To refer or not to refer – that is the question…
In the real estate sector, it has been a rollercoaster of a ride in 2020. The proverbial ‘famine to feast’ doesn’t emphasise strongly enough how chaotic the year has been.
When Covid gripped the nation in March, and a national lockdown was imposed, property sales and purchases ground to a halt. The housing market was reopened in May, and activity resumed, but it was the stamp duty holiday announcement that led to overwhelming levels of new business.
The process of buying and selling homes has been under scrutiny in recent years, as the government has a firm commitment to making moving home quicker, easier and cheaper.
The Ministry for Housing, Communities and Local Government recently commissioned a review of referral fees and their impact on buyers and sellers.
It seems that referral fees are firmly back on the agenda…for now.
What are referral fees?
Referral fees are payments made for ‘business’ and so, in the context of buying and selling homes, solicitors will pay estate agents a fee for introducing clients and cases to them.
Why do they exist?
Referral fees have been around for a while and many law firms consider them to be a ‘marketing’ expense – a means of generating business. Solicitors can source steady levels of work and estate agents can be remunerated for their efforts in introducing this.
What can go wrong?
Not all referrals are ethical or transparent and so clients can be pressured into feeling that there is no choice. It’s important that clients know about both the basis and the value of the referral so that they can make an informed decision – sadly, this is not always the case. And this can lead to unhappiness and a lack of confidence in the property market generally.
What are the recommendations to improve referral arrangements?
The recommendations include transparency on referral fees becoming mandatory, along with a recommendation that clients should ‘shop around’. This would also be accompanied by a public awareness programme to ensure that clients are aware of the presence, and potential dangers, of hidden referral fees. Finally, there will be greater engagement with the professional bodies involved, to ensure compliance and to impose sanctions for continued breaches. The ‘ultimate’ sanction, of course, is an outright ban.
What is Bolt Burdon’s approach to referral fees?
Bolt Burdon has never paid for work and this position will remain. Our approach has been to forge and nurture strong relationships with our agent contacts to guarantee ‘leads’ based on our ability to do a great job, rather than a financial incentive. This, combined with our service level guarantee to clients, means that our integrity isn’t compromised and that we deliver excellence for every client, every time.