Munro: Ban would send referral fees underground
There are “too many instances” of estate agents only allowing potential buyers to view a property or make an offer if they use a recommended conveyancer and other service providers, the head of National Trading Standards’ estate and letting agency team (NTSELAT) said yesterday.
James Munro admitted he could not say how good compliance was with guidance for estate agents on being transparent about referral fees.
The NTSELAT issued guidance on referral fee disclosure [1] in March 2019 at the request of the government, and then it published a report [2] in October 2020 recommending mandatory disclosure, rather than a ban on referral fees altogether, and other steps to make consumers aware of the issue.
Addressing the Bold Legal Group summer conference in London, Mr Munro stressed that conveyancers paying estate agents referral fees was acceptable providing they were transparent and “not causing discrimination”.
He explained: “We are seeing too many instances at the moment where agents are saying that if you use these connected services then you can make an offer, you can view the property.”
This was not permissible and NTSELAT has the power to ban estate agents in the event of such misconduct, he said.
Speaking afterwards to Legal Futures, Mr Munro explained that an estate agent could recommend particular buyers after putting their offers to sellers; they should only filter out offers on legitimate grounds, such as those below the minimum sum the seller said they would consider.
It would be acceptable for the agent to use their connection with the conveyancer as a reason for the seller to choose a particular buyer – subject to disclosing the referral fee.
Mr Munro said his team was aware of some estate agents who made more money from referral fees than from commissions on sales, while staff in some bigger agencies were on commission which was driven largely by referral fees.
This incentivised them to prefer certain types of potential buyers, even if they were not the best buyers for the sellers.
He acknowledged that solicitors were under an obligation to disclose any referral fee they paid but said by that point in the transaction it was “too late”, as the process was already underway.
He said that, as well as being transparent, referral fees should generate a benefit to the client – such as the estate agent acting as a single point of contact – but in many cases the estate agent was doing nothing more than recommending the law firm and the conveyancer was providing the same service they would to any other client.
Indeed, having seen cases where the referral fee was 50% or more of the conveyancer’s fee, Mr Munro questioned whether using such a firm was in the buyer’s best interests, as they may not be able to provide as good a service as a firm that paid a lower or no referral fee.
He admitted, though, that it was “very tricky” to monitor compliance with the guidance as the NTSEALT was reliant on people reporting concerns.
This meant he was unable to say whether there was a good level of compliance. “All we can say is that we don’t think it would be in the best interest of all concerned to ban referral fees,” Mr Munro said.
“That would just drive them underground. We’re left with a situation where we have to do what we can to improve transparency.”
The government continues to hold the prospect of a ban over the industry but made clear last month that it was not on the horizon.
In response to a question from Labour MP Zarah Sultana about whether the government planned to regulate conveyancers paying referral fees and passing those costs on to consumers, Eddie Hughes – a minister at the Department for Levelling Up, Housing and Communities – said fees charged by conveyancers, estate agents and other property professionals should be determined by the market.
“However, where agents receive a referral fee for recommending services to their clients, these fees must be fully disclosed to clients before they make any decision to purchase.”
He cited the NTSELAT guidance and report, adding: “NTSELAT will continue to monitor compliance, and we will continue to keep the case for legislation under review.”