As the Government considers a Trading Standards report on compulsory referral fee disclosure, what could this mean for letting agents?
Referral fees have provided letting agents with a valuable income stream for many years. Whether it’s through suggesting TV and utility services to tenants or an insurance provider to landlords, referrals help agents to provide consumers with an all-in-one package and access to the services they require.
A survey of agents by The Property Ombudsman (TPO) found that almost 60% of its members have referred customers to external companies, with over 80% of them admitting to receiving a fee for the referral.
Unfortunately, a minority of firms have not used the referral system in a productive and professional manner – hiking up fees, double charging, and generally lacking transparency.
There are also concerns that some agents put unfair pressure on clients to use certain service providers so they can earn a referral fee, whether or not the supplier provides the best value or service.
This has rightly led the Government and Trading Standards to take a closer look at the system and work out whether it’s possible for agents to charge fair referral fees, while at the same time offering the necessary protection for consumers.
At the start of October, the National Trading Standards Estate and Letting Agency Team (NTSELAT) published a report on the findings of its review into the referral fees system.
The review was requested by the Ministry of Housing, Communities and Local Government (MHCLG). The report puts forward several proposals which will now be studied by the Government with the aim of new laws being formed in the future.
The report focuses on the sales market, but it includes plenty of relevant information for letting agents to take on board. Here’s an overview of what you need to know.
Proposals for mandatory disclosure of referral fees
NTSELAT’s report, which you can read in full here, recommends that it is made mandatory for agents to disclose the details of third-party referral fees to consumers when they are buying or selling a property. The report also recommends that:
- A public awareness programme is created to alert consumers to hidden fees
- Consumers should be warned to shop around for services
- Additional referral fees guidance for property professionals is published
- Redress schemes and industry bodies increase encouragement of compliance with referral fee rules
There had been speculation that NTSELAT would recommend that the Government ban referral fees together. However, James Munro, NTSELAT’s senior manager said that referral fees ‘have a place in business if used ethically and transparently’.
“It is important that customers are fully aware of the basis and value of a referral or recommendation so they are able to take an informed transactional decision,” he said.
Housing Minister Christopher Pincher added: “It is unacceptable that unscrupulous practices are still taking place where consumers are not being made aware of referral fees.”
“I welcome the National Trading Standards’ work to raise consumer awareness of referral fees and will carefully consider the recommendations.”
The report has also been backed by TPO and NAEA Propertymark, which has advised its members to disclose details of referral fees now instead of waiting for the law to change.
While the Government reviews the recommendations, NTSELAT says it is developing further industry guidance and working on a public awareness campaign, which will encourage consumers to report experiences of non-disclosure to their local Trading Standards division.
What does this mean for letting agents?
While the Trading Standards report focuses on the sales market, it’s highly likely that letting agents will be required to disclose fees in the same way as their sales counterparts at some point in the future. Back in February, speaking at the NAEA Propertymark conference, James Munro said that any call for transparency over fees would be extended to letting agents.
Meanwhile, other pieces of legislation which have applied initially to the sales market – such as rules on anti-money laundering – have been extended to cover lettings. It is thought that an extension to lettings could be made at the point the Government makes a formal decision on changes to the law around referral fees.
With this in mind, letting agents should start preparing now for future changes to the way referral fees can be charged and keep on top of any updates from Trading Standards or the Government.
Trade bodies and redress schemes have recommended that all agents – regardless of whether they are sales or lettings – disclose their referral fees for a number of years.
Acting with transparency now could mean that stricter action – such as an outright ban on referral fees – is avoided in the future. This way, agents will still be able to generate additional revenue from cross-selling services while making sure consumers benefit from the necessary protection, clarity, and transparency.