What are referral fees?
Referral fees are where an estate agent receives a commission, payment, fee, reward/gift or another benefit from a third-party service provider for recommending them to the buyer or seller.
Making referral fees transparent
In February 2019, the National Trading Standards Estate and Letting Agency Team (NTSELAT) published guidance on referral fees received by estate agents across the UK. They aim to ensure that referral fees become more open and transparent to consumers. We helped to produce the guidance along with The Property Ombudsman (TPO) and other industry bodies.
What estate agents need to do:
- In the interest of fairness, information on referral fees must be provided to buyers and sellers in advance of them making any transaction-based decision.
- Make referral fees clear on property particulars online and offline. Be bold, compelling, specific and include who you receive referral fees from and the value of each referral.
- Act in the consumer's best interest by ensuring that both buyers and sellers can make an informed decision.
- Outline where a referral arrangement exists, that it exists and with whom.
- Inform the consumer well in advance of offering the choice as to whether to use a recommended service provider.
- Provide the information to consumers in writing and tell them they can also source and use different providers.
NTSELAT report on referral fees
Following the release of their guidance, the NTSELAT monitored the housing market with the support of the main redress schemes and Propertymark. NTSELAT was then asked by Government to produce a report on whether there is any scope for further regulation of referral fees. That report was released in February 2020, and the main recommendations were:
- Referral fees shouldn’t be banned
- Transparency of referral fees should be mandatory
- Public awareness of referral fees should be increased via Citizen’s Advice
- More industry guidance developed by NTSELAT and professional bodies
- The use of full enforcement options to punish non-compliance
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.
During NTSELAT's review it was 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 and in some situations, customers may be pressurised to use a preferred provider despite the fact it does not meet the needs of the customer or provide the best value.
Propertymark's position
We do not believe that there is an issue with referral fees in principle. However, fees need to be transparent and clearly communicated to the buyer and seller so that they can make informed decisions during a property transaction.
We believe the guidance from NTSELAT provides sufficient clarity for all parties involved and recommend that all estate agents follow the guidance. If agents do not make an effort to ensure their fees are transparent to the consumer, then they could face a complete ban.
Resources for members
NTSELAT referral fees guidance
National Trading Standards Estate and Letting Agency Team (NTSELAT) issued Guidance on Transparency of Fees Involving Property Sales. It aims to ensure that consumers are equipped with all relevant information before making a transactional decision.
The Property Ombudsman (TPO) Codes of Practice
As part of our compnay obligations our Principal, Partner and Director members must follow The Property Ombudsman (TPO) Codes of Practice. TPO have worked closely with the Chartered Trading Standards Institute (CTSI) to obtain approval of their Codes of Practice.
Assured Advice 35: Letting agent referral fees
National Trading Standards Guidance on Transparency of Fees Involving Property Sales says that estate agents etc. should disclose information about referral fees. Does this also apply to letting agents?