is the correct and proportionate response to protect the consumer and reduce the complaints against agents.”

Mark Hayward (left), Chief Executive of NAEA Propertymark: “New legislation which will require agents to display referral fees is a step forward, providing clarity to agents that they mustn’t fall foul of the law but importantly ensuring greater transparency for consumers to avoid any confusion about what agents are charging for.

“This is something we’ve been working closely with government and the NTSELAT on, and given that agents were facing a complete ban of referral fees, we would strongly advise that anyone who isn’t currently displaying their fees should start now, regardless of when the new laws will come into force. ”

Read the full report.

October 2, 2020

2 comments

  1. Like the Regulation of Property Agents (RoPA) initiative, referral fees is an area where agents should look to their law firms for free advice and assistance on all aspects of compliance. A good conveyancing law firm is not there just to be sent referrals: they also have an obligation to assist in the drafting of all the required compliance material.

  2. Our friends in Powys, the National Trading Standards Estate Agency Team have in fairness always been very efficient when I have had dealings with them, but they are a tiny team, a bit like a lone marshall looking after the wild west in the 1830’s. And on the flip side, my view is that agents are transparent regarding these matters, and the public is a lot savvier than many give them credit for.

    Over 30-years plus of agency I never saw an example of agents taking advantage of clients, I am sure there were cases of omissions regarding financial arrangements regarding services provided, but as an oversight rather than a master plan to fleece the gullible public. Commerce is complicated, if you transact property this involves services, these have a cost, whoever is used a revenue and a profit is generated.

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