The Daily Mail carried an article over the weekend in which it highlighted a long running but very rarely reported practice of solicitors paying to estate agents fees of £100 plus for referrals.
Some lawyers consider this part and parcel of running a modern day practice and see the payment of a fee as nothing other than a marketing expense. Others however look upon referral fees as ethically indefensible and are concerned about the quality of commercially motivated advice.
Many smaller practices with limited resources also find it difficult to compete with larger ‘conveyancing practices’ and believe that unless the Law Society act quickly to outlaw referral fees they will be left out in the cold.
Solicitors are allowed to pay referral fees providing they disclose this to the client at the outset of the instruction. Unfortunately many get around this through hiding the disclosure in very long terms of retainer. One large conveyancing practice in London for instance has terms and conditions that run to around 30 pages in which if you look closely, and have time to spare to read the small print, you will see they pay for leads.
On balance payment of ‘bribes’ of this type have been part and parcel of our commercial world for centuries and any outright ban on referral fees would only lead to forcing the practice underground. They should therefore continue, but if a fee is payable the payer should disclose the fact and be required to make this perfectly clear and to provide the client with options. This is my view.
It is argued that thelead fees inflate the cost of conveyancing. This is nonsense, as the money used to pay for the lead would otherwise be used for other marketing initiatives. Payment for leads is nothing other than a marketing expense – it does not add to the cost of the fees. In fact since the introduction of home information packs the cost of selling and buying has come down.
The HIP has also helped to reduce the practice of referral fees as may solicitors and estate agents now work in local networks and instead of paying fees to each other they simply make fee-free cross referrals. The solicitor will do the HIP for the estate agent and the estate agent will refer the client back to the lawyer for the conveyancing work.
Local established networks born in the post HIP era are good for the property professionals and the consumer in terms of keeping cost down and quality of service high. Hopefully Grant Shapps will keep this in mind, as a factor, when he comes to review his policy on the future of HIPs.
Some lawyers consider this part and parcel of running a modern day practice and see the payment of a fee as nothing other than a marketing expense. Others however look upon referral fees as ethically indefensible and are concerned about the quality of commercially motivated advice.
Many smaller practices with limited resources also find it difficult to compete with larger ‘conveyancing practices’ and believe that unless the Law Society act quickly to outlaw referral fees they will be left out in the cold.
Solicitors are allowed to pay referral fees providing they disclose this to the client at the outset of the instruction. Unfortunately many get around this through hiding the disclosure in very long terms of retainer. One large conveyancing practice in London for instance has terms and conditions that run to around 30 pages in which if you look closely, and have time to spare to read the small print, you will see they pay for leads.
On balance payment of ‘bribes’ of this type have been part and parcel of our commercial world for centuries and any outright ban on referral fees would only lead to forcing the practice underground. They should therefore continue, but if a fee is payable the payer should disclose the fact and be required to make this perfectly clear and to provide the client with options. This is my view.
It is argued that thelead fees inflate the cost of conveyancing. This is nonsense, as the money used to pay for the lead would otherwise be used for other marketing initiatives. Payment for leads is nothing other than a marketing expense – it does not add to the cost of the fees. In fact since the introduction of home information packs the cost of selling and buying has come down.
The HIP has also helped to reduce the practice of referral fees as may solicitors and estate agents now work in local networks and instead of paying fees to each other they simply make fee-free cross referrals. The solicitor will do the HIP for the estate agent and the estate agent will refer the client back to the lawyer for the conveyancing work.
Local established networks born in the post HIP era are good for the property professionals and the consumer in terms of keeping cost down and quality of service high. Hopefully Grant Shapps will keep this in mind, as a factor, when he comes to review his policy on the future of HIPs.
Surely not!
ReplyDeleteHIP providers pay backhanders to agents who gladly accept them. Hardly "ethical business" I would suggest.
The sooner we make this practice illegal, the better. However, by giving it the oxygen of publicity, this is highlighting this dishonest activity.
Peter Ambrose
"It is argued that the lead fees inflate the cost of conveyancing. This is nonsense, as the money used to pay for the lead would otherwise be used for other marketing initiatives"
ReplyDeleteNo evidence to support this taking into account that many firms pay upwards of 30% of their gross fees which is an absurd amount. In the case of my own firm we were encouraged to increase our fees to pay for the inflated referral fee based on a "scale" that the agent could easily sell to the client on the suggestion that their recommended firm would jump around a lot quicker than a local and cheaper firm of the clients chosing and that just might prejudice their chance of getting the property!
One large firm in the West allow agents to add their own choice of referral fee of hundred of pounds to their ludicrously low fee.
Agents have always been the only significant and reiable source of work for conveyancers and no amount of "marketing" is likely to change this. Despite my distaste for it I accept the difficulty of supporting any real objection to making some payment for a referral provided the client is aware of it (very few of them are) and the sum involved is in reasonable proportion to the fee charged.
We need some strong regulation to control estate agents and the way the market currently operates to prejudice sellers and buyers. Unfortunately the OFT report misses the mark and once again loses out on an opportunity to improve things for the consumer.