Conveyancing Referral Fees – Money for old Rope?

The property market is on the up again and that can only be good news for everyone. Where there is a buoyant market however there will be opportunists swooping in and looking to cream off profits from the unsuspecting general public. The property market is no different. The opportunists we’re referring to here are estate agents and mortgage brokers and the profits are in the form of referral fees.

So what is a referral fee? Well, as the name suggests it’s a fee which is received by one company in return for referring a client to another company. In this case we are talking about fees paid by conveyancing firms to estate agents or mortgage brokers in return for the said agents and brokers encouraging their clients to use the conveyancing firm.

How do Referral Fees Work?

It’s really very simple. Speedy Sale Estate Agents enter into a contract with Speedy Law Solicitors whereby Speedy Sale agree to refer potential clients to Speedy Law and Speedy Law agree to pay a fee to Speedy Sale for each referral that results in an actual instruction. Speedy Sale then take a property on their books and convince the seller to instruct Speedy Law to deal with the conveyancing. When a buyer comes along they convince him to instruct The Slow and Steady Partnership, with whom they also have a referral contract.

So in addition to their fee for selling the property the agents receive two further fees simply for passing on your details and perhaps getting you to sign a form or two. Similarly mortgage brokers may have an arrangement with a conveyancer or conveyancers whereby they will try to sell the conveyancer’s services to their clients when approached to arrange a mortgage.

So How Much am I Paying towards referral fees?

The referral fees can be serious money. They can range anywhere from £100 to £300 or more. In fact there is one organisation (who for obvious reasons we can’t name) that charges up to £600 on some transactions, and these aren’t multi-million pound sales, these are ordinary houses being purchased by people on the average wage. But that’s ok because the referrers are paid out of the conveyancers’ fees right? Well technically yes. In reality though the conveyancers are increasing their fees to accommodate the referral fee. So whereas they might do the job for say £500 if you went to them directly, they will charge that plus the referral fee if you go through the referrer. This won’t be true in every case but it will be in many.

Now you’d be forgiven for thinking that the referrers’ profit ended with the referral fee, but you might be wrong. That’s because many of the large referrers, such as nationwide estate agent chains, will have deals with search agents and indemnity insurance providers. Pretty much every purchase transaction will involve searches being carried out and a lot of cases require an indemnity insurance policy of one kind or another. Naturally therefore search agents (private companies who carry our searches instead of public authorities such as councils or water authorities) and insurance providers are willing to pay for leads. So as part of the referral contract the referral might say to the conveyancer “you have to use our nominated search provider and insurer”. The referrer then gets a referral fee for every set of searches and every insurance policy. This can mean that you are paying more than you would for searches and indemnity insurance if your conveyancer was free to choose his own provider and in the case of searches you may receive a lesser quality of data and/or slower service.

What are the Tricks that the Agents Use?

Estate agents and to a lesser extent, mortgage brokers are basically salesmen, so they’re already pretty skilled at convincing you that using one of their panel conveyancers is the only sensible thing to do but however convincing their chat is while you’re in the shop there is still every chance that after you leave you’ll go home, get on the internet, have a look at some quotes and ultimately go with someone else, so they have to do their best to tie you in there and then.

There are a couple of common tools they might use to do this. The first is to get you signed up there and then. They can have copies of the conveyancers’ initial instruction forms which they might try to get you to complete and sign. They might take copies of your ID to pass to the conveyancer. Once you’ve filled in the forms you are much less likely to look elsewhere but remember, you are unlikely to be bound to pay any money at this point if you disinstruct. This may change if you allow the conveyancer to carry out work that goes beyond creating a file for you.

Another trick is to take a payment from you. Any conveyancer will usually want an upfront payment from you to cover out of pocket expenses such as obtaining title documents from the Land Registry or obtaining searches. For a sale the amount is likely to be quite small, probably less than £50, but for a purchase it could be a few hundred. Nonetheless this money should be fully recoverable until your conveyancer actually incurs any costs on your behalf, which can’t happen unless and until you instruct him. Before making a payment to the agent or broker, check that it will all go toward the disbursements payable by your conveyancer and that it will be recoverable in full if you decide not to use that conveyancer before any disbursements have been incurred.

How Will I Know About Referral Fees?

The Code of Conduct for Solicitors obliges solicitors to disclose to their clients any referral fees paid in return for the referral of a case. The rules are slightly less strict for Licensed Conveyancers but they should still make the disclosure. The Code of Conduct is compulsory by the way and the penalties for breach can be severe – ultimately a firm of solicitors could be closed down if they fail to comply so it’s reasonably safe to assume they won’t take the risk.

The disclosure should be made in the solicitors’ initial letter which you should receive before you formally instruct. It should confirm the amount that will be paid and to whom. Most agents and brokers will tell you upfront too but some will not so be sure to read the conveyancer’s initial letter carefully and ask if you’re not sure.

So What Would I Pay if I instructed the Conveyancer Direct?

Early on we mentioned that conveyancers will often increase their fees to accommodate the referral fee they have to pay. This isn’t always the case of course. If you want to find out, it probably isn’t enough just to ask your conveyancer what the difference in cost would be. That’s because as part of the contract with the referrer your conveyancer won’t be able to act for you if you without paying the referral fee. Otherwise of course no conveyancer would ever pay the fee! So if you suggest instructing the conveyancer direct he’ll either say that you can’t or he’ll quote you a fee at least equal to the amount you’ve already been quoted.

What you can do is telephone the conveyancer anonymously and ask for a quote. If they ask how you heard about them, don’t mention the referrer. If you get a cheaper quote based on the same details by contacting them direct then challenge them – who knows, they may even agree to stand the referral fee to save any bad publicity! Even if they don’t, at least you’ll know.

So Apart From the Money, What Else Should I Know?

Depending on how a law firm sets itself up, it can live and die by its referral arrangements, If conveyancing income forms the bulk of its income and if the bulk of its work comes from just a small number of referral sources then naturally if it loses one or more referral contracts it could be in serious trouble. This means that its referrers can have a great deal of influence and if this is coupled with questionable morals this can be bad news for you.

The way that a conveyancer keeps a referrer happy is to meet targets. That means exchanging and/or completing cases within an agreed timescale and completing a certain number of cases per month or quarter or whatever. The problem with that is that the conveyancer can rarely completely control how long a transaction takes. There are a number of variables, some cases are more complex than others, he can’t control what the other conveyancer does or doesn’t do, he can’t exchange until his client and the rest of the parties in the chain are ready etc. But he still has to meet targets. Referrers can put a great deal of pressure on conveyancers and this can lead to them cutting corners or pressing clients to proceed to complete on date that they perhaps would not be of their choosing. Now make no mistake, it is a clear breach of the Code of Conduct for solicitors to allow any contractual relationship with a referrer to influence the advice given to clients but nonetheless business is business and it does occasionally happen.

Another issue is quality of service. Some referrers will limit what the conveyancer can charge, in order that the fee the client pays is relatively low, but still take a big cut. So the conveyancer has to find a way to do the work on a low budget. This can lead to him being understaffed, or being top heavy with junior, inexperienced (and therefore cheap) staff, which can of course lead to issues with quality.

So Is It All Bad?

Ok, after all those negatives we should mention a few potential positives. At their best these contractual arrangements with referrers can really work for you. If you are having trouble with your conveyancer for example and you feel like your concerns aren’t being taken seriously then the estate agent/broker who referred the work may be able to help by speaking to the conveyancer on your behalf. He should be happy to help because if the conveyancer he encouraged you to use is under performing it reflects badly on him and he potentially carries a lot of weight.

You can sometimes end up paying less for your conveyancing because some referrers negotiate low fees (even with their cut) in retain for a high volume of referrals. The possible service issues this creates can be at least partly offset by the panel procedures that are often in place. Some referrers will impose on the conveyancers on their panel a code of practice which is designed to help a transaction run smoothly. This only works of case if both the buyers’ and the sellers’ conveyancers are on the referrer’s panel.

What Do Do Differently?

In spite of all of the above, referral arrangements remain an essential part of the conveyancing industry. Conveyancers cannot rely on enough clients instructing them directly to keep them in business – there is simply too much competition. Furthermore the public expect to be able to compare a range of quotes quickly and easily and online. At we believe that there is a way to deal with referrals fairly and we believe we’ve found it.

When you request a conveyancing quote using our interface we present you with 3 – 5 quotes from different conveyancers and we pass your details to those conveyancers who pay us a small fee (a few pounds) for the lead. After that it’s up to them to convince you to instruct them and up to you to decide. We believe that as adults you are capable of making your own decisions and that by allowing your conveyancers the freedom to set their own fees impose their own processes you will get the best balance of value for money and quality of service. What’s more, our interface is quick, transparent, easy to use and detailed so that the quotes generated are as realistic and accurate as possible.

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