The National Trading Standards Estate and Letting Agency Team (NTSELAT) recently issued a statement calling for estate agents who flout mandatory disclosure rules regarding referral fees to be prohibited from estate agency work.

Estate agency referral fees have long been a contentious issue in our sector. On the one hand, many believe that banning them would create a level playing field for all, ensuring that conveyancers and brokers were selected by consumers on merit only.

Others argue that an outright ban would simply result in consumers being charged greater upfront fees to cover increased marketing spend.

At the CLC Annual Conference in January 2019, the then housing minister Heather Wheeler said: “Buyers choose the house, not the estate agent, but this shouldn’t mean that they choose their conveyancer by default.

“While referral fees are an important feature of the industry, and a way of reducing marketing costs and building business, I’m concerned about the current lack of transparency… Consumers should always know they have a choice.”

Transparency

The choice aspect is what is really crucial here. Referral fees in and of themselves aren’t damaging to the industry or to the consumer, but certainly a lack of transparency over them is.

It is hugely important that if estate agents do choose to use referrals that clients are made aware of this at the earliest opportunity and provided with clear information which lays out what those fees are.

It is equally important it is made clear to them that they are free to shop around, to do their own research, and select their own conveyancer or broker based on criteria which are important to them.

NTSELAT has also advised estate agents that they shouldn’t rely on the conveyancers to disclose any fees being paid stemming from referrals or recommendations, but should ensure that they undertake their own disclosure at the “earliest possible opportunity in the consumer-agent relationship”.

For lawyers, new rules came into force in December 2018 that require them to publish cost and service information on their websites to make it easier for consumers to shop around for conveyancing services.

This is all part of a wider drive by the Competition and Markets Authority (CMA) to increase transparency for consumers.

The CMA has a review on the legal services market due imminently, following their December 2016 report which found the sector was “not working well” for consumers and small businesses, there have been industry efforts encouraging consumers to shop around before choosing a lawyer.

As such CLC-regulated lawyers are expected to state clearly if they enter referral arrangements with third parties and if so, the average amount they pay.

They are not expected to publish specific details of individual referral arrangements, but it has also long been the case that, when they confirm their instructions from their client for the first time, CLC-regulated lawyers set out what they have paid. There are similar provisions in place for solicitors.

In February 2020, National Trading Standards (NTS) released a report which looked in detail at referral fee transparency in property sales.

Complaints

The results showed that there were very few complaints received by Trading Standards about referral fees. Nationally, the total number was six.

It said: “The Citizens Advice Partner Portal, which is the main gateway consumer report matters to Trading Standards, had no record of referral fees on its database.

“An open source search brought no real indication that referral fees were in the consciousness of the general public. Anecdotally, investigators found few instances of full disclosure of referral fees on company websites.”

This raises the obvious concern that very few complaints are received about referral fees because consumers simply aren’t being made aware of their existence. This is despite NTS publishing guidance in February 2019 on how and when estate agents should disclose referral fees.

This guidance covers any referral arrangement the estate agent may have, be that for financial advice, removal company or conveyancer.

It warns that failing to disclose referral arrangements risks criminal prosecution under the Consumer Protection from Unfair Trading Regulations 2008. NTS could also take action under the Estate Agents Act 1979.

The guidance says an estate agent should disclose “in plain terms”:

• The price of its services, including any ‘compulsory’ extras;
• Where a referral arrangement exists, that it exists, and with whom;
• Where a transaction-specific referral fee is to be paid, its amount;
• Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction; and
• Where the referral is rewarded other than by payment, an assessment of the annual value of the reward or the value of the reward per transaction.

Increased transparency is at the heart of most of the work currently being done to try and improve the landscape for consumers.

The CMA, and more recently NTS have this agenda in their sights, and are keen to see a positive adoption across the industry. And quite rightly so.

As such, the direction of travel is clear, and the onus remains on estate agents to ensure that consumers are aware when fees are being paid.

We consider this to be an important step in improving the home buying process, transparency across the whole housing sector is an essential part of this. We want to ensure that consumers are empowered to make informed decisions, based on all of the available information.

Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers