25 May
Back in March 2019, the National Trading Standards Estate & Letting Agency Team (NTSELAT) created guidelines stating that estate agents must disclose to customers in writing, at the earliest opportunity, details of referral fees they received from other suppliers, such as mortgage or conveyancing providers.These guidelines were the result of a government request for more transparency for consumers about such fees. Compare Local Estate agents here.
A few weeks later, The Property Ombudsman followed this up by saying its members must in future disclose referral fees in a bid to make these previously hidden costs open and transparent to consumers.
Since These statements were made though, and largely due to the pandemic changing government priorities, little has been put into practise regarding any clampdown on referral fees. This means the issue remains uncertain.
What Are Estate Agent Referral Fees?
Referral fees are where your local estate agent receives a commission, payment, fee, reward/gift or other benefit from a third-party service provider (such as a conveyancer or mortgage provider) for recommending them to the buyer or seller.
In a recent survey of The Property Ombudsman members, almost 60 per cent had referred customers to external companies. Over 80 per cent of those members admitted receiving a fee for the referral. The review by Trading Standards noted that the practice of referring customers to a preferred service provider in exchange for a fee is “regularly concealed.”
It claims that many customers are unaware of the existence of referral fees when buying or selling property and says:
“In some situations, customers may be [pressured] to use a referred provider despite the fact it does not meet the needs of the customer or provide best value.”
James Munro, senior manager at NTSELAT, says:
“We recognise that referral fees have a place in business if used ethically and transparently and with no pressure to use the referred service.
“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. Mandatory disclosure of referral fees would ensure there is full transparency around this practice, helping to build consumer confidence in the estate agency industry and demonstrating the duty of care agents should have to both parties in a property sale.”
Speaking on a podcast hosted by Rob Hailstone of the Bold Legal Group, Munro said:
“Consumers – the public – they’ve got to be made aware of their options and the questions to ask. Because of the nature of referral fees, it would be great if consumers when they’re using estate agents actually ask: ‘What arrangements do you have?’”
This, he argued, would give NTSELAT far more information if things go wrong. He also added that he wants Citizens Advice to be more specific on the information it gets from members of the public who use CA as a form of redress if there is a dispute with an agent.
Munro said in the same podcast that he and his team currently rely heavily on Citizens Advice and the two government-approved industry redress schemes (namely The Property Ombudsman and the Property Redress Scheme) for tip-offs regarding referral fee issues, as they are tricky to monitor routinely.
A Referral Fees Ban?
Previously, the Ministry of Housing (now the Department for Levelling Up, Housing and Communities) has said that a complete ban on referral fees could be considered unless the sector ensures greater transparency.
Mark Hayward, the former Chief Policy Adviser at Propertymark, said:
“NTSELAT has given the industry an olive branch. Rather than an outright ban, we’ve been given the opportunity to improve the practice of charging referral fees by increasing transparency. However, if the guidance isn’t taken seriously then referral fees could be banned when the guidance is reviewed next year.”
He added:
“We’ve long called for guidance which is easy for both agents and consumers to understand and comply with. Buying a home is no mean feat, it’s probably the most expensive type of transaction we engage in – so transparent and fair fees are essential. It’s important all agents take the time to understand the guidance and ensure they are compliant.”
What Should Estate Agents Do Now?
Propertymark suggests that local estate agents need to do the following when it comes to referral fees:
- In the interest of fairness, information on referral fees must be provided to buyers and sellers in advance of them making any transaction-based decision.
- Make referral fees clear on property particulars online and offline. Be bold, compelling, specific and include who you receive referral fees from and the value of each referral.
- Act in the consumer’s best interest by ensuring that both buyers and sellers can make an informed decision.
- Outline where a referral arrangement exists, that it exists and with whom.
- Inform the consumer well in advance of offering the choice as to whether to use a recommended service provider.
- Provide the information to consumers in writing and tell them they can also source and use different providers.
Will There Be A Ban On Referral Fees Anytime Soon?
A ban or further restrictions on referral fees has been mooted. With the government currently dealing with the Ukraine-Russia crisis and emerging from the pandemic, it seems unlikely that any official action will be taken soon.
At the same time, NTSELAT recently announced some major changes to upfront property listings to improve transparency in the sales and lettings process. Taking a closer look at referral fees could very well come soon.
For now, though, agents would be well-advised to follow the advice from Propertymark or seek advice from NTSELAT: to ensure they are providing the fairest and most transparent service.
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