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Angela Arnold

Partner - Brighton & Hove

13th December 2018

Estate agent referral fees – why the controversy?

As we enter into the festive season, Estate Agents across the Country are likely to come under the spotlight, as new rules come into force that requires them to make clear their commercial arrangements with customers.

Angela Arnold, Head of Residential Property at Rix & Kay explains the reasons for the changes.

What’s all the fuss about?

For sometime now the Government has made it clear that the home buying and selling process needs to improve, siting it as one of our most stressful life experiences. Indeed, the Government launched a formal public consultation on the matter twelve months ago and in April this year announced new laws to force estate agents to disclose fees they receive for referrals to mortgage brokers, solicitors and surveyors.

From December these new requirements are in force and the issues around financial transparency were once again bought to the media’s attention last month when YouGov published results of a survey of 500 people who purchased a property in the last ten years. The results found that the single biggest factor that influenced buyers’ choice of conveyancer was recommendation from an estate agent. More importantly however, is that 59% who took a recommendation did not know whether or not the estate agent received payment for the referral.

Housing minister Heather Wheeler said:

“Making the housing market work is about more than just building homes. It is about helping hard working families buy and sell with confidence. The findings from this valuable survey demonstrate why 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.”

Angela Arnold, who leads Rix & Kay’s Residential Property Team explains,

“For many people, and particularly those buying their first home, the entire home buying process is an unknown journey that unfortunately, for some, becomes stressful and unnecessarily expensive. We absolutely welcome any proposals that helps put the customer in control when it comes to making important decisions about who they should appoint to help them with buying a home.”

“Being clear and upfront about any commercial arrangements between professionals is important and a step in the right direction for the industry.”

Why are referral fees so controversial?

Most estate agents that operate referral fee arrangements will charge a solicitor or conveyancing business anywhere between £100 and £300 for introducing a client. Whilst there is absolutely nothing wrong in such commercial arrangements and no evidence to suggest that this affects the quality of work, referral fees clearly put additional pressure on profit margins that are already challenging.

With this in mind, the controversy appears to begin when homebuyers are recommended a lawyer or conveyancer because it benefits the estate agent and not necessarily because it benefits them. The new rules around transparency are clearly intended to address this.

Angela Arnold comments,

“The most important thing is that the client is aware of any commercial arrangements before they decide who is best placed to support them. There is absolutely nothing wrong with referral fees but at Rix & Kay we have made a strategic choice not to go down this route. A large part of our business is driven through recommendations from estate agents who want to work with us because they are confident we can support transactions in a way that ensures they complete quickly, cost effectively and with minimal stress.”

“At the end of the day, this approach benefits everyone – the agent, us and of course the customer.”

This article was featured in the recent Platinum Business Magazine (Page 24 – 25), take a look here.

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