What are referral fees?

Referral fees are sometimes paid by solicitors and surveyors to estate agents.

An estate agent is usually the first point of contact in a house sale.  They have a unique position in being able to recommend the services of professionals, such as solicitors and surveyors, to sellers and buyers. This is something that many solicitors and surveyors consider worth paying for.  Many estate agents are more than happy to encourage this additional source of income. Indeed, some estate agents may even actively seek a referral fee.

The payment serves as an incentive to encourage the estate agent to pass on any future referrals to keep the solicitor or surveyor in business with fresh instructions. However, there may always be another firm who is willing to ‘up-the-ante’ and pay slightly more to an estate agent for a referral. The inducements therefore keep rising.

Do they affect the seller or buyer?

The sellers and buyers who ultimately end up instructing the solicitor or surveyor may consider this exchange of money for a recommendation to be far removed from affecting their pockets. However, it is important for the seller and buyer to recognise that they are being recommended to appoint the solicitor and surveyor who, in all likelihood, will be paying the estate agent the largest referral fee. It is also likely that the referral fee paid to the estate agent will need to be recovered in one way or another and they should not be surprised if this is reflected in an inflated fee.

Are there regulations on referral fees?

Most clients are blissfully unaware of referral fees. However, for some time now, the SRA (Solicitor’s Regulation Authority), NAEA (National Association of Estate Agents), and the RICS (The Royal Institution of Chartered Surveyors) have set out clear guidelines stating that any referral fee paid to an estate agent must be declared in writing. Whether or not these guidelines are being adhered to is difficult to verify, but I suspect not.

What do we think?…

At David Cosby Chartered Surveyors and Estate Agents we believe that good recommendations are integral to ensuring the smooth sale of a property. Indeed, we regularly recommend professionals such as solicitors and surveyors who we think will be able to assist our clients. However, it should only ever be the quality of service that leads to recommendations and accordingly we never accept payment inducements. We have absolutely no hidden costs and we refuse to give or receive payment for referrals. We hope that our approach will become more widespread in the profession and that other estate agents will put the interests of their clients above the opportunity to secure additional fees. Ultimately, this will enable solicitors and surveyors to compete on a level playing field according to the quality of service they provide, rather than the amount of any referral fee they pay an estate agent. A win-win for the profession and for the client.

If you would like to discuss any aspect of the buying and selling process, then please contact us by clicking the link below, or call us on 01327 361664.