Agents Under Scrutiny for Lack of Referral Fee Transparency
Stakeholders and industry leaders are now airing the side of the innocent customer. In February, the Ministry of Housing, Communities and Local Government commissioned for an investigation into dubious practices in estate sales.
The matter was on the transparency and accuracy of referral fees. The investigation was headed by the National Trading Standards Estate and Letting Agency Team (NTSELAT).
The recommendations of the Trading Standards team shocked the industry as it warned agents of permanent consequences if they failed to make referral fees transparent.
Prior to this recommendation, transparency of referral fees was advisory rather than mandatory.
Housing minister Christopher Pincher expressed his dismay saying, "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."
Referral fees often occur when agents direct customers to a service provider in exchange for a fee, the fee is concealed in this case. Many customers are unaware of the existence of the fees. The danger seen by the Trading Standards team is a situation in which a customer may be pressured to choose the preferred provider pushed by the agent.
James Munro, NTSELAT senior manager, 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."
The same report also warns agents who are operating against the rules contained within the Consumer Protection from Unfair Trading Regulations 2008. It is possible for the body to ban such practitioners from the industry.
Mark Hayward, Chief Executive of NAEA Propertymark, remarked that have long called for greater clarity and transparency.
"It's essential that if you are referred for financial or legal services by your estate agent, you understand that they are receiving a commission, and how much this is."
The recommendation report also covers how transparency should occur:
"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,"
"Plainly the most important information in deciding whether to accept service is the price of that service.
"Any practice by an estate agent which hides the real price of a service is capable of being found to be an unfair commercial practice under the CPRs."
Letting Agents according to the interpretation by Letting Agent Today, "may have escaped the recommended demands for referral fees to be made more transparent to customers."
Although there may be a need for express clarification, the group assures letting agents that the recommendation released "focuses entirely on sales agents and the process of selling and buying. NTSELAT recommends to government that agents must be obliged to identify and explain referral fees to clients, but the wording of its statement on the issue confines the recommendations entirely to selling and buying."
