Under the changes estate agents who continue to flout the legal requirements concerning referral fees could be banned from the industry.
Referrals to mortgage brokers, conveyancers, other financial services and legal providers are commonplace in the estate agency industry.
Almost 60 per cent of members of The Property Ombudsman admitted to referring customers to external companies, with more than 80 per cent of those members receiving a fee for the referral.
However, a review into referral fees by National Trading Standards (NTS) for the Ministry for Housing, Communities and Local Government (MHCLG) found the practice is regularly concealed from customers who remain unaware of the financial arrangement.
And in some situations, customers may be pressurised to use a referred provider despite the fact it does not meet the needs of the customer or provide best value, NTS said.
Public awareness programme
As part of the proposed changes around referral fee disclosure from the watchdog, customers should be advised to shop around to find a third-party provider who offers the best value and service.
There should be a public awareness programme to warn consumers about hidden referral fees, while further industry guidance and redress schemes to encourage compliance in the property sector is needed, the report added.
James Munro, senior manager, National Trading Standards Estate & Letting Agency Team, 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 minister for housing Christopher Pincher added: “This government is committed to making it easier, cheaper and clearer for people to own their own home, including by making the buying and selling process more transparent.
“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.
“I welcome the National Trading Standards’ work to raise consumer awareness of referral fees and will carefully consider the recommendations of their report. I have asked National Trading Standards to continue to monitor the situation to help inform if further steps need to be taken.”