The payment of referral fees is a somewhat secretive practice whereby estate agents have traditionally received a fee from some solicitors in return for recommending them to the agent’s clients.
This has proved quite lucrative for participating conveyancers who have received a steady stream of clients who, in the heat of a house sale or purchase, are only too glad to be given the name and details of a recommended firm.
The problem, of course, is that the client has no idea about the quality of service they are going to receive or whether their conveyancing solicitor will be accessible and responsive to their needs. The only guarantee they have is that their estate agent will be quids in!
Addressing the Council for Licensed Conveyancers (CLC) annual conference in January Heather Wheeler MP, The Housing and Homelessness Minister, recognised the problems that this lack of transparency could cause consumers.
She said: “Buyers choose the house, not the estate agent. But this shouldn’t mean that they choose their conveyancer by default.”
She added: “Consumers should always know they have a choice. That’s why we’re changing the system, to ensure consumers know the amount of referral fees before they make any decision to purchase.”
The team concluded that estate agents should disclose in plain terms:
(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; and
(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.
Disclosure should be made in writing, to a seller as part of standard terms and conditions and to buyers by being incorporated into or annexed with the property particulars before any ancillary services are promoted. The disclosure must be made in a way which is clear, intelligible and unambiguous and have no lesser prominence in documentation than other important terms, conditions, or information.
Compliance will be monitored by National Trading Standards who will report back to ministers after a period of 12 months.
The fact is, your choice of solicitor should be just that – your choice.
The solicitor that you instruct is instrumental to the smooth running of your property transaction, so my advice would be:
- Ask friends, family and colleagues whether there is a particular firm that they would recommend.
- Phone a couple of firms that you’re familiar with. Don’t just confirm quotes, think about the ease of being put through to the solicitor when you phoned and whether they explained things in a friendly and clear way.
- If you do decide to accept the estate agent’s recommendation, ask whether the agent is receiving a referral fee. At least you’ll be going in with your eyes wide open.