Agent Resources

Referrals - a good or bad thing?

Referrals are fees passed from one party to another as a "thank you" for introducing a client. In the estate agency world, it's often a solicitor who is passing over a referral fee to an agent, to recognise that the agent has referred a buyer or seller to them for conveyancing work. But referral fees can also apply where sales leads are passed on.

The argument in favour of referrals is that they give the agent a degree of control over the quality of the conveyancer that they are recommending. However, when commission is being paid, there is always the question of a conflict of interest. Is the agent recommending the best conveyancer or the one with the highest referral fees?

Agents might counter by saying that, as they make most of their income when a sale completes, they are hardly going to jeopardise that income by referring the seller to an incompetent conveyancer. The referral fee from the conveyancer is a small amount compared to the agent's commission in a sale.

Consumer protection organisations might point out that it would be all very well if the conveyancer paid the fee. But these fees are passed on to the customer who is the one who actually pays them. Consumer champions would say that the agent’s client is paying more than they need for their conveyancing, since the conveyancer is going to include the commission to the agents in the fees charged to the client.

There is however an argument against this. Agents would say that clients benefit from low cost deals that the agents negotiate with conveyancers. They might also point out that even excluding the commission, the client would probably pay more if they approached the lawyer or conveyancer directly.

Many agents don't charge for referrals

In a recent discussion on this issue in Estate Agent Today, some agents who don't charge for referrals explain why they choose not to. They feel that the sums are not large enough to make the extra trouble worthwhile. In fact, one contributor went so far as to say that if the buyer was set on using a poor-performing volume conveyancer, they would advise their vendor not to accept the offer.

The situation is not so different from the one that applies to financial advisers. They have to disclose the commission on every product they recommend. This doesn't stop clients using them, so more openness about referral fees might not cause major problems in the conveyancing field. It’s quite likely that the client would end up seeing commission from their lawyer as one line item on a cost estimate, followed by a discount from the lawyer of a matching amount on the following line.

The consumer might reasonably conclude that the lawyers and agents were playing a game with themselves, and be satisfied that as long as they didn't have to pay any more, it wasn’t too much of a concern.

Source: Nethouseprices, 09/10/17

Make a comment

Please use the comment box below. Please login first or create an account.
user avatar

Register For Free

Create an account for free today to unlock some great features of Net House Prices.

Instant House Valuation Inst House Valuation Check Affordability Check Affordability