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Are estate agent referral fees about to be banned?

  1. 24 October 2017
  2. By Andi Michael

It’s become clear that the British public have had enough when it comes to the complexities and costs of buying a home. Especially when they're not transparent.

With Communities Secretary Sajid Javid calling for evidence this week for a Whitepaper to ‘make the process cheaper, faster and less stressful’ it’s become apparent that there are multiple elements to the housing crisis, beyond simple supply and demand.

The Whitepaper will explore the concerns of home buyers and sellers in the UK, considering issues around gazumping and the efficiency of the process. However, one element really stood out, and estate agents aren’t happy.

The question of estate agents ‘guiding’ their clients towards using preferred mortgage advisors and conveyancing solicitors is facing scrutiny, with 26% of those using an estate agent saying they felt they had to use the recommended mortgage broker. Those with mortgages were asked how they chose their provider, and 27% said it was through an estate agent recommendation.

Recommendations are not necessarily a problem in and of themselves. Many estate agents would probably argue that it streamlines the process, working with people they know, and that they recommend companies they feel confident in.

However, the Department for Communities and Local Government (DCLG) are concerned that estate agents receiving referral fees are not making this clear to their customers. From mortgage advisors to conveyancing solicitors, estate agents are making a profit on ‘encouraging’ customers to use recommended services.

The lack of transparency is two-fold; customers don’t realise they have a choice, feeling they are obligated to use the suggested provider, and they do not realise money has changed hands for the referral. They are depending on the ‘expert knowledge’ of their estate agent, when really, this is determined by profit, rather than preference.

These practices are not new, with The Property Market Undercover, a documentary made in 2013, exposing the offers of preferential treatment, such as cancelling other viewings on the property, if in house/’recommended’ services were used. Earlier this year, Paula Higgins, Chief Executive of the HomeOwner’s Alliance said offering in house services in return for preferential treatment created a clear conflict of interest. This not only comes down to houses being sold to ‘preferred’ customers who used the services, but creates a murky line where financial information could be shared with the estate agent that puts the buyer at a disadvantage. 

The only current legal obligations are that an offer must be shared with a seller, and estate agents are not allowed to deny information to potential buyers or take longer to give them paperwork if they did not use their services. But as Higgins pointed out, what if the estate agent suggested that these were better buyers? They were more likely to go through with the purchase, or seemed more financially stable? There is nothing to stop these suggestions, and no obligation for the estate agent to reveal their motives to the seller.

The DCLG are unsure yet whether referral fees should be banned completely, or just made more transparent by law, but it brings into question regulation and trustworthiness in the industry as a whole. This has led to discussions around whether estate agents should be regulated and receive compulsory training.

What can you do?

Referrals happen in all industries, but we believe strongly in the importance of transparency, and giving customers a choice. Buying or selling a home is likely to be one of the biggest choices you make – you don’t want the process to depend on someone who hasn’t been legitimately recommended based on the quality of their work or their value for money. Misleading customers into using these services not only does the customer a disservice, but hampers competition in the market and minimises the need to provide an excellent service.

Until a decision is reached regarding fees, always ask your estate agent why they’re recommending a partner, and do your own research on mortgage advisors and conveyancing solicitors.

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