New regulations from the National Trading Standards Estate Agency have been published with the aim of improving transparency for consumers about referral fees received by estate agents.
Produced by a collective of experts from RICS, the Guild of Property Professionals, the Property Ombudsman, NAEA Propertymark and Property Redress Scheme, the new guidance is designed to bring the use of referral fees in line with the Consumer Protection from Unfair Trading Regulations.
What do the guidelines say?
The regulations relate to referral fees received by estate agents for conveyancing, legal, financial and other related services as part of the property transaction process.
The NTS Estate Agency team concluded that, while estate agents are permitted to accept referral fees relating to connected services, these must be disclosed upfront by the agent to both buyers and sellers.
Specific areas in particular were identified as requiring complete transparency, including full disclosure to buyer and seller of the parties involved, prices and retainer values.
The guidance states that an estate agent should disclose the price of its services, where a referral arrangement or retainer exists and with whom, the amount of these fees, and the annual value of any reward if a referral is rewarded other than by payment.
The aim is to improve fairness and consumer knowledge and awareness when house buying or selling a house by making the process and all fees related to the property transaction clear and transparent. The regulations are intended to allow consumers to compare like for like among alternative providers.
Any referral fees that an estate agent may be receiving resulting from a recommendation should be made clear to the consumer from the outset to ensure the consumer is fully informed and able to make a decision on whether to follow the recommendation or to look elsewhere for a potentially better deal.
Full disclosure should be made upfront, using clear wording that consumers can understand and use to make fair comparisons with alternative providers.
Information must be explained clearly in the sales particulars and terms of business, when the sale is arranged and outlined on the agent’s website.
While the sector has welcomed avoidance of a complete ban on referral fees, concerns have been raised that the new rules could precipitate a race to the bottom. However, failure to comply risks enforcement action and estate agents are urged to take steps to comply with the new regulations with immediate effect.
Weight has been to the new guidance in the form of penalties against estate agencies for non-compliance. Failure to comply could result in criminal prosecution against the estate agency.
To police the new rules, the NTSEA team will be actively monitoring estate agencies over the next 12 months, and will report their findings to Parliament within the year. The guidance will be reviewed in 12 months’ time with a view to understanding whether transparency is effective or whether further steps need to be taken.