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Referral fees: agents must be more transparent, government says

A government minister has told the estate agency industry that it must be more transparent over the issue of referral fees.

In response to new research over the degree to which referral fees play a part in estate agents’ recommendations of certain conveyancers, housing minister Heather Wheeler MP says: “It is so important that estate agents are transparent about referral fees. That’s why we are working with the industry to ensure estate agent referral fees are clear, so consumers can make an informed decision before they decide to purchase.”

Wheeler has given no indication of what the government’s proposals may be, nor when more details will be announced.

Her comments come following the publication of a YouGov survey of almost 500 people in England and Wales who have bought a property in the last 10 years.

The results show that recommendation by an estate agent is the most popular primary factor behind buyers’ choice of a conveyancer – 26 per cent said this, compared to 21 per cent who went on price, 20 per cent on previous use of that lawyer, 18 per cent on recommendation from family/friends, and 15 per cent on the firm’s general reputation.

However, 59 per cent of those who took a recommendation did not know whether or not the estate agent was paid a referral fee for this; 29 per cent were aware a fee had been paid, while only 12 per cent knew one had not been paid a referral fee.

Sheila Kumar, chief executive of the Council for Licensed Conveyancers - which commissioned the research - says: “We are not saying that it is wrong for conveyancers to pay referral fees, but transparency is key and that is why CLC lawyers have always had to inform clients about them. 

“However, it is important that the client is aware of the payment of referral fees before deciding who to appoint. So, we welcome the government’s proposals that estate agents should be required to be transparent about referral fees they will receive if their client follows their recommendation.

“It is in the interests of both the public and those we regulate that consumers have easy access to useful and easily comparable information to guide them in their choice of lawyer. That is what all of the front-line regulators of legal services are introducing new rules with the aim of empowering consumers to make better informed choices.”

As part of its proposals to improve the home-buying process the Ministry of Housing, Communities and Local Government has already announced that it is planning to ensure that estate agents’ customers are aware of the extent of any commercial arrangements before deciding to follow their recommendations to appoint other suppliers. 

It claims that transparency at this earlier stage will empower consumers to make better informed choices.

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