It has targeted referral fees as part of its plan to clean up the estate agent and house buying process and also questioned if transparency and regulation of the sector needed to be stepped up.
In a consultation released on Sunday, the Department for Communities and Local Government (DCLG) said it was aware “that some consumers are guided by their estate agent towards using a certain conveyancer or mortgage broker and that these agents may be in a commercial relationship with this party and receive a referral fee in exchange for making an introduction.
“This obviously increases the costs to consumers and may hamper competition. We would like to know whether consumers benefit from these arrangements and whether referral fees are always being disclosed to consumers.”
As a result, it asked: “Should the government take further action to enforce current transparency regulations regarding disclosure of referral fees? If so, what action should be taken?
It added: “What would the impact be of banning referral fees?”
Tighter regulation
The DCLG also used the consultation to ask whether regulation of estate agents should be strengthened and if awareness needed to be raised about how to submit a complaint about an agent.
It follows on from plans announced last week to require all letting agents to be regulated and meet minimum qualifications.
“Changes to consumer protection regulations have had an impact on the way in which estate agents operate and our research suggests that most people were satisfied with the service they received from their estate agents,” the DCLG said.
“However, we are keen to know whether the apparent reluctance to complain about poor service received from estate agents is because people are not aware of how to raise a complaint.”
NAEA Propertymark chief executive Mark Hayward welcomed the proposals: “NAEA Propertymark has long been calling for more regulation of the estate agents sector to ensure that consumers are protected when dealing with the biggest asset most people own, their home.
“We are delighted that government has chosen to include further estate agent regulation in the scope of their call for evidence into the house buying and selling process. This is a welcome review of the process, which is currently archaic and does not reflect the twenty first century.”
The consultation will run until 17 December and can be responded to through an online survey or by emailing the DCLG.
Not sure that it “obviously increases costs to consumers”; I pay a local agent a modest amount for business done from referrals passed to me but I don’t charge the clients any more as a result! Surely a far bigger problem is estate agents that employ advisers pressuring buyers/sellers to use them? Surely banning these payments will make this worse?! Don’t see any problem with a requirement to make any payments transparent though. If they are inviting comments on this, could you provide a link?
Why just target Estate agents, new homes developers are just as bad for insisting purchasers use their in-house brokers.
What utter nonsense! Another classic example of tarring every agent/broker/solicitor with the same brush. Perhaps start by focusing on those builders/agents who insist that any potential buyers speak to their in house broker, almost to the point where the buyer is then fearful that they will lose the property if they refuse.
The biggest threat to causing higher costs to clients is regulation itself. Regulation has added to the costs of every transaction for lenders and brokers. I personally don’t believe that the substantial increase in costs and huge amount of time spent on mostly pointless compliance admin for the regulator is balanced by a great job by the regulator. Every client has been penalised for years. If you want transparency, perhaps any fee or commission should state the relevant proportion attributed to regulatory compliance costs.
As a complete alternative to adviser monitoring how about client reviews are attached to every adviser’s licence in say a blockchain format. This list of client reviews would always follow the adviser linked by name and individual registration number. Even if they join another firm this list of reviews good or bad would follow the adviser. As part of the usual due diligence, any new firm or network would decide if that adviser appears employable based on their score and client review list. As an option each review could be authenticated by the appropriate adviser firm and the regulator, but it should not invalidate the review unless the service never occurred, but that would be under the guidance of the regulator.
The regulator’s job could reduce to only monitoring of this review compilation. It would promote good practice and become a difficult challenge to those who ever prey on clients. This could work the same as Ebay and Amazon reviews to indicate to any prospective customers/clients the scores before they accept the service.
The Ombudsman could also add any complaints and compensation payments that are appropriate.
Nothing could be more transparent. Nobody should be able to escape from their service record whether they join different networks or firms.
This could work for solicitors, estate agents, brokers, lenders, bank advisers etc.
To a large degree regulation for an individual and partly for companies would become redundant as this would promote good outcomes. TCF policy/monitoring/lip service/nonsense would also become redundant.
All four comments prior to mine are spot on. Very Deceptive , you are so right about pointless regulation . The time wasted on producing paperwork saying that clients understand the impact of adding a fee to their mortgage which adds about £300 in interest over 25 years for instance . We have a useless regulator from whom I haven’t learnt a single thing which will ever benefit a client.
Your idea of using the client reviews would never catch on although it would delight me. The FCA under its old name actually said TFC is nothing to do with having satisfied clients.
He who can dies. He who cannot, regulates
I apologise now for my cynicism but here go the government
again, advisor bashing.
Referrals from Estate agents to advisors benefit buyers, because
estate agents will not recommend poor quality advisors regardless of a referral
fee, as they often have issues during completion which can worry buyers and
sellers. If these issues do not cause the sale to collapse, they can certainly
jeopardize the buyers future use of that estate agent as well as advisor.
Are they also going to look into the lenders encouragement
of the client allowing them to refer their details to “associated companies or
companies they think they may be interested in” Admittedly a client can opt
out, but does the government think these referrals are handed over for free?
Banning referral fees will reduce the number of quality leads an advisor
receives. Try using lead generation companies instead, they are costly time
consuming and leads are very poor quality.
Banning referral fees between solicitors, advisors and estate agents will cause
fees to clients to go up, or quality of service to go down, as advisors try to
do more business to make up the shortfall.
It will also drive more clients into the hands of the lenders to do their
mortgages direct. As the FCA and government seem to allow the lenders to
interpret guidelines in whatever manner they like, then advice for those
clients goes out of the window, sacrificed for fee free mortgages that could
cost thousands more over a benefit period or term.
The advisors are a very easy target to attack in the FCA effort to show they
are protecting the public. It is much harder to attack and change the might of
the lenders who seem to still be handing out numerous AIP’s to clients often
after a very short meeting and often also without checking documents. Just look
at how many high street issued AIP’s actually complete. All of those
clients thought they had a mortgage because that is what the lender tells them.
They go to an estate agent, who accepts their offer, the house is taken off the
market and then 6 weeks later, the lender tells many of them the news that they
cannot have the mortgage or can’t borrow as much as expected. Result is angry
Buyer, seller, and estate agent and the possibility that the seller moves the
property to a different agent.
Instead of banning referral fees, start looking at lenders
practices. Ban the practice of offering early re mortgage changes using “click only”,
which cut the advisor out by offering to waiver ERC’s and prevent competition. Fine lenders who have multiple AIP’s that don’t complete, because they were just used as a “hook” to stop the client looking elsewhere. Force lenders to give full advice in all case, No exceptions! Level playing field for all please.
I doubt any real effort will be made to stop lenders
practices, but it must be time consuming for the government and the FCA to
constantly be looking for things to curb advisors business.
Why not instead of banning referral fees why not just save time and ban advisors.
(remember, this is the government that just a few years ago found that
numerous M.P.s were ALLEGEDLY, claiming expenses for properties they
weren’t using, claiming salaries for family members who weren’t actually
working for them, claiming expenses for moat cleaning and repairs on
their own homes, and claiming expenses to attend Parliament when they
just clocked in and then back out again. ALLEGEDLY)
The comment that all agents are being tarred with the same brush is true, but also the reason most regulation has been instigated in other industries.
However, in my view, rather than impose regulation, it would be simpler to simply ban agents from recommending ANY services to buyers. This would ensure the buyer is advised by an unconflicted professional.
The agent should be working for one party only – the vendor – and so to receive income from the buyer then creates a conflict of interest and to whom do they owe a duty of care?
One of the worst examples of this conflict is the recent “ground rent scandal” where the agent for the vendor sold broker and solicitor services to buyers – often as a condition or with a generous cashback.
The solicitors did not highlight the risk to the vendor or the lender (why would they when it would turn off the referrals) and the brokers must have selected lenders who would not had conditions. We have been warning clients of this risk for some years and hence why developers do not want buyers using truly independent parties.