Referral Fees: government amends guide for buyers and sellers

The government has issued a revised version of its official How To Buy and How To Sell documents, aimed at consumers and first published in the spring of this year. 

The amendments were released at the start of the weekend by the Ministry of Housing, Communities and Local Government and they relate solely to referral fees - known to be an issue under review by the government.

Earlier this year the National Trading Standards Estate and Letting Agents Team issued new guidelines to agents on referral fees (see below). The National Association of Estate Agents also warned the industry that it was in “the last chance saloon” when it came to transparency over referral fees, suggesting that such fees could actually be banned when the NTSELAT guidance is reviewed in 2020.

The revised wording in the MHCLG How To Buy guide says:

“The estate agent, developer, mortgage broker/lender and online property sites can be useful sources of recommendations for property professionals such as legal representatives or surveyors. They may refer you to a company because they recommend the service, and may also receive a payment (known as a referral fee) from the business they have referred you to.

“This is an established way of working, but the estate agent is obliged to tell you about any referral fees up front, allowing you to make an informed decision about which firm to choose. Do not feel obliged to take up any referral the estate agent, developer or mortgage broker/ lender makes – it is entirely your choice. You should shop around for the best deal for you, although be aware that for mortgages multiple lender inquiries may have an impact on your credit score. If you’re in doubt, ask your mortgage provider for more detail about how they carry out credit checks.”

And the new wording in the How To Sell guide reads:

“The estate agent can be a useful source of recommendations for a legal representative, mortgage broker, energy assessor or surveyor. They may refer you to a company because they recommend the service, and may also receive a payment (known as a referral fee) from the business they have referred you to. This is an established way of working, but both the estate agent and the business they refer you to should give you clear, up-front information on any referral fees, including how much they amount to, allowing you to make an informed decision about which business to select.

“You should not feel obliged to take up any referral the estate agent makes – it is entirely your choice. Shop around for the best deals for you; although be aware that if you are looking for a mortgage for another home, in some cases multiple lender inquiries may have an impact on your credit score. If you’re in doubt, ask your mortgage provider for more detail about how they carry out credit checks.”

Back in February this year the National Trading Standards Estate and Lettings Agency Team revealed new industry guidance to make referral fees more transparent to consumers. 

In summary these were:

An estate agent should disclose in plain terms

-  The price of its services, including any “compulsory” extras; and 

-  Where a referral arrangement exists, that it exists, and with whom; and 

-  Where a transaction-specific referral fee is to be paid, its amount; and 

-  Where a referral retainer exists, an estimate of the annual value of that retainer to the estate agent or its value per transaction; and 

-  Where the referral is rewarded other than by payment, an assessment of the annual value of the reward or the value of the reward per transaction. 

Here are the full revised versions of the MHCLG's How To Buy and How To Sell documents.