Referral Fees – Bribery Or Marketing Spend?

In any kind of property transaction, there will be a team of advisers and experts working to de-risk your purchase. These experts can be made up of a wide range of people, including solicitors, estate agents, mortgage brokers and surveyors, like ourselves.

These experts have been around a while, and know just how profitable their services can be. In fact, they’re willing to pay big money to make sure their firm is the one receiving the business, which is done in the form of referral fees.

But why, and how are referral fees paid? And more importantly, what impact can this have on customers?

Why Are Referral Fees Paid?

Referral fees are exactly what they say on the tin. They are a fee paid to receive referrals from a specific company or body. Most companies consider the payment of referral fees to be part of their marketing budget. The people running the companies know that greasing palms is a great way to attract business without having to go to the trouble of building sustainable relationships, or sometimes even bothering to offer a good service. Instead, they just pay a referral fee to quickly and easily generate business.

Now, you might think that this is essentially a bribe. I pay you, you give me work. And in some environments, they might be considered that. But in the property industry they are so common that rather than outlawing them completely, trade and industry bodies mandated that all companies involved must disclose the fees to the client. That makes the practice ethical – or ethical enough.

The good news is, most professional bodies will have strict guidelines that require a company to publish information on:

The level of referral fees paid
Who they are paid to
When they are paid

The problem is, the companies paying and receiving the fees don’t really want the clients to know this. So some hide this mandatory disclosure in lengthy documents like their terms of engagement, or by tucking them away in the back end of their website.

Who Pays Referral Fees?

A referral fee can be paid by and to any professional adviser who forms the client team on a property purchase. But the most common arrangement is that an estate agent receives referral fees from solicitors, mortgage brokers or surveyors in exchange for recommending them to their customers. In fact, some estate agents even insist on purchasers using their recommended advisers if they buy a property through them. Side note – this is incredibly unethical, and very likely illegal too, and you don’t have to stand for it.

Out of professional curiosity, we decided to choose an estate agent at random, and look at their referral fees disclaimer. According to their website, surveyors will pay them between £20 and £50 per survey. Kickbacks from solicitors could be £200 + VAT, and a mortgage broker could pay them up to £1,500 + VAT. Looking at another agent’s website, they state they get 20% of the survey fee back from the survey company they recommended. This gives you an idea of the numbers involved, though many agents will receive fees that are higher than this.

What Does This Mean For The Client?

Of course, you might not be bothered by this arrangement. All part of doing business, right?

Except, who is really paying the referral fees? As we’ve seen, up to £2,090 (including VAT) could be going to a single agent if a buyer uses their conveyancer, mortgage broker and surveyor. And more advisers don’t want to pay this out of their profits. So instead, they add it on to the fees they charge the customer.

Put like that, would you like to pay over £2,000 out of your own pocket? Do you think £2,000 is worth it to save maybe an hour of Google searching, or asking people you trust for recommendations?

Just to add insult to injury, it’s very normal for estate agents to refer work to third parties based on who is willing to pay the most. They don’t really care if the company they’re recommending is any good, or if it will make the buyer happy. Why should they? They’re getting paid after all, and their real duty is to the seller, not the buyer.

Hang on, doesn’t this all sound like a conflict of interest?

What Can I Do To Avoid Paying Extra For Referral Fees?

Of course, as the customer, you do have a choice. The simplest way to avoid paying referral fees that you don’t want to pay is just ask. When you’ve been referred to one of these experts, ask them; ‘will you be paying the estate agent a referral fee if I instruct you?’ If they are, their professional body will require them to give you an honest answer. You can then make an informed decision.

Another way to avoid them is to seek out recommendations yourself, rather than take them from your agent. You can do this by asking family or friends, or a long-trusted professional you have a good relationship with. Really great housebuying advisers love recommending someone that’s truly good at their job, since it makes the process more straightforward for them. It’s great to get a ‘thank you’ from someone you respect professionally for sending them a really lovely client, and while they don’t expect reciprocation, referring clients is often a two-way street. This way, we all have happy clients who are paying the right fee for a great job well done – and that £2,000 stays in your pocket!

If you don’t think you have anyone to turn to, then local Facebook sites are a great source of recommendations. Or even Google or Trustpilot are a good source of options – just make sure you check out the reviews before making your decision.

Does Harrison Clarke Pay (Or Accept) Referral Fees?

Given all that, it probably won’t surprise you that we at Harrison Clarke don’t pay referral fees for recommendations. Not have we ever! Our recommendations come because we have great professional relationships with other advisers who know they can trust us. Even our clients are happy to recommend us.

By the way, big shout out to anyone who has recommended Harrison Clarke, thank you! You’re all amazing!

If you want to speak to someone on our expert surveying team, we’re always happy to chat. We can help guide you through your property purchase from beginning to end, without rinsing you for any extras. Just call us on 023 8155 0051 today.

We also have a range of videos talking through various aspects of the Party Wall process. You can access them via our website or our YouTube channel

At the time of writing, we have a total of 95 reviews across Trustpilot and Google. 

Discover something you would like to know more about?

Tim Clarke, Director at Harrison Clarke chartered surveyors.

About the author

Tim Clarke,
BSc (Hons) MSc MBA MRICS CMgr FCMI

Director

Tim set up Harrison Clarke Chartered Surveyors in July 2017 following a series of public and private sector surveying roles, having previously worked for the University of Cambridge, Rund Partnership, Goadsby, and CBRE. 

Tim has degrees in building surveying, construction project management, and business administration.