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TODAY'S OTHER NEWS

Referral fees: new guidance to agents revealed by NTSEAT

The National Trading Standards Estate Agency Team has this afternoon revealed new industry guidance to make referral fees more transparent to consumers. The executive summary of the new guidelines reads as follows:

Failure to disclose referral arrangements may render an estate agent liable for criminal prosecution under the CPRs and/or action by NTSEAT for warning or prohibition under the Act.

Ultimately, only a court may decide whether any particular set of circumstances amounts to a breach of the CPRs. However, NTSEAT offers the following recommendations as a statement of desirable practice:

An estate agent should disclose in plain terms

  1. (a)  The price of its services, including any “compulsory” extras; and

  2. (b)  Where a referral arrangement exists, that it exists, and with whom; and

  3. (c)  Where a transaction-specific referral fee is to be paid, its amount; and

  4. (d)  Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction; and

  5. (e)  Where the referral is rewarded other than by payment, an assessment of the annual value of the reward or the value of the reward per transaction. 

Meanwhile the complete new guidance, 14 pages, is available to download from the National Trading Standards website.

The NTSEAT this afternoon issued a statement to accompany the new guidelines. Here's the statement in full:

National Trading Standards has today published new guidance on referral fees received by estate agents across the UK, which will make previously hidden fees open and transparent to consumers.

The new guidance was produced by the NTS Estate Agency Team with assistance from NAEA Propertymark, the Property Ombudsman, Property Redress Scheme, the Guild of Property Professionals and the Royal Institution of Chartered Surveyors. It will work to improve transparency in the estate agency sector as part of the government’s aim to improve the home buying and selling process.

The NTS Estate Agency team was asked to examine the legal controls around the transparency of such fees in the sector by government officials last year. The team concluded that referral fees for connected services are permissible, but should be disclosed by agents to sellers and buyers alike.

Heather Wheeler, Parliamentary Under-Secretary of State at the Ministry of Housing, Communities and Local Government, said that the government wanted referral fees to be transparent and would consider banning the fees if this could not be achieved by the industry.

National Trading Standards will report to Ministers on compliance with its guidance after monitoring the market for the coming 12 months.

James Munro from the National Trading Standards Estate Agency Team said: “It is important for customers to be aware of any referral fees that an estate agent is receiving for recommending a service such as conveyancing, legal services or other connected service, so that they can make an informed decision about whether to take up the offer or shop around for a better deal.

“I would like to thank the professional bodies and redress schemes for their support in developing this guidance and would urge estate agents to comply with the guidance as soon as possible.

“Agents who need further advice should contact their professional body or trade association. Members of the public should raise any concerns about referral fees not being disclosed to Citizen’s Advice on 03456 040506.”

  • Andrew Stanton Estate Agency Insights Strategies

    I am not about to become paranoid, but following on from an earlier comment I on an EAT piece about about Countrywide's woeful balance sheet, we now have as Graham puts it the National Trading Standards Estate Agency Team, confirming that in its opinion - to be tested by case law - that failure to tell prospective clients about referral arrangements could make all estate agents (including Countrywide) face criminal charges.


    Pandora's box is at last open, in the name of transparency, those very helpful folk at the NTSEAT feel that if estate agents for instance fail to tell a prospective vendor that the solicitor they are recommending, gives that agent a fee as a referral, then the agent could be open to a criminal court action under the CPRs and probably action by NTSEAT who could close them down.

    As Graham has also so aptly put, the new NTSEAT (14 page) guidelines are that estate agents must be transparent and plainly communicate to a prospective client: -

    '(a) The price of its services, including any “compulsory” extras; and
    (b) Where a referral arrangement exists, that it exists, and with whom; and
    (c) Where a transaction-specific referral fee is to be paid, its amount; and
    (d) Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction.'

    This sounds on the face of it a really good idea, let the consumer know all.

    But, if you are a huge corporate like Countrywide, Connells, etc, and you do refer your solicitor business to a certain solicitor, how will it sound if the agent has to say, 'Mr vendor we feel you may want to use XYZ solicitors, you do not have to, but be aware we get a £120 referral if you do, and annually (and this is the kicker) we as a company receive 2M a year from that solicitor for recommending them.'

    Do you think the agent will get many takers?

    It is not just solicitors referrals, that the NTSEAT are talking about, it will cover everything where a referral exists, EPC's, surveys, you name, the agent will need to declare a monetary interest and an annual sum that they receive.

    In Countrywide's case I am informed that for every £1 of revenue generated by the sale fee, an extra 40p of revenue comes from other income streams, solicitors, mortgages etc. So, I assume that referral fees are at play in this 40p of revenue. What happens if this golden goose, stops laying?

    On a separate topic, what I find most fascinating in the NTSEAT guidance notes is the sentence …

    'Plainly the most important information in deciding whether to accept a service is the price of that service'

    So trading standards want to protect the consumer, as the starting position for all consumers is knowing the price of the service?

    My thoughts are, consumers would actually like to know the quality of the service, relative to the cost. And what I mean is this.

    An agent gets £120 for referring a client to a solicitor, and the company earns 2M a year in referral fees. So, that could look to be a questionable practice.

    Much better that the client uses some other solicitor, and the agent earns no fee and there is tie up between the agent, the conveyancing of the sale, and the vendor.

    Is that a better system though? A vendor uses a solicitor who is unknown, they may be great they may be not too good, they may speak to the agent as the sale progresses, they may not.

    Or, an estate agent recommends a company that it has a massive connection with, yes it receives a referral fee, but due to the huge volume of business, there is also a commercial incentive to get Mr or Mrs Vendor exchanged.

    Not only this, - there are highly developed software and hardwired processes in place, and management teams both within the estate agency and the solicitors, all with a common aim of getting as many properties exchanged.

    This interdependence I think is not a bad thing; having had solicitors and conveyancers over the years who never return a call or seem to do anything at a pace (not all) I would rather place my clients sales in the hands of a fully focused large solicitor practice who has the staff and the technology to perform.

    Luckily, those days are behind me, but my fear is that in the pursuit of transparency, agents might find they are 'pushing' clients away from using their preferred solutions - a brilliant solicitor solution, a brilliant survey solution - and 'pushing' clients out into the unknown.

    I could be wrong, but if clients no longer take up the recommended suppliers of other related services, because of the money that the estate agent gets as a referral fee, then this lost revenue stream could see many agents struggling.

    Lastly, referral fees exist in many, many areas of commerce, so will trading standards be searching these out and making the world transparent for all folk, including the beleaguered estate agent?

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    If the conveyancer you recommend is that good, you shouldn't need any other incentive to recommend them. My firm doesn't pay or accept referral fees for anything. My clients know that if they've been recommended to me, it's because the agent thinks I'm good.

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