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    Transparency Drive: The Push for Open Referral Fees

    By The reallymoving Team Updated 27th Mar, 2024

    Referral fees are one of the most controversial aspects of estate agency. What's being done to change that?

    Speaking on a podcast last month, the most senior Trading Standards officer policing the agency industry said he hoped the public would start asking about referral fees in a bid to help the body come to terms with the scale of the problems surrounding the controversial payments. 

    Back in March 2019, the National Trading Standards Estate & Letting Agency Team (NTSELAT) created guidelines outlining that estate agents must disclose to customers in writing, at the earliest opportunity, details of referral fees they enjoyed from other suppliers. These guidelines were the result of a government request for more transparency for consumers about such fees. 

    A few weeks later, The Property Ombudsman followed 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 then, though - largely due to the Covid-19 pandemic changing government priorities - little has been heard of any clampdown on referral fees. As such, the issue remains clouded in uncertainty. 

    But now James Munro, leader of the NTSELAT, has said his team would be able to increase their knowledge of the issue – and whether agents were adhering to the guidelines or simply ignoring them – if consumers started to quiz agents about these fees as standard, in the same way they might quiz agents about their own fees they charge. 

    Speaking to a podcast hosted by Rob Hailstone of the Bold Legal Group, one of the best-known names in property law and conveyancing circles, 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 podcast – the first in a series carried out by Hailstone – 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.   

    The podcast, which also covers the possible risks agents run by accepting referral fees in relation not only to NTSELAT guidelines but also, potentially, the Undesirable Practices Order 1991 (an adjunct of the Estate Agents Act 1979) and even the Bribery Act 2010, is 25 minutes long and can be listened to here. The referral fees discussion begins around eight minutes in. 

    What are referral fees? 

    According to industry trade body Propertymark, referral fees are where an estate agent receives a commission, payment, fee, reward/gift, or another benefit from a third-party service provider for recommending them to the buyer or seller. This is typically conveyancers, but could be other suppliers too. 

    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.  

    You can see NTSELAT’s guidance, designed to help improve the practice of charging referral fees in the hope of avoiding an outright ban, by clicking here.  

    At the time, 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 do estate agents need to do? 

    According to Propertymark, 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 a ban on referral fees be implemented anytime soon? 

    A ban or greater restrictions on referral fees has been mooted, but with the government currently distracted by the Ukraine-Russia crisis, the ongoing investigations into “partygate”, and emerging from the pandemic, it seems unlikely that any 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, so taking a closer look at referral fees could very well be next on their agenda. 

    For now, though, agents would be well-advised to follow the above advice from Propertymark – or seek advice from NTSELAT or one of the property redress schemes – to ensure they are providing the fairest and most transparent service.   

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