The Ongoing “Referral Fee” Debate

David Knapp, Partner and head of residential property at law firm Hart Brown, comments on the ongoing “referral fee” debate

The subject of referral fees in conveyancing is a subject I have commented on a number of times in recent years, and the frustration that the Governments’ ban in certain areas of law has not extended to conveyancing continues to cause many lawyers real concern. I am pretty certain that if a poll was taken of all solicitors as to whether referral fees should be outlawed in conveyancing there would be an overwhelming majority in favour of a ban.

So where are we now? Is the public becoming wise to why some property lawyers have to pay referral fees to estate agents for new residential conveyancing business?

Although it is difficult to pinpoint exactly when referral fees initially became utilised by solicitors desperate for residential property work it was some years ago and is now widely used by lawyers finding it difficult, if not impossible, to earn business on a meritocracy basis.

Interestingly we have reached the point where the property sale cycle has come full circle and more and more of the buyers who bought properties using lawyers recommended by agents for the payment of a fee are looking to sell. On a very regular basis, we are finding that a great deal of sellers are shunning the referral fee route on the basis of poor service at the point of purchase, and the geographical location of the lawyers. Many of those lawyers paying referral fees are many miles from the towns in which the properties are being sold. There seems to be a near zero incidence of repeat business for those “winning” business in this way.

As an example, one agent close to some of our offices refers a firm of lawyers based in Yorkshire and another refers work to lawyers on the south coast.

The savvy sellers are realising that they cannot just call in on spec to see their referred lawyer and that the only interest that the agent has in making the referral is financial. Ironically, even this is fallacious as the agents lose the support of the local lawyer and the stream of business that a solicitor can provide to the local agent. Instead, an independent agent will receive the work.

Sellers are also beginning to avoid using the agents who dealt with the property when they purchased as the referral of a poor, remote and uncommunicative lawyer all those years ago has tainted their view of the agent.

As the government has promised to look into the whole issue of referral fees, with the majority hoping that they will be banned, there seems to be a consensus of opinion that referral fees increases the likelihood of poor client service in what is always going to be by far and away the largest expense any property owner in the UK will ever make.

Go local and on a recommendation, merit or after having carried out review research on the web rather than following the referral of an agent who is just looking to supplement their fee.

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