Referral fees – why a ban won’t make services cheaper

We are currently engaged in consultations with our members to help to find a practical solution to the concern of the government surrounding referral fees for estate agents. 

The current proposals by the Ministry of Housing, Communities and Local Government (MHCLG) to amend, or even potentially eliminate estate agency commissions for service referrals such as conveyancing and EPCs, is currently one of the more controversial subjects in the industry.

The 2017 letting fees review, which is expected to come into effect next year, makes it clear there are increasing challenges for agents to prove the value added in any related transactions, and also demonstrate transparency under existing Consumer Protection against Unfair Trading Regulations.

Fears from a tepid market, combined with new legislation reducing existing income streams, may cause severe distress in the industry. 

A further ‘chopping out’ of agency fees runs a real risk of permanently changing the landscape of the British high street and adding more doubt into the debate surrounding the future profitability of the online model.

However, I believe the real argument is over whether fees are justifiable is:

- Would the market work more effectively if these were capped or banned?                 

or

- Would the consumer be able to access lower prices/better value?

Crucially, any belief that services would automatically be cheaper without agent referral fees is a false one for several reasons: 

1. Agents negotiate better rates that the public might obtain directly. 

2. They undertake preparatory work that can expedite the task. 

3. The route to market for companies such as conveyancers is cost-efficient.

Also, the market is far from truly competitive; for example, a recent check this week for conveyancing quotes showed that ‘direct online providers’ were 20% more expensive than access for the same service via a leading local independent agent. 

It is also the case that the choice of supplier may be crucial to find the real value of the service, especially with regards to completion times. It is unclear how a member of the public could make an ‘informed choice’ between quality, speed and price.

Agents also play a crucial role in progressing sales to completion (perhaps their single most important task), and strong relationships with related suppliers are crucial to the smooth running of the proceed and allows efficient communication to the customer. 

Having said the above, the argument for transparency is logical and compelling and goes far beyond the burying of commissions in the small print in extensive documentation or misleading headline charges. There are undoubtedly agents who charge large referral fees that are not justifiable and risks tarnishing the reputation of the industry. 

If we could ensure that the public were making an informed choice, it would undoubtedly encourage a more efficient and effective marketplace and reassure the government the sector is capable of self-regulating. It is the public’s right to decide between quality, speed and price, but not pay a high price for a substandard service. 

At The Guild, we are already undertaking an extensive survey of our members to represent them to MHCLG in a professional and supportive manner. I would like to extend this survey to all independent agents across the UK, to inform them of the extent of the debate taking place. 

The sector needs to be seen to stand up for the honest hardworking traditional agents. By collecting agents’ opinions, we will better ensure that the industry is representing itself correctly to government. Although we represent The Guild, we hope that all agents will benefit from our stance.

If you want to contribute to the consultation, then please contact us at debate@guildproperty.co.uk. 

*Iain McKenzie is chief executive of The Guild of Property Professionals