Conveyancing: It's not about referral fees

Whisper it quietly, but there seems to be change in the air when it comes to agents recommending lawyers based on the promise of high referral fees.

For many years, companies with gentle sounding names suggesting frictionless conveyancing services have sprung up offering estate agents a solution for the problem of slow antiquated, and let’s face it, usually local, solicitors.

These companies offer the promise of additional revenue streams for agents for minimal effort, with a strikingly simple sales message. “Fed up with local solicitors working too slowly for you? If you use our specially selected (they are ALWAYS specially selected) panel lawyers, then we will make sure that you get anywhere up to £400 per case. Bosh.”

Clearly an irresistible offering, despite the obvious faux cockney terminology.

It’s no wonder so many agents have bought into this argument. Let’s face it, the service they might receive from a call centre in Walsall, or some backwater high street firm, probably won’t be any worse than the chap across the road who closes at 3.00pm. Given that the deal will take four months anyway, who cares if you’re earning an additional £400 out of it?

The only problem is that, sadly, it really isn’t that simple.

Firstly, let’s clear up one misconception.

Despite the assumption that it is only ‘huge conveyancing factories employing robots’ doing the work through these panel companies, often it is small firms desperate for the business to ‘iron out the bumps’ in their supply of instructions. 

While it’s easy to target large firms for criticism, in reality, these have typically invested in technology, people and processes to enable them to cope with high volumes on transactions. The real challenge arises with smaller companies that don’t have the technology or the processes, employing overworked lawyers that struggle to deliver the service levels that are promised.

Then there is the fundamental problem of fees. Agents looking for high fees to supplement their fees driven down by competitive pressures and panel managers taking their cut for their administration take away margin from the lawyer. We know of arrangements where the lawyer receives only £200 of a £700 fee. This does, of course, require the lawyer to carry an increased caseload – we interview candidates running caseloads of over 100 cases by themselves, sometimes without case management systems.

High caseloads have a direct impact on service levels. A few of our lawyers come from firms that have been doing this low-priced work, and one of the observations they make is how remarkably few telephone calls they receive compared to their previous employers with constantly ringing telephones and numerous voicemails.

It’s no surprise that this combination of poor processes, under-investment in technology and high caseloads appears to be the underlying cause of delays and transaction failures.

In addition to failed transactions, there is reputational damage that is also at stake. When a client receives poor service, naturally the referrer gets the blame - we are judged by the company we keep. 

Just this week, we know of an agent who had a client turn up at his office to berate him for recommending a panel lawyer. He had received poor service and then read their atrocious reviews on Trustpilot. The agent cancelled the referral agreement on the spot.

The other slightly troublesome problem, is that if negotiators are being told to recommend lawyers who they KNOW do not offer the level of service that they promise clients, it appears they are personally falling foul of the Bribery Act 2010. The most severe penalty is an unlimited fine and 10 years of imprisonment.

While it is easy to criticise panel-based referral business for its effect on the housing market, to be frank, the legal industry really has itself to blame for getting into this mess in the first place. 

The old fashioned and inefficient practices that even the most apparently progressive firms still adhere to, are frankly shocking. The business of conveyancing is not for the faint hearted and those who dabble in it should seriously consider early retirement.

However, there is good news on the horizon. We have found the conversations we are having with agents over the past few months have changed the focus towards completion rates and good working relationships. 

Indeed, that’s why we took the step to be the first law firm to publish our completion times and rates – how else can a lawyer be judged in terms of performance? Increasingly, agents are doing the mathematics, weighing up the theoretical revenue from high referral fees against the increased rate of transaction success. 

A quick calculation shows that for every additional completion attracting fees of £3000 is equivalent to approximately 8 panel-based transactions of £400 each, each requiring significant time and effort to be cajoled and hassled through the process.

It still amazes us that for some agents, the combination of increased transactional failures, representational damage and imprisonment, are still considered to be outweighed by a £400 promise. 

However, the threat of referral fees being outlawed in their entirety and the competitive pressures of the online-only agents bringing each transaction into sharp relief seems to be focusing attention to what really matters.

Completions.

*Peter Ambrose is Managing Director at The Partnership, which specialises in fast and efficient transactions enabling customers to complete with confidence.