Review into referral fees in the estate agency industry published
Customers must be told about third party referral fees when buying or selling a home. This is one of a number of changes proposed by the National Trading Standards Estate and Letting Agency Team to improve transparency in property sales and ensure consumers feel confident in the services they receive.
The proposed changes follow a review into the practice of referral fees and their impact on buyers and sellers in the UK property market carried out by National Trading Standards at the request of the Ministry for Housing, Communities and Local Government (MHCLG). Under the changes estate agents who continue to flout the legal requirements concerning referral fees could be banned from the industry.
Referrals are commonplace in the estate agency industry. In a recent survey of TPO (The Property Ombudsman) members, almost 60% of members had referred customers to external companies*. More than 80% of those members admitted receiving a fee for the referral*.
The review by National Trading Standards noted that the practice of referring customers to a preferred service provider in exchange for a fee is regularly concealed. Many customers remain unaware of the existence of referral fees when buying or selling a home. In some situations, customers may be pressurised to use a referred provider despite the fact it does not meet the needs of the customer or provide best value. As part of the proposed changes around referral fee disclosure, customers should be advised to shop around to find a third-party provider who offers the best value and service.
The recommendations include:
- Proposals for government to make transparency of referral fees mandatory and require a warning to be given to customers that they should consider shopping around
- A public awareness programme to warn consumers about hidden referral fees
- Further industry guidance, and work with the professional bodies and redress schemes to encourage compliance in the property sector.
James Munro, Senior Manager, National Trading Standards Estate & Letting Agency Team, said:
“We recognise that referral fees have a place in business if used ethically and transparently and with no pressure to use the referred service. It is important that customers are fully aware of the basis and value of a referral or recommendation so they are able to take an informed transactional decision. Mandatory disclosure of referral fees would ensure there is full transparency around this practice, helping to build consumer confidence in the estate agency industry and demonstrating the duty of care agents should have to both parties in a property sale.”
Minister for Housing Rt Hon Christopher Pincher MP said:
“This government is committed to making it easier, cheaper and clearer for people to own their own home, including by making the buying and selling process more transparent.
“It is unacceptable that unscrupulous practices are still taking place where consumers are not being made aware of referral fees when buying or selling a property.”
“I welcome the National Trading Standards' work to raise consumer awareness of referral fees and will carefully consider the recommendations of their report. I have asked National Trading Standards to continue to monitor the situation to help inform if further steps need to be taken.”
To deliver the recommendations and to support estate agents to disclose referral fees, National Trading Standards is developing further industry guidance and will work with professional bodies and redress schemes to encourage compliance in the property sector. The public awareness campaign will highlight the issues and inform consumers, who will also be encouraged to report experiences of non-disclosure to their local Trading Standards Service:
- In England & Wales via the Citizens Advice Consumer Helpline by calling 0808 223 1133 or online via https://www.citizensadvice.org.uk/
- In Scotland via Advice Scotland on 0808 800 9060 or online at https://www.advice.scot/
- In Northern Ireland via Consumerline on 0300 123 6262 or online at https://www.nidirect.gov.uk/services/contact-consumerline-make-complaint-or-ask-advice
Katrine Sporle, Property Ombudsman, said:
“It is important for buyers and sellers to be aware of the real cost of any service being recommended. Whether this relates to conveyancing, removal firms or producing Energy Performance Certificates, disclosing the benefit that the agent will receive at the earliest possible stage is simply the right thing to do.”
Mark Hayward, Chief Executive of NAEA Propertymark, said:
“New legislation which will require agents to display referral fees is a step forward, providing clarity to agents that they mustn’t fall foul of the law but importantly ensuring greater transparency for consumers to avoid any confusion about what agents are charging for. This is something we’ve been working closely with government and the National Trading Standards on, and given that agents were facing a complete ban of referral fees, we would strongly advise that anyone who isn’t currently displaying their fees should start now, regardless of when the new laws will come into force. ”
*A survey of TPO members carried out in February 2020 found that out of 675 responses almost 60% of members had referred customers to external companies. Out of 545 respondents, 81.3% of TPO members stated that they had received a fee for the referral.