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Sancho Panza

Ban on referral fees could be ‘catastrophic’ for estate agency sector

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Property Industry Eye 24/10/17

'A ban on referral fees could have a “catastrophic” impact on the estate agency sector – and in particular trigger a “monumental” decline in corporate agencies.

The Call for Evidence into the process of buying and selling houses raises the possibility of an outright ban on referral fees earned from conveyancing and financial services.

Russell Quirk, of eMoov, said yesterday that if there were a ban, it could result in “absolute carnage”.

He said the likes of Countrywide, LSL, Connells and Foxtons depend on significant income from their affiliated conveyancing and/or financial services arms: if the ban meant that these firms’ estate agents could no longer refer introductions to these other parts of their respective group, the implications would be enormous.

At least two of the big corporates, said Quirk, earn more from their financial and conveyancing services combined than they do from estate agency income.

He said: “Referral fees are a perfectly legitimate aspect of the property selling process and are already regulated by the Estate Agents Act and via the Property Ombudsman.

“The buyer or seller has the option to use whoever they please to provide financial and legal facilities during a sale.

“While this could be made clearer to the consumer, the recommendation itself is certainly not solving a problem that needs to be prioritised.”

He went on: “While my unusually benevolent stance in standing up for the traditional players may come as a surprise to many, you have to look at the bigger picture and the absolute carnage that would come of these industry giants failing rather than flourishing.”

He said that thousands of staff would lose their jobs, adding: “Countrywide has already seen a 90% drop in profits year on year, with the majority of their income deriving from mortgage and financial services and conveyancing. This further reduction in income will surely sink the ship.”

Quirk warned that the Government has a habit of making knee-jerk reforms, and cited the forthcoming ban on tenancy fees.

He said: “The Government has a track record of pulling the rug from beneath the industry’s feet.”

While some corporate firms such as Countrywide were specifically set up as distribution networks, they would not be the only losers.

There is no data as to how much independents earn from referral fees, but if tenancy fees represent somewhere between 18% and 22% of lettings income, referral fees could represent the same kind of proportion of sales income. EYE yesterday spoke to one independent that says it earns 23% of its overall income from referral fees.

The Mirror, in its coverage today, cites the example of conveyancing firm, Attwells, which paid Cubitt & West a £612 referral fee. The law firm added this sum to the purchaser’s bill, says the Mirror, meaning the cost of the conveyance was hundreds more than the purchaser had expected, the Mirror claims.

Currently, the law requires estate agents to declare whether they earn commission from referrals. It does not require them to disclose the amount. The Call for Evidence has also raised this as a possible option, rather than an outright ban. However, the Government does not seem to regard the mandatory requirement for letting agents to publish their fees as a success – hence its argument for the ban.'

 

 

Another wheeze by which Joe Public gets duped into lining EA's pockets.

 

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12 minutes ago, Sancho Panza said:

the recommendation itself is certainly not solving a problem that needs to be prioritised.

Wtf. They should also ban unnecessarily complex EA speak.

Edited by Si1

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In other news fax machine salesmen call on the government to ban emails because their business is suffering.

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Relevant for tenants from the pdf above:

Page 9:

Quote

The Government believes that transparency alone will not drive sufficient competition and affordability in the market and that a ban on letting fees paid by tenants is needed.

Page 11:

Quote

The Government intends to bring forward proposals to ban letting fees paid by tenants of Assured Shorthold Tenancies (ASTs) and holders of licenses to occupy

Page 12:

Quote

The Government believes that only a ban, not a cap, on letting fees charged to tenants would achieve the desired outcome [...] the landlord is the primary customer of the letting agent.

[...]

The Government does not agree that reference fees should be exempted from the ban on fees

Page 13:

Quote

The Government intends to bring forward legislation to:

  1. Ban landlords and their agents from charging private sector tenants and licensees fees as a condition of, or of making arrangements for, the grant, renewal or continuance of a tenancy, with the exception of: a. Rent; b. A capped refundable security deposit; c. A capped refundable holding deposit; and d. Default fees (where the tenant is at fault, for example replacing a lost key).
  2. Ban landlords and their agents from requiring tenants and licensees in the private rented sector, as a condition of granting, renewing or continuing a tenancy or license, to secure and pay for services from any third party or to make a loan.

Page 15:

Quote

The impact on rents will be kept under review but the Government does not expect letting agents to pass on to landlords the full amount of their current tenant fees since there is evidence that a number of agents are charging excessive fees.

That's great, but when will it actually happen? The bill hasn't moved since 2016.

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5 minutes ago, crashbaby said:

That's great, but when will it actually happen? The bill hasn't moved since 2016.

Autumn 2017 Budget announce for April 1st 2018 start.

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I've just had a read of this, absolutely brilliant on all fronts from a renters perspective! Very much looking forward to seeing the draft bill.

I like the £5000 fine if it's breached, a second breach within 5 years means a criminal record and a £30,000 fine :D

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Lol that's a pretty scathing response from the Government. The thing is is it enough to force landlords not to just what the fees onto their rents? I see clause 24 means landlords don't pay the additional costs if they are owned outright or held in a company structure so they get a competitive edge but this will effect all landlords so they may get away with increasing rents all at once.

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The Government recognises that some letting agents may have to adjust their business models in order to remain profitable. However, good and innovative letting agents that provide value for money to landlords will be on a stronger footing to compete for landlords’ business, since the opportunity for rogue agents to exploit their position as an intermediary between landlords and tenants will be greatly reduced.

:D

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It will just be like Scotland where they had this for ages. Suddenly there will be a blizzard of new fees, electrical safety testing fee, indoor air quality monitoring fee, gravitational stability testing 50+VAT per room, and so on.

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Ban will go ahead.

Quote

The Government proposes to introduce provisions to ban landlords and their agents in England from (as a condition of, or of making arrangements for, the grant, renewal or continuance of a tenancy):

1. Requiring tenants and licensees in the private rented sector to pay fees or other charges on top of the rent, with the exception of a capped refundable security deposit, a capped refundable holding deposit and tenant default fees (such as replacing a lost key);

2. Requiring tenants and licensees in the private rented sector to secure and pay for services from any third party or to make a loan.

 

I'll try and sum up pertinent points;

  • Deposit capped at 6 weeks rent and refundable holding deposit at 1 week.
  • Ban extended to fees charged by landlords who manage their properties 
  • Ban enforced by Trading Standards. Councils able to keep money from civil penalties charged to LA/LLs.
  • Tenants will be able to take their letting agent/landlord to court for any fees charged that are not allowable.
  • All LAs will be required to be regulated in order to practice.

 

Quote
  • The Government believes that only a ban, not a cap, on letting fees charged to tenants would achieve the desired outcome of delivering a fairer, more competitive, more affordable and more transparent lettings market where tenants have greater clarity and control over what they will pay and where the landlord is the primary customer of the letting agent.
  • The Government believes that tenants will see a net saving. In a case where an agent increases its fees charged to landlords, landlords will subsequently need to set a rent that takes into account their costs whilst still being attractive to prospective tenants. Tenants will be able to compare properties on the advertised rent level and there will be no hidden charges. It is also easier for tenants to manage regular and expected costs rather than high upfront charges.
  • The Government also proposes that tenants who have been charged banned fees would be able to recover the fees charged via the County Court. Tenant enforcement of the ban will be encouraged through communication of tenant rights.

 

 

Edited by fru-gal

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22 minutes ago, Funn3r said:

It will just be like Scotland where they had this for ages. Suddenly there will be a blizzard of new fees, electrical safety testing fee, indoor air quality monitoring fee, gravitational stability testing 50+VAT per room, and so on.

Nope;

Quote

We propose extending the commitment to ban letting agent fees to tenants to include fees charged by landlords and any required payments to third parties. This is to mitigate the risk of tenants being charged fees through other routes. This will also avoid creating a situation where landlords are encouraged to self-manage their properties purely on financial grounds and where some tenants can be subject to letting fees whilst others are not. The G

 

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