Estate Agents: Unlawful restriction on freedom of choice of conveyancer

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Times are hard for a number of estate agents, and with a sharp fall in commission, a number of agents are focusing more on increasing their secondary revenue streams, particularly referral fees.

We all know that referral arrangements exist and are, at least for now, a fact of life. The question whether agents and linked conveyances are as open about these arrangements as they should, is less clear.

The pressure on agents to maximise secondary income has led to an increasing number of complaints about the unprofessional and unlawful tactic of ‘bad mouthing’ the vendor’s choice of conveyancer in an effort to ‘sell’ the service of their own pet conveyancer.

We have found ourselves the victim of this practice.   Three local agents have made unjust remarks about our service in an effort to deter prospective clients from engaging us.   We have written to each and have not had the courtesy of a response.

This conduct is abhorrent and is on the rise.   The objective is clear.  The agent is keen not to lose the commission that will be gained if the agent can steer the client to the agent’s pet conveyancer.  No regard is had to the wishes of the client or indeed the client’s rights. 

A truly independent conveyancer will undertake due diligence on the legal title without influence from the agent,  and may, for instance, advise the client not to proceed with the purchase if there is a major issue with the title.   The conveyancer may also assist the client to purchase the property at the current market price and not at the value advised by the agent.   In short the conveyancer will act independently to everyone apart form the client. 

The risk for the client who is pushed in the direction of the preferred conveyancer is that the service provided may be strongly influenced by the value to the conveyancer of the high volume of work it receives from that agent.    There will be pressure on the linked conveyancer not to upset the agent who is feeding it with regular work.   The conveyancer would be less likely to advise on issues that could delay or jeopardise the transaction. 

So what is the narrative these agents use to ensure a prospective client goes with their recommendation?

Firstly, its best to use “our conveyancer is local" - There is no great advantage in a conveyancing solicitor being local because nearly all conveyancing tasks are completed using email and telephone.  Just because the conveyancer is local does not mean the conveyancer is any good!

“We use them all the time" - by the very nature of the arrangement, which will not be disclosed,  this is true. However the agent will have no direct control over the pace of the transaction, nor the actions of the other conveyancers in the chain. 

"Our conveyancer  is quick" -  There is no conveyancer who can guarantee a quick service due to the fact that the transaction will only proceed as fast as the slowest party in the chain.   Conveyancers have little control over the delivery time of searches and mortgage offers, for instance. 

‘If you go with your choice of conveyancer you will have problems’  - if a client hears this he or she should run a mile. Though the agent may profess to know about very conveyancer under the sun, the reality is that the agent will have little genuine information on the conveyancer and will not be basing the opinion on any facts.   The very fact the agent has mentioned this should ring alarm bells straight away.  The best advice is to walk out of the agency and look to find an honest agent, or to go the choice of conveyancer direct who  we are sure will point you in the right direction. 

It is both morally and legally wrong to provide false information in the delivery of a service. 

The National Trading Standards' Estate Agency Team issued guidance on property sales in September 2015 which clearly sets out the duties which estate agents, must provide to consumers, what rights consumers and clients have and what redress they have.

The guidelines are far-reaching and legally enforceable and breaches can be prosecuted in the criminal courts, resulting in possible jail terms and unlimited fines.

In particular, unfairness in practice, as defined in the guidance, is defined as results arising from the following:

• Giving false or misleading information to consumers regardless of how delivered, whether verbally, in writing or via telephone. This would cover providing a client with misleading information about the clients preferred conveyancer.
• Exerting undue pressure on consumers including pressuring a potential buyer to use associated services for example to use a particular firm of conveyancers
• Not acting with the standard of care and skill that is in accordance with honest market practice and in good faith.

Furthermore it  is illegal under the Estate Agents Act 1979 for an Agent to force a client to use the Agent’s preferred conveyancer. 

Blame for this practice does not stop with the agent and a client faced with pressure should also report the Agent’s pet conveyancer. 

Both the Solicitor's Regulation Authority (SRA) and the Council for Licensed Conveyancers (CLC) make it very clear that its members are meant to ensure that their client has chosen them to act without pressure being exerted on them to do so.

If  a client considers  he or she has been caught up in one of these referral arrangements and have been deprived of a free choice of conveyancer our advice is to complain to the Agent and also to the Regulator of the pet conveyancer. 

We will be happy to provide you with advice on you options. 

And finally….  Do keep in mind that it will probably cost the client  more - ( between £100 and £200) by engaging the pet conveyancer because most of these arrangements work on the basis of the referring agent’s referral fee being added to the fee paid for the conveyancing transaction. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Referral Fees - Good or Bad?

There is nothing more entertaining than watching two conveyancing lawyers engaged in an argument over the use of referral fees within the property market.   There are always plenty of sparks and it is clear that feelings around this subject run high.  

So what are referral fees?

They take several different forms.  The most common is the introduction fee.  This involves  for example a solicitor paying an estate  agent for referring a client looking for conveyancing services to that solicitor.  The fee can be anything up to £300.  Another common one is the  marketing fee.  This where a  a solicitor pays an intermediary for a ‘lead’, that is a name and contact number, to enable that solicitor to contact the potential client direct.  Its not just estate agents who refer work on for payment.  Insurance brokers also do it and can receive substantial payments for referring clients to panels of solicitors run by  third parties who also take a payment. 

Referral fees have already been outlawed in the area of litigation but still remain lawful in the property industry. 

So what are the perceived  benefits?

To begin with those referring will argue that by having control over the choice of solicitor albeit for payment, the referrer can keep control of quality and ensure the client receives the best service.  There is some credibility to this argument as agents and brokers are in making the referral putting their reputation at risk if the conveyancer fails to deliver.   The problem arises however when you bring conflict into the equation and question the motive behind the referral.  Is it as it should be to ensure the best possible outcome for the client or is it more sinister than that?  Is it because the introducer is out to maximize his return on acquiring that client?  In other words the introducer may be focused solely on the money.  In this case there is a real danger the client will be directed in the direction of the highest bidder. 

The other fundamental flaw in all of these arrangements is that the client if left to pay for the referral.  The client may not be aware of this even though there is a professional duty on the part of the lawyer to disclose the existence of the referral fee.  So this is how it flows.  The agent for example may direct a client to a conveyancer and tell the client the conveyancer is good and will only charge say £450.   The agent is more likely than not to keep from the client that out of that £450 the agent will receive a ‘kick back’ of say £150.  So in the end the client is paying £150 more than if she or he had gone the the conveyancer direct.   

The conveyancer may argue that if the client had come direct the fee would have still been  £450 because without the arrangement the conveyancer would have to spend more on advertising to generate new work.   It is unlikely therefore that profitability of a forward thinking conveyancing business would improve if referral fees were banned.  Instead these businesses would have to pay a high price for more general marketing initiatives. The only difference and one that means a lot to many practitioners is the latter situation would leave the lawyer to practice without ties and with integrity and professional independence fully intact. 

The difficulty many practitioners encounter is the inability to compete for clients on a level playing field.  Brokers and agents have access to the client at the very outset of a client’s desire to sell and or buy.   The conveyancer does not get a look in!    The opportunity presented by conveyancers to offer to the public direct Home Information Packs when they were obligatory, helped but as we know the present government in its wisdom did way with these.  It is clear that if lawyers could get to the potential client first the client would have a far greater opportunity to avoid pressure from agents and brokers alike and perhaps be left to make a more informed choice.  

Sadly I can not see any future government having the courage to bring in reform would provide this opportunity and for this reason right or wrong referral fees are likely to be here  for many years to come. 

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Three good reasons for not instructing a solicitor recommended by an estate agent

You might not know it, but you could be paying more for legal services when moving home because of the recommendation received form your estate agent.   The reason for this is that many estate agents have ‘arrangements’ with solicitors under which they receive what is known as a ‘referral fee’  or as it is often described, a ‘kick back’.

Many of the solicitors who operate in this way do not absorb the referral fee in their fee but add the fee on to the fee they quote you.  This means that you could very well be paying as much as £200 more for the service than you would have otherwise paid had you shopped around and gone to a conveyancing solicitor direct.

Is this legal?  Well at present yes providing the estate agent and solicitor tell you about the arrangement before you make the decision to instruct the solicitor.  The question is how many of those involved actually disclose the referral fee.  Sadly I do not believe it is many.

It also raises the question whether instructing a solicitor recommended by a ‘tied’ estate agent will ensure you receive the best service available.  My experience is that where such arrangements exist the solicitors instructed are normally part of some ‘factory’ operation and in the main the service levels of those firms is very poor.  This could mean you will find yourself having to constantly chase and inevitably the move will take longer.

Instructing an agent with a ‘pet’ solicitor may also impair the solicitor’s ability to offer independent advice. The agent will have a vested interest in the sale completing. Once an agent has agreed a sale, they will want it completed so they will put pressure on the connected solicitor to complete without regard to your best interests. If your solicitor discovers a problem and considers he should advise you to withdraw, will he be prepared to do so if the agents on whom he relies for work tell him not to?

My advice is not to rely on your agent’s recommendation.  Shop around, visit websites, read the reviews on the service offered and do not be tempted by deals offered by some agents to ‘wrap’ your legal fees in with the agent’s fee.  Perhaps even choose your solicitor before you put your house on the market because many solicitors like us know which are the 'good' and 'not so good' agents.    And before you ask, no we do not get a ‘kick back’ for recommending an agent!

David Pett Partner MJP Conveyancing Solicitors 

Free Conveyancing

The concept of FREE conveyancing can be a reality and is likely to become one in the very near future. 

As with most things in life nothing is ever completely FREE, there is always a catch or a set of conditions.    This is no different in the case of a FREE conveyancing service.  For this to happen the insular approach to conveyancing and the distrust in referral fees has to change.

The profession can no longer continue to believe that a competitive service can be built and developed solely on the back of diminishing conveyancing fees.

From October there will be increased competition and this can lead only to even lower pricing and possibly a falling in the quality of service to the end user. If those providing a conveyancing service believe they will still be able to compete I am afraid they are in for a big surprise.

The time to think outside the box is here and now. 

There are many solicitors who have steered away from referral fees because of the horror stories that have over the years emerged on failed partnerships with non-lawyer entities. I have sympathy for this line of thinking. However we live in a very competitive world where marketing costs remain high and profitability is becoming more and more difficult to sustain.  For businesses to survive and flourish business relationships within and outside the legal sector are essential.

We should not feel ashamed about charging a fee for an introduction providing of course all the necessary conduct rules are followed.  We have spent money and time in securing the client; the client has developed confidence in our service and if at the client’s behest the client is looking for other services why not charge a fee.

At MJP we have gone a stage further and as part of the transparent approach we take to referral fees we offer the client a share of the fee if they make use of one of the services offered by an external supplier.   This helps to get around the uneasiness there often is with referral fee accountability and also serves as a means for the client to receive money back that is often well in excess of the modest fee we charge for conveyancing (www.mjpconveyancing.co.uk).

We also operate a FREE web based system for other legal firms to make inter-firm referrals of cases such as clinical negligence in return for a share of the end profit earned on that case.  It has proved very popular. Further details can be found at www.mjpconnect.com

The creation of local networks of local professionals is nothing new, however with the Legal Services Act just around the corner it has, at least for us, taken on a new and essential meaning.  

If you wish to become part of our network or find out how you reduce the cost of your home move please e-mail: davidpett@m-j-p.co.uk or call 01603877004

David Pett who is a partner with Morgan Jones and Pett wrote this Blog Entry.  His role involves the supervision of the firm’s Residential Conveyancing Team.  He also runs the Business Development and IT Team.

Your feedback would be appreciated – davidpett@m-j-p.co.uk

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