Agents will have to be clear about any fees received for referring borrowers to mortgage brokers – and the government may issue a complete ban on referral fees in the future.
We asked this week’s Marketwatch panel if the current system between estate agents, brokers and borrowers is broken and whether referral fees have a place in the market.
I feel that there can be a place in the market for commercial relationships between advisers and estate agents but it’s how these relationships are managed and disclosed that are key.
Making sure that offered services are not forced on clients is essential and the clients need to have the confidence that the adviser isn’t going to be passing back details on affordability allowing for a higher purchase price to be sought.
It needs to be a truly independent service.
All too often when this relationship is raised, it is associated with the larger corporate brands and those interactions between the in-house broker and sales negotiator and the potential blurred line of looking after the client’s best interests.
Many smaller firms, like ourselves, have very strong commercial relationships with estate agents and we proactively explain the relationship to clients, with a great emphasis on our independence and the associated confidentiality.
I have always been clear with our contacts; that if any client ever feels forced to use our service, then the relationship would be over immediately.
The key to making these relationships more transparent is for there to be full disclosure, outlining in a single document all remuneration an agent receives, and not just from advisers but also from the conveyancing process and any other introduced services.
Clients will then be able to make their own judgement if a service is being recommended for the right reasons.
A ban on referral fees will ultimately reduce the clients choice and it will be the client who loses out.
Transactions and financial gains should be fully transparent and I truly believe that more choice offered to a client can only be a good thing.
The key is that the client should be free to choose.
Any conditional or pressurised sales tactics should be strongly discouraged with serious consequences imposed on those that continue to apply them.
Estate agents offer a valuable service and very often they can be the first port of call for potential first-time buyers.
With this comes a responsibility that they need to educate these vulnerable clients.
It is these individuals who hold the key to the future property market and like many brokers, estate agents have to start looking at the bigger picture, moving away from the one-transaction model that so many have adopted in the past.
There is a real opportunity for estate agents to add genuine value and differentiate themselves from an algorithm and online agents, but this window of opportunity will not last forever.
Working with mainly London agents and new build companies there is already a high level of professionalism in general but it is the few that spoil it for everyone else.
And there is no doubt that there are some, who fall foul of current regulations and show complete disregard to the rules already in place.
It isn’t fair, however, to tarnish everyone with the same brush.
When any legislation is brought in it is important to remember that it is being done to enhance the customer journey and experience.
Consequently it should be viewed as a positive step for the industry.
When a client approaches an agency or adviser the thing for us in the industry to remember is that while we deal with property transactions all day every day, house moves for clients usually only take place a few times in their lives and clients aren’t always fully aware of all of the processes.
Therefore it is our duty to ensure they are seeking the right advice from suitably qualified professionals whether that be adviser, solicitor or surveyor to ensure that they get the best possible outcome for them as a client.
Disclosing any commercial arrangement around this should just form part of that process and become the norm as it has with commission disclosure in the mortgage industry.
Going forward I know many of my colleagues in the industry see the potential for full disclosure of fees as a long overdue necessity, after all financial services have had full disclosure under regulation for many years.
I’m sure we will all look back on this change in process in many years to come and will reflect what a good positive step it was for both customers and the property industry.