Can you trust your estate agent?

My husband's quiet Sunday afternoon with the papers was disturbed last week, as the Mail on Sunday made me see red. This was nothing new but on this occasion the headline of 'Is your estate agent taking bribes' from your lawyer?' really made it personal. I may be over reacting, but Sebastian O'Kelly must have had quite a job deciding who to pick on for this one… With a choice of lawyer or estate agent to go at 'Is your estate agent demanding 'bribes' from your lawyer?' might have been more accurate.

O'Kelly's article discussed the now common practice of referral fees (or 'kick backs') paid by Conveyancers to estate agents in return for recommending new clients. I should make it clear, at the start, that we, at Wards, do not pay referral fees. We believe that this stand is a fundamental part of demonstrating our integrity and viability. The result of this, however, is the certain narrowing of our opportunities for securing new Conveyancing business… and such business is vital to a general practice like ours.

Once upon a time, life was simpler. When you wanted to move house, you went to see your local estate agent. You employed your local family solicitor. You saw the local bank or building society manager for a mortgage and your friendly insurance broker for your insurance needs.

Then at some point in the 1980s all this changed. Everyone started trying to do everyone else's jobs as a route to greater profitability. The banks and building societies started selling investment insurance as well as other products. They bought out estate agents and began to use them as platforms for also selling a plethora of products.

Statistically, around 50% of buyers and sellers, will follow their estate agent's recommendation when appointing a lawyer to handle their Conveyancing. The estate agent is in a very strong position to influence and many consumers find their help is welcome. For many high street firms, for whom Conveyancing is their main source of income, "looking after" the local estate agent is vital to ensure a flow of new business to keep them alive. In practice, while once this meant the odd lunch and mutual referrals, estate agents have now realised that they can charge firms for the referral… and they will pay. It was not long before other introducers, such as financial advisors, also joined the party - no longer looking for the best deal or lawyer for their client, but only the best return for themselves.

So which agents require 'kick backs'? It's probably easier to list which ones do not.

The small independent agents may need the money more and might be justified in looking to raise this additional revenue. In practice these are not the main culprits. They depend directly on the business of selling houses. Their main driver is supporting this activity and that means only referring to Conveyancers that they know will provide an excellent service. For them, reputation, and only being associated with experts, is more important than their "bung".

The agencies owned by larger corporate organisations, however, are a different story. They see the opportunity for advantage growth based solely around the referral of work. These agencies set targets for their staff to refer business to a preferred contact, in return for referral fees, and reward their staff for doing so. Some even increase their fees to cover the referral fee, thereby maximising their return from each transaction. So focused on their "bottom line" are they that their referrals are often too expensive, non-local firms, willing to pay a higher referral fee for work. You only have to do a quick Internet search to find countless examples of innocent consumers that have been caught out by this practice.

What can you do? Returning to the article, it recommended that a referral to a solicitor by an estate agent was enough to disqualify using that solicitor straight away. No it is not! We are not all the same!

At Wards we are proud not to pay referral fees but that doesn't mean that agency referral is not our lifeblood. We enjoy (and work hard on) strong relationships with local agents and introducers. Such relationships only thrive when they are based on mutual trust, likeability and common goals.

The reality is, however, that as times get harder more estate agents seek referral fees and more firms are desperate enough to pay them. Certainly the subject has always created strong feelings, but ultimately, would banning them achieve anything? When this was previously tried, it merely resulted in third-party middlemen setting up to act as intermediaries between agents and lawyers. It simply pushed the problem down the supply chain.

If you want to find out if your agent is paying a referral fee, then ask them! Solicitors are bound by strict regulations and must, if asked, tell you about these fees. You can then make the decision for yourself as to whether or not it is worth the price.

by Susan Ellis
susan.ellis@wards.uk.com
01275 850460