The latest review by the National Trading Standards Estate and Letting Agency Team into referral fees places the outdated practice of panel management further under the spotlight.
There are essentially two ways that estate agents can form direct links with conveyancing providers: (1) direct instruction to a single firm, or (2) taking part in a panel arrangement where instructions are allocated to a small group of firms, usually administered by a third party that runs the panel.
The heyday of panel management was when law firms were a lot smaller and could not handle the capacity required by a large estate agent referrer.
With increasing consolidation of conveyancing law firms into large corporations, this issue now only affects the very biggest agency groups, where a panel still makes sense.
In every other case, panel management is unlikely to be the optimal solution for the estate agent, the customer, or the law firm.
At a time when conveyancing was more fragmented, firms were not set up to cope with the volume of work that larger agencies could send their way. For the agent, the benefit of panels was the ability to cope with the volume.
Capacity is no longer such a big issue. Property solicitors and conveyancers have got their act together and specialists are emerging to support the industry. They have invested in people and technology and are able to ramp resource up and down to cope with demand.
Land Registry statistics show that the top 100 conveyancing firms by Land Registry volume, i.e. firms that have invested in technology and process management, have grown their market share.
As the specialist conveyancing firms get better at capacity management, what is the attraction of using a panel manager, where there is a risk of agents losing control over the transaction?
The key problem with panels is that the panel manager has very little real influence over the running of the firms in the panel. Expecting disparate organisations with different levels of investment, culture, and competence to behave in the same way and deliver the same standards simply doesn’t work.
While SLA’s will dictate some of the basics, that is no substitute for dealing directly with the senior management of the firm doing your work who you can haul over the coals when things go wrong.
The other big problem is that the panel managers can attempt to extract too much revenue from the referral process, leaving both the agents and the law firms short changed.
It is a vicious spiral downwards. The panel manager’s return such a low fee to the conveyancers that the firms involved become disaffected and de-prioritise that work in favour of more lucrative work streams, thus impacting quality.
Equally, estate agents who should be expecting a minimum of £200 - £300 in referral fees - it was their referral after all! - end up having that shaved. Lastly, the customer pays an inflated price for a poor legal service.
Panel management systems are unable to take advantage of the investment in technology that conveyancing firms have made as, in more cases than not, there is no two way interface. This results in endless re-keying of data into the consumer portals designed to keep all the parties up to date.
The bottom line is that panel management looks very outdated. There is no substitute for an estate agency working with a modern high-capacity law firm that can build a first class legal product tailored to its needs, and who is answerable directly for any service issues.
Speaking to contacts in the sector, I come across so many people who will no longer do panel work because the fees simply do not make economic sense. It seems crazy that all this capacity is there and available to the estate agents but it cannot be used because a third party panel manager takes so much money out of the process, even at the expense of delivering a first rate service to customers.
The National Trading Standards Estate and Letting Agency Team is right to refocus on this practice and create greater transparency.
Nobody is saying referral fees are a bad thing…the important thing for consumers is to give them choice and help them understand where their hard earned cash is being spent.
*David Jabbari is CEO of Muve