Modern estate agency is a tough gig even in a good market. Selling fees have been under pressure for yonks (yes I know, no thanks to people like me pushing them down as an onliner a while back) and UK commissions remain amongst the lowest in the world.
The saving grace has been rising house prices whereby a constant percentage fee results in the cash equivalent now being 20% higher than two years ago given the capital appreciation of the average home.
Notwithstanding the ebb and flow of the market, agencies have understandably also looked to additional revenue sources to supplement and improve profits. Led by the corporates, agency branches and their employees have for a long time been whipped by their bosses on ‘upsell’ referrals. These opportunities have proven to be highly lucrative and have contributed massive chunks of cash to the bottom line of UK property firms.
So important has this extra revenue been to some companies that they have faced criticism in the press and by regulators for going too far in enforcing customer referral appointments – mandating that buyers ‘must’ see the agent’s internal mortgage broker before an offer is put forward or ‘must’ use their conveyancer partner in order to bag free finance on their upfront fee, for instance.
These tactics are all highly irregular and contribute to pushing the industry’s reputational snouts further into the swill. Yet they continue to prevail and several news articles attest as such including those highlighted by consumer publications such as Which?
Many agents won’t think this is a big deal, especially those that are benefiting from a stream of referral income. They’ve also breathed a sigh of relief this week as Eddie Hughes MP, a Housing Minister, seemed to suggest that estate agencies were off the hook where the previous threat of banning referral fees is concerned. I suppose what with inflation raging comparable to a corrupt South American junta, Boris’s lockdown liquor exploits to cover up and a new Coronachimp virus to contend with, Government has other distractions to occupy it now.
But with all that said, the principle itself of lawyers’ referral fees is bad in particular. Not just because of their tendency to encourage rule-breaking by agents or due to the resulting bad PR that some agents have encountered accordingly. But because they hide poor behaviour and sloppy performance on the part of the conveyancers that pay them.
I’ll elaborate. I recently witnessed a telephone call in which an estate agency brand was being sold a conveyancing service and was being persuaded to change their current provider. The agent’s resistance to change was purely focussed upon the referral fee per case that they were being paid by that current provider and that the commission being received per transaction was all that mattered to them.
At no point on the call did the agent enquire about service levels. Nor did they ask how long the ‘new’ conveyancing offering generally took to get from offer to completion versus the national average. Nor what their average fall through rate was nor what their operational USPs were. No, their sole objective was to squeeze more referral cash from each conveyancing deal, regardless.
This is mind-numbingly dumb. To be obsessed with a superficial commission regardless of performance is stupid and also irresponsible – actually, irresponsible to the agent’s P&L itself and as I will set out shortly but also to the consequential service that their buyer and seller customers ultimately receive. Yet I suspect that this attitude is prevalent throughout estate agency.
There is a rather more intelligent way of looking at mortgage and conveyancing referral business and especially where the latter is concerned and lawyers’ general inability to do two things at once and which has resulted in transaction times extending to match the speed at which continents shift.
So imagine for a second, difficult as it is, that there was a conveyancing practice that was efficient and quick. Let’s say when they were acting in transactions, those sales exchanged not six months from the offer being made but in a rather less lethargic four months.
Let’s also concede for the sake of argument that the shorter the transaction time, the less likely the deal is to fall through – simply because it has less chance to.
Actually, data I saw recently via a sales progression platform suggested that their average time from offer to exchange is indeed four months and that their fall-through rate is 15%. Whilst the UK average equivalents are six months and 30.5% respectively (Source: Twenty Ci).
Now, the maths…
- You own a five-branch estate agency business selling five properties STC per month per branch.
- Your average fee is £3575 (1.25% of the national average house price)
- Your fall through rate is average (30.5%)
- Meaning that you lose £327,112 in fall-throughs of the £1,072,500 written.
- If you halve your fall through rate because you change to a conveyancer that gives a toss, you save £163,556 in lost deals each year. Or £545 a deal.
So you see, selecting a conveyancing partner based on actual performance makes you more money than blindly insisting on a referral fee regardless of efficiency. Quite a lot more actually.
But of course, you have to know your unit economics in the first place and the ‘new’ conveyancer needs to be able to prove theirs too and many don’t, especially the bad ones.
This is the argument for dumping referral fees. In fact, lets’ hope Government does their usual U-turn and bans them after all. It would do the industry and its customers a huge service.
Russell Quirk is co-founder of ProperPR.
Three of my referral fee experiences are as follows:
1. Asked to act for an (unwell) established client by her daughter, but daughter said the selling agent was saying I could not act, and their preferred solicitors should act, XXXX. A firm with a poor reputation. I phoned the agent and said, my client has had a severe stroke, don’t you think she has suffered enough already, without her appointing XXXX to act for her? The agent laughed, said yes, and I subsequently acted.
2. Back in the 80s I received a lot of work from a local agent. No referral fee, but I worked damn hard. The agent sold his business. New owner said if I wanted the new work to continue, I would have to pay a referral fee. I declined. The work dried up, except when the new owner, his family or friends required a conveyancer.
3. One of my bosses, back in the day, would lunch once a month with the agent who had an office next door. He always took with him a brown paper bag, full of cash. Don’t like referral fees, never did. However, in my opinion, a complete ban would drive them underground, or they would morph into something equally as spurious.
My suggested solution, they should be fully transparent, policed, enforced, and capped at no more than say 15% of the legal fee. But, I keep my mind open to being persuaded that a complete ban may be the way forward.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Completely agree on point 3, a outright ban would be a nightmare to enforce and those involved are too reliant on them to not find a way around it.
If you are an agent accepting hefty referral fees, then don’t bleat about poor service from those you refer to. They’ve paid for the work; it’s theirs to do how they like with it.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
We used to refuse referral fees from our local lawyer. Instead we asked him to tell the client ‘Most agents round here insist on a referral fee. XYZ Estates won’t accept it, and instead have asked us to discount your bill.‘
Not only was the client delighted, but they also told all their friends and colleagues that we were lovely and that all our competitors were taking backhanders. Well worth a couple of hundred quid.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
I say ban referral fees from conveyancers. The rubbish firms who only receive business because of the referral fees they pay will wither away or have more money to invest on improving their service. Then we can get back to the business of getting sales completed, quickly.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Did RQ really mean to say putting your nose into the pig? I’m sure he meant the trough
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Thanks for spotting. Seems a great shame to correct it Certus. But we have.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Unfortunately, the race to the bottom on fees has made other income streams vital. Hopefully, with the recent news that most if not all of these online models just are not viable, we will see that change direction. I have no issue with referral fees myself but I do feel that some of the margins are so tight for the conveyancers it impacts their ability to recruit and retain good quality staff.
So -maybe-perhaps-please don’t shoot me-don’t be quite so greedy would be my view and it will balance out with betters service and quicker timeframes=less aborts.
One last thing-what happens to a firm that ONLY relies on referral fees and charges NO commission at all-I think we all know the answer to that one.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
A rather simplistic piece
It may be trite to say so but a chain is only as strong as the weakest link
I may be the most efficient lawyer in England and Wales but that wouldn’t possess me of a magic wand. If two rungs down the ladder is an over burdended school leaver operating at a snale’s pace but whose bosses are reaping in referral fees there isn’t a great deal I can do
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
As a conveyancer, I used to chase the chain down, until I found out where and why there was a delay. Conveyancers today, no longer have that luxury. The job is very different, with lower fees and more plates to keep spinning than ever before.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
More flawed quacking from Mr Quirk.. the self proclaimed industry guru.
The published time to exchange from any progression platform is dubious… the sooner they publish the data from software launch, the more likely that the time to exchange is miraculously halved… funny that..
Time to exchange is dictated by so many factors.. chains, leasehold info, searches etc.. not even a chain of the best Conveyancers can change what is outside their control.
A ban would give immediate market advantage to the biggest two corporates who both own Conveyancing firms… they take the referral fee as Conveyancing profit instead which could then disappear in internal recharges.
Also, nobody wants the return of backhanders..there is zero transparency in that.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Apparently next week we will hear they can?
Time to exchange is dictated by so many factors.. chains, leasehold info, searches etc.. not even a chain of the best Conveyancers can change what is outside their control.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
It is now looking likely, unless there is the typical Government u-turn, that referral fees will survive the current scrutiny. Although I am sure that even if they were outlawed Firms would have found a way of circumventing that as always happened in the past.
But maybe what we should be looking at are the panel managers who exist solely to “sell” clients. They add nothing to the conveyancing process, and such are the low levels of the fees Solicitors are paid to stay on their panels, have been hugely instrumental in giving rise to the “pile it high do it cheap” phenomenon.
I know one very well here in the County I work. They even pass themselves off as legal people and have been getting away with that for years. By the time clients speak to their appointed Solicitors the first time most have no idea who or what they are dealing with. So many fingers in the pie taking their fees that clients are ultimately paying over the odds for a tenth rate service. Their staff are paid on commission by the number of clients they have instruct, and they are then trying to sell Insurance, removals and other services to them. Solicitors are selling their souls to the devil effectively, and making themselves look unprofessional by association. There is a little firm near me who have built a small scale factory off the back of an arrangement with one of these companies. Obviously on a business level it has worked for them but on a professional service level a good firm has become a bad one to deal with. On some jobs they were earning only £300.00 per case!! So what choice do they have other than to take more work than they can handle.
It is amazing the Panel Companies have been allowed to exist on the conveyancing fringes for so long, and again it says much about regulation in that time. That is something that really needs to be looked at by somebody.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Wouldn’t be the Berks of Berkshire, would it? Lots of helpful information on their website to bring in traffic, but they themselves are absolutely useless, along with the panel lawyers and brokers they refer to.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Unfortunately, not all deals are lost just to bad conveyancers and I saw many a good deal go through despite the quality of the legal team hired so the maths presented is imperfect as it does not account for bad surveys and/or changes of circumstances and hearts of buyers and sellers.
I was never keen on referral fees but always keen to refer to solicitors who would pick up the phone and respond to my emails. Their communication saved 100s of deals, and they earned their trust and my referral. But as mentioned above, even the very best I worked with had deals collapse.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register