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Buying and selling houses - new guidance on referral fees

Referral fees are not new - they were around long before the days of the internet. Consumers are probably more familiar with them in the form of affiliate marketing through popular online retailers such as Amazon (who pay a 'referral' fee if a sale comes via a link from another website).

Regulators have, however, become increasingly concerned about the need for transparency surrounding the use of referral fees.  For this reason, Trading Standards has launched new guidance on referral fees in the property industry, which has been broadly welcomed by property professionals and consumers alike.

Trading Standards permits referral fees but requires full disclosure of them

There was some concern that Trading Standards might aim to ban referral fees altogether, which would almost certainly have forced estate agents to increase the fees charged to customers. One way or another, this would have increased the cost of moving for buyers (since any charges applied to sellers will be passed on to buyers), which could potentially have a negative impact on the housing market.

In times of economic uncertainty caused by a looming Brexit,  the thought of slowing down the housing market further no doubt played a role in the decision to allow referral fees to continue, provided that they are fully disclosed to both sellers and buyers. This leaves estate agents free to create partnerships with related professionals, such as conveyancers, and consumers will ultimately benefit from smoother property transactions.

Price, value and the issue of online estate agents

With traditional estate agents, referral fees typically come into play when a purchase is close and the buyer needs (or wants) to enlist the help of additional property professionals to bring the purchase to completion.

For example, they usually require conveyancing services. This provides traditional high-street estate agents with a solid basis on which to recommend property professionals they trust even if they are not the ones with the cheapest fees. Many clients are likely to find both the referral fee and (potentially) higher fees a reasonable price to pay to make the house-buying process as quick and smooth as possible.

With online estate agents, however, the sales representatives tend to be self-employed, which means that the fees they receive for persuading people to sign up to an online estate agency service will be classed as a referral fee.

Additionally, many online estate agents charge fixed fees  regardless of whether or not the property sells, so for transparency, they have to explain in advance that they will earn this fee even if the property fails to sell.

Author: Mark Burns, Indlu Estate Agents

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances, and is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Indlu Estate Agents directly.

Published on 26th March 2019
(Last updated 27th March 2019)

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