Estate agents should be forced to be up-front with customers about “hidden” fees they receive for recommending other companies to them, according to National Trading Standards.
Many customers remain unaware of the existence of referral fees when buying or selling a home, despite referrals being commonplace in the industry, it said.
Arrangements may exist involving referrals for conveyancing or other related legal work and financial services such as mortgages. The amounts paid for referrals vary widely, and could be in the form of money or another benefit, National Trading Standards said.
It added that in some situations, customers may be pressured to use a referred provider even though it may not meet their needs or provide the best value.
The proposals to make the disclosure of such fees mandatory and increase transparency were made by the National Trading Standards Estate and Letting Agency Team.
They follow a review into the practice of referral fees and their impact on buyers and sellers in the UK property market carried out by National Trading Standards at the request of the Ministry for Housing, Communities and Local Government (MHCLG).
National Trading Standards suggested that estate agents who continue to flout requirements concerning referral fees could be banned from the industry.
Its report said: “The practice of referring consumers to preferred service providers in exchange for a fee is, arguably, a hidden one.
“The customers of those businesses who do not disclose such fees are likely to remain unaware of its existence; presenting a challenge for compliance researchers and to potential enforcement bodies alike.”
James Munro, senior manager, National Trading Standards Estate and Letting Agency Team, said: “We recognise that referral fees have a place in business if used ethically and transparently and with no pressure to use the referred service.
“It is important that customers are fully aware of the basis and value of a referral or recommendation so they are able to take an informed transactional decision.
“Mandatory disclosure of referral fees would ensure there is full transparency around this practice, helping to build consumer confidence in the estate agency industry and demonstrating the duty of care agents should have to both parties in a property sale.”
Minister for Housing Christopher Pincher said: “It is unacceptable that unscrupulous practices are still taking place where consumers are not being made aware of referral fees when buying or selling a property.
“I welcome the National Trading Standards’ work to raise consumer awareness of referral fees and will carefully consider the recommendations of their report. I have asked National Trading Standards to continue to monitor the situation to help inform if further steps need to be taken.”
National Trading Standards said it is developing further industry guidance and will work to encourage compliance in the property sector.
In a recent survey of TPO (The Property Ombudsman) members, nearly 60% of members had referred customers to external companies. More than 80% of those members received a fee for the referral.
Mark Hayward, chief executive of NAEA (National Association of Estate Agents) Propertymark said the organisation has been working closely with Government and National Trading Standards on the matter.
He said: “We would strongly advise that anyone who isn’t currently displaying their fees should start now.”
Property Ombudsman Katrine Sporle said: “It is important for buyers and sellers to be aware of the real cost of any service being recommended.
“Whether this relates to conveyancing, removal firms or producing energy performance certificates, disclosing the benefit that the agent will receive at the earliest possible stage is simply the right thing to do.”