A ban on referral fees could have a “catastrophic” impact on the estate agency sector – and in particular trigger a “monumental” decline in corporate agencies.
The Call for Evidence into the process of buying and selling houses raises the possibility of an outright ban on referral fees earned from conveyancing and financial services.
Russell Quirk, of eMoov, said yesterday that if there were a ban, it could result in “absolute carnage”.
He said the likes of Countrywide, LSL, Connells and Foxtons depend on significant income from their affiliated conveyancing and/or financial services arms: if the ban meant that these firms’ estate agents could no longer refer introductions to these other parts of their respective group, the implications would be enormous.
At least two of the big corporates, said Quirk, earn more from their financial and conveyancing services combined than they do from estate agency income.
He said: “Referral fees are a perfectly legitimate aspect of the property selling process and are already regulated by the Estate Agents Act and via the Property Ombudsman.
“The buyer or seller has the option to use whoever they please to provide financial and legal facilities during a sale.
“While this could be made clearer to the consumer, the recommendation itself is certainly not solving a problem that needs to be prioritised.”
He went on: “While my unusually benevolent stance in standing up for the traditional players may come as a surprise to many, you have to look at the bigger picture and the absolute carnage that would come of these industry giants failing rather than flourishing.”
He said that thousands of staff would lose their jobs, adding: “Countrywide has already seen a 90% drop in profits year on year, with the majority of their income deriving from mortgage and financial services and conveyancing. This further reduction in income will surely sink the ship.”
Quirk warned that the Government has a habit of making knee-jerk reforms, and cited the forthcoming ban on tenancy fees.
He said: “The Government has a track record of pulling the rug from beneath the industry’s feet.”
While some corporate firms such as Countrywide were specifically set up as distribution networks, they would not be the only losers.
There is no data as to how much independents earn from referral fees, but if tenancy fees represent somewhere between 18% and 22% of lettings income, referral fees could represent the same kind of proportion of sales income. EYE yesterday spoke to one independent that says it earns 23% of its overall income from referral fees.
The Mirror, in its coverage today, cites the example of conveyancing firm, Attwells, which paid Cubitt & West a £612 referral fee. The law firm added this sum to the purchaser’s bill, says the Mirror, meaning the cost of the conveyance was hundreds more than the purchaser had expected, the Mirror claims.
Currently, the law requires estate agents to declare whether they earn commission from referrals. It does not require them to disclose the amount. The Call for Evidence has also raised this as a possible option, rather than an outright ban. However, the Government does not seem to regard the mandatory requirement for letting agents to publish their fees as a success – hence its argument for the ban.
Separately, the Call for Evidence has underlined that the Government will not be bringing back Home Information Reports.
Yesterday, however, the Conveyancing Association said it has been working on a Digital Home Report in pilots with member firms.
It said this involved providing “a comprehensive collection of information upfront to the potential purchaser” and would also contain a legally binding reservation agreement.
Eddie Goldsmith, chairman of the Conveyancing Association, said the results of the Digital Home Report pilot – and other pilots it has been working on – will form part of its response in the Call for Evidence.
He said: “We believe the Call for Evidence process will result in a revolution in conveyancing, and the Conveyancing Association will be at the forefront in helping deliver it.”