Latest ‘call for evidence’ hints of a ban on referral fees paid to agents

The latest ‘call for evidence’ into the industry, unexpectedly released in the early hours of Sunday morning before any of the documentation was available online, is asking some leading questions about referral fees.

The survey suggests that referral fees “benefit agents at the expense of consumers” and goes on to ask whether there should be more disclosure of referral fees, and what would be the impact of a ban on referral fees.

The documentation states that some consumers are guided by their estate agent towards using a certain conveyancer or mortgage broker. It says: “This obviously increases the costs to consumers and may hamper competition.”

The survey also focuses on whether there should be greater regulation of estate agents, including a requirement for compulsory training. The Government has already announced that it will become mandatory for letting agents to belong to a professional organisation.

The survey is also asking for opinions about:

  • Gazumping and how this can be tackled
  • Preventing fall-throughs, including by schemes such as lock-in agreements, registered deposits, and reservation contracts
  • Marketing homes that are ‘sale or move ready’ – although the Government has denied that this would be a return to Home Information Packs
  • Innovative online solutions that make more data available online and which will make the buying process faster and cheaper

The new call for evidence focuses on sales agents, and is applicable in England and Wales. It follows hot on the heels of last week’s call for evidence which focuses on letting agents and on leasehold management, while earlier this month another inquiry, this time from the Communities and Local Government Committee on the private rented sector, was launched, specifically looking at enforcement.

Both of the latest calls for evidence are running for eight weeks.

The latest call references property buying and selling in the US and Denmark – where estate agency fees are typically 6% and more.

https://www.gov.uk/government/news/government-acts-to-improve-the-home-buying-process

x

Email the story to a friend

14 Comments

  1. International

    A Volcano waiting to erupt !

    Report
  2. Sunbeam175

    We recommend that they use our ‘whole of market’ Independent Financial Advisers (IFA’s). This saves the clients from being ripped off by their own bank. Why on earth would this need to change??

    Report
  3. Anonymous Coward

    Banning referral fees?   Let’s talk about the insurance industry first shall we?

    £100 – £200 for recommending a sub-par solicitor is actually not worth it to most estate agency branches.   You are in fact much better off creating good, non-financial relationships with your local solicitor firms because they give better service, are nearby and are likely to recommend you in return.   One probate sale is worth twenty referral fees.   The maths seems obvious to me.

    As to the other points – the law of unintended consequences applies to everything – innovative barriers tend to lead to creative solutions

    1. Gazumping – this is something that EVERYONE hates – including agents, but the Estate Agent Act 1979 is very specific: ALL offers must be put forward to the owner – it is their decision. The only solution to this would be to put the owner on the hook for the buyers’ costs once an offer has been accepted.   Guess what the solution to that is…?   Offers are not officially accepted until the buyer has their mortgage offer.   Which kills the market!

    2. Fall-throughs are caused by bad surveys, slow solicitors, people changing their minds, mortgage offers running out, long chains collapsing taking all the other sales with them. Plus a million and one other reasons.   How can you create a law that ties an owner to a buyer that penalises the owner if the buyer’s buyer’s buyer pulls out. Ridiculous!

    3. I would love a return to the HIP – let’s call it HIP2.0 – it was a good idea (with issues, of course) and was wrongly blamed for the downturn in the housing market after the credit crunch.   I would not include a survey – I think that should still be up to the buyer.   But everything else like the legal paperwork – that’s genius.   Imagine being able to walk into your dream home with cash and being able to exchange contracts the next day.

    4. Innovative Online Solutions – go for your life, but the things that really slow it down are LA searches (is it Devon or Cornwall that are over 10 weeks…?) and the dreaded Management Pack (LPE1) for flats.   Good luck with both of those…

    Report
  4. dave_d

    Solicitors…. are the absolute main reason sales take so long to go through and the biggest contributor of sale fall throughs. The fact you can have an archaic dinosaur liasing via post to another solicitor 6 doors down the street is absolute nonsense – there needs to be some sort of reform in the way that solictors deal with their clients.

    We find in a lot of cases that vendors and applicants will contact the estate agent for updates to the sale which in a lot of cases can be sought from their own solicitor – and in some of the worst cases I’ve seen sales stalled when the person dealing with it decides to go on their jollies.. Imagine if no viewings took place at one of your clients properties because you’re on annual leave.

    If any sector needs looking at it is conveyancing.

    This being said I think the rules on Gazumping is long overdue.

     

    Report
  5. MichaelDay

    It is illegal now to take referral fees without disclosure. It is certainly not true to say this impacts negatively on consumers. Those being referred to (lawyers. mortgage brokers etc.) are spending some of their fee income on referral fees. If they weren’t doing this, then they would have to spend more money on other marketing costs in order to generate client enquiries and instructions.

    The emergence of no move, no fee and fixed fee conveyancing has largely arisen as a result of lawyers having to align themselves with estate agency practice – previously most conveyancers charged for abortive work and fees were often on a time based system which made quantifying costs difficult for a consumer.

    I am not for one minute suggesting that everything is fine in the current system but referral fees are not the cause of delays and abortive transactions – the lack of up front information, a binding lock in, mortgage finance agreed, poor technology, low fees resulting in poorer staff quality, lack of chain visibility etc. are all factors alongside party motivation, unresolved survey issues etc.

    Speeding up the process would give less time for some of these factors to occur but needs to be balanced with protecting the consumer in terms of what they are buying/selling.

    If the answer was easy we would probably have found it by now!

     

    Report
  6. Keith Comley

    The HIP is the answer. I agree with Anonymous Coward delete the survey and have an exchange ready document. Like the Poll Tax before it, a great product badly promoted. I consider it should not be compulsory, as such could hinder an amount of good Estate Agency where off-the-market transactions can be developed but for standard marketing it is the answer. Please recall it was the legal profession (not the property sector) who objected, why? because only one conveyancing solicitor would be needed per transaction, not two!

     

     

    Report
    1. revilo

      The HIP was a great idea and followed 20 years of ‘consultation’ and ‘calls for evidence’

      What do they think they will find that’s different now? Same old problems.

      It was ‘other influences’ that affected its success – the legal profession, the old school surveying profession and the Council of Mortgage Lenders, all threatened by a better process, who could see their income streams declining, combined with a Government ‘sin cojones’

      Until we have a Government / Housing Minster who really understands the process, and who has a pair, nothing will change!

       

      Report
  7. VFM agents

    Consumers should always be free to choose their conveyancing solicitor, but many will of course ask for recommendations. Receiving a referral fee is part and parcel of running a business and it would be counter productive to legislate against this business practice.

    Currently the buying/selling process is completely open-ended. At offer acceptance there needs to be a signed commitment from all interested parties to agree milestone dates. I would go further and introduce a financial penalty clause aimed at parties who fail to achieve the agreed exchange and completion dates.

    It’s about time conveyancing solicitors were held to account and I’m sure a potential financial penalty will certainly focus the mind.

    Report
  8. Oldtimer

    Sorry I cannot see any justification for paying a referral fee. Any payment is bound to distort the decision process possibly to the detriment of the client concerned. Mind you I will probably never be a millionaire either!

    Report
    1. hodge

      And no doubt you have never over valued to win an instruction or ever cut a fee to win an instruction. They are also inducements to the client.

      Let those without sin cast the first house brick

      Report
  9. GPL

     

    My tuppence worth….

    My background over the last 12 years of 30yrs is working with a Solicitor Estate Agent in Scotland, so I have experienced both the sales side and an overview of the legal side.In addition we have the HIP equivalent – The Home Report comprising 4 sections including the normal Mortgage Valuation Survey with the mortgage value stated, plus a Property Condition Report, Property Owners Questionnaire and the Energy Report. 

    There are no legal conveyancing related details within the Home Report which refer to the actual property being sold which reflects perhaps the complexity at times of the various properties whereby the “one size does not fit all” – it needs a legal professional to actually take the time to go through the property title/transaction process.

    The introduction of the Home Report was contentious and it is viewed as “an additional cost” borne by the seller/vendor however it impacts on the estate agent when you discuss costs as it appears to some homesellers that “we/the agent” have another cost associated with the sale of their property – despite pointing out that it is actually a Legal Requirement and it is the Surveyor who receives payment.

    A negative spin-off from the Home Report Mortgage Valuation figure is that potential buyers seeking property that is not in a “hot-spot” (where a premium is paid over the Home Report Mortgage Valuation figure) see this as a target figure from which to seek a discount/reduction for any works either requiring to be done or that they plan to do – despite the Mortgage Valuation figure generally taking into account any “issues/works”. Simply put from the Estate Agent actually negotiating the property sale, the Mortgage Valuation figure can be stated as “reflecting the value of the property in its CURRENT condition”.

    In general terms the Scottish Home Report System has its pluses/minuses. It was allegedly developed in consultation with the industry however it suffers from the much accustomed government “one size fits all” approach. Interestingly it has never evolved because it’s another government style introduction whereby they are keen to be seen doing something and then they rejoice that they have done something, even if it isn’t as good as it could have been.Going back to the “legal side” of the transaction.

    There are similarities between Scotland and England however the big difference as far as I understand is the “Exchange of Contracts” in England and I assume Wales (and I don’t know the process in Ireland/N Ireland). A property sale in Scotland works towards “Concluding Missives” which locks the buyer/seller in contractually albeit the Date of Entry can be weeks or several months away. My understanding is the “Exchange of Contracts” south of the border takes place around the Date of Entry hence more scope for “issues” to arise. Delays are a natural part of the overall process for all sorts of reasons and let’s not forget that these can be also driven by both buyer and seller.

    I haven’t witnessed “gazumping” here although oddly I recently had an unsuccessful buyer doorstepping a seller to try and better an offer which the seller had accepted – how does the government penalise/legislate for that?

    So, I love the idea of the government and its ministers “grandstanding” about “enquiries/surveys” etc however based on their own performance of not being able to punch their way out of a wet paper bag I hold little hope that what they could arrive at could actually be deemed as really helpful to the whole process.

    My experience suggests lots of talk about involving the various professions involved which means nodding towards them and then not really listening, and then stumbling over the line with that ever hopeful “one size fits all” …and ongoing, no hope of common sense review/refinement/evolution.

    I’ve just completed a “knife crime” related survey and again it fits the vague or “we seek this answer and nothing else” profile… it makes me wonder who on earth prepares these and what involvement does the real world and those involved have in this process other than the token government nod in their direction.

    It’s the Ministry of “Let’s be seen to do Something”. Noting 8 weeks consultation… I wonder what our government will achieve in the next 8 weeks? 

    Call me Old Fashioned however does everything need to be dumbed down, cost cut and reduced to “one size fits all”? If that is the case then can I suggest that we simply design a “software package” to run our country and press delete on all those ministers and the vast army of related departments/people. Surely we can do this whole government thing with much, much, much less money – say £9.99 from Amazon, delivered Next Day?

    Report
  10. GPL

    …and the next Government Survey?

    The End of the World – Do you want it to end A) Today B) Tomorrow C) In 7 Days D) or 1 Year from now

    No Option for “Not at all”

    Report
  11. hodge

    Declaring that you are receiving a fee for introducing only tells half the story.

     

    Most of the larger companies now rate life commission at 250% or more or 2.5 times direct price and they have a limited panel, and in many cases with just basic CeMap 1 , then limited knowledge.   They still use the phrase independent or whole of market which of course is not factually accurate (albeit the FCA have a definition of whole that is not actually whole”

    Your client can end up paying for poor broking skills to a limited panel and paying 2.5 times the rate of premium each month and in some cases will pay the best part of £600 pounds fee.

    One large company i,m aware of does not train advisors other than a basic induction and provides no training to it,s management and has advisors almost exclusively using one lender.

    Tell me that sort of practice does not need looking into

     

    Report
  12. itmakessense94

    Answer to Sunbeam, because you are getting back handers!! Duurgh

    Dave D must be an agent as he has no understanding why qualified conveyancers can cause hold ups. It is usually due to finding fault with titles, easements, escalating ground rents etc, but you wouldn’t understand any of these things due to you not having applied yourself during your time going through our education system and reaching the end without any qualifications to progress a proper career. Yes solicitors have holidays too.

    I am sure most buyers and sellers are clueless as to the real problem. The lawyer is giving some of their fee to the agent and will charge this back to the client with ad-on’s later in the transaction. The agent is just driven by greed and by targets given to him from above or large greedy corporates who have panel lawyers in their pockets or even own the conveyancing company.The people to blame are actually the lawyers themselves and the SRA for not banning bribes, if you look up the bribery act it ticks all the boxes.If they didn’t pay what can only be viewed as a bribe to the Agent they (the agent) would not have any leverage. The average conveyance charges around 7-900 for a purchase or sale compared to 6-10 times that charged by the agent!Estate agents are just house dealers, same as car dealers, shove a sign on for sale, stick an ad in the local rag, shove a picture on right move and that’s it apart from ironing an extra large collar and brushing some goose fat or in modern times perhaps coconut oil through their hair and chucking in a couple of lies. Generally no university or college, no degrees (maybe a degree in poor dress sense) usually lacking in education generally. You don’t need any qualifications to be an agent and there is no governing body that will take action against them no matter what they tell you. Try complaining about an agent and see what happens? Nothing!There are agents in Brighton (rife), especially the larger ones that do force you to use their chosen solicitor and will not let you purchase unless you do. This is plain corruption and means that they are not marketing correctly for the seller who is paying them which is a disgrace, hardly putting their client first as they like to suggest. These agents will actually bad mouth the best conveyancers because the best conveyancers ask more questions and make more enquiries on behalf of their client. These real conveyancers still do the job properly but agents see this as an unnecessary delay in obtaining their huge fee on completion.Conveyancing over the last 10 years has not even kept up with inflation. Email, social media and unprofessional estate agents, coupled with unrealistic client expectations has made conveyancing a thankless task. In our current climate there is simply a lack of respect and courtesy for professional people.Qualified legal executives and solicitors who practice conveyancing have worked for their qualifications and are the ones who ensure that the huge responsibility that is the purchase of your home is all in order. Does anyone really think the agent gives a monkey (with or without headset)? Often the reason delays sometimes occur, is because the agent has mis-represented the property and the solicitor (who is acting in the client’s best interest by the way and is the only one to do so out of all parties concerned) has happened to ask a question of the other side that is a panel “lawyer” or monkey with headset! Then has to wait a month for the answer as the monkey has to ask the one qualified person out of the 20 working on the panel and it all grinds to a halt.So the answer to the problem is to choose a local conveyancer who is recommended by a friend and never an agent. Ask them if they pay commission to the agents. Call some for a quote and listen to what they say; you will get a feel for a good one. Refuse to use the agents preferred solicitor as they may be based 200 miles away from your property with no local knowledge at all and if the agent recommends them it will be in most cases because they get a bung! There are some good honest agents out there but you are lucky if you find one because the %age is low. You can usually tell because if they recommend a lawyer and they don’t get a bung then they are recommending for the right reason. It is not just the agents, if you ask your lawyer if they pay the agent for work they are bound by SRA rules to disclose the truth to you, so don’t be afraid to ask, in fact it is a must. If a lawyer is paying the agent then one has to ask why? Usually because they have not performed well enough in the past and are not recommended through their own merit. If the consumers take care to use the good honest law firms (you can find these by asking the right questions) then the power will shift from the greedy unscrupulous agent and back to the consumer. One thing I can assure you of is that the agent will not use their recommended lawyer when buying a house for themselves!Surely it is a breach of the agent’s duty to his client (the seller) if they are referring solicitors that they would not recommend if they did not receive a fee? In this instance they are recommending a firm even though they believe that they will not deal with the matter proficiently?”What’s laughable is the agents blame the lawyers that they don’t recommend for any delays when it is the other way round and God forbid if the good conveyancer should make any enquiries to ensure the property will not be a problem to sell in the future.Use cheap online conveyancing services at your peril and if you do so then you may as well get a will kit from WH Smiths whilst you are at it! Once you find a good conveyancer stick with them, they are actually a rare commodity these days.

    Report
X

You must be logged in to report this comment!

Leave a Reply

Thank you for signing up to our newsletter, we have sent you an email asking you to confirm your subscription. Additionally if you would like to create a free EYE account which allows you to comment on news stories and manage your email subscriptions please enter a password below.