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I recently received more comments on my blog about what are politely called referral fees. These are fees paid by Conveyancing Solicitors to estate agents and mortgage brokers who have introduced clients. At present, the client is often not aware that such a fee has been paid, or will not know the amount paid even if he or she guesses that the agent has received a fee. If the Solicitor has paid for an introduction, will he be working for you (his client) or for the agent?
A common scenario is that when the agent has negotiated a sale, the buyer does not already have a Solicitor and will ask if the agent can recommend someone. The agent will then introduce the buyer to a Conveyancing Solicitor who the agent knows, and will expect to get a kick-back from the law firm for the introduction. There is clearly a potential conflict of interest between the agent, who is representing the seller, and the Solicitor, who should be acting for the buyer.
I have encountered agents who virtually insist that a buyer uses a firm of Solicitors recommended by them, even when the buyer already has a Solicitor or knows that they could get a cheaper or better service from another firm. Some of these agents put considerable pressure on buyers, which is wholly unacceptable, but buyers are often made to feel that if they don’t go with the agent’s Solicitor they might not get the property. Of course agents want to make as much money out of the sale as they can, so getting a bit more from the lawyers suits them very well, but it is of no benefit whatsoever to the buyer.
When a Solicitor depends for work on introductions from agents, the Solicitor may put his relationship with the agent ahead of his professional duty to the client if a situation arises which could lead to the sale going off. The agent is dependent on a sale being completed for his commission, and will do everything possible to ensure that a sale goes through.
Say that a local search throws up something which adversely affects a house, or there is a problem with the title. While a Solicitor who is not beholden to anyone else might advise his client not to proceed, a Solicitor who is reliant on an agent for introductions may succumb to pressure from the agent to 'brush the problem under the carpet' and go ahead with the purchase. There are plenty of Conveyancing Solicitors around, and so agents can easily threaten not to give further introductions to a Solicitor who does not dance to their tune.
Many Solicitors are opposed to these practices, and the Law Society has called for referral fees to be banned. In the meantime, buyers should choose their own Conveyancing Solicitor, not rely on introductions from agents.