Feb

Industry INSIDER shows LandlordZONE report on how agent referral fees can inflate prices

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Anonymous whistle blower says agents should be more honest about how they earn fees from landlords but that an outright ban would be unworkable.

LandlordZONE has been sent an internal industry
briefing document by an anonymous insider that reveals how much referral fees
paid to letting agents are sometimes inflating what landlords are charged for
services.

The government is in the process of considering
whether to bring in a partial or total ban on these fees, which are the hidden
kick-backs paid to letting agents when they recommend services or product.

They can be a significant part of an agent’s
income, but landlords are unaware that the price they pay for some services
include these referral fees.

Ministers want to either ban these fees
outright or require letting agents to tell landlords when they earn a commission
from a referral.

Our industry whistle blower claims that in some
cases 10% of the cost of maintaining a property charged to a landlord is the
agent ‘adding on’ a commission for managing the project, even though they are
already charging the landlord a monthly management fee for the property.

“A £1,000
bill for, say, gas works will become £1,100 once the agent’s commission is
factored in,” the source says.

“The agent applies the supervision fees often
detailed in their terms of business of another 10% plus VAT. The total bill to
the customer is £1,232 and the agent will retain £210.”

But although this is shocking, it is argued
that the recently-introduced tenant fees ban is forcing many letting agents to
find alternative sources of income, and that banning them outright and making
it a criminal offence might sound just but would be unworkable.

“It would be the responsibility of local
Trading Standards organisations to police a referral fees ban and launch
criminal cases but most of them are severely stretched fulfilling their current
responsibilities never mind referral fees,” our source says.

“It would be better to make it a civil matter
and deal with it via fines, which would be much easier to administer.

“Also, circumvention of any ban is also quite simple. Instead of receiving a referral fee for each customer, an agent can agree a ‘sponsorship’ deal with a supplier to cover costs such as advertising, conference and even a Christmas party!” “Whilst the momentum appears to be gathering to impose an outright ban of referral fees, the reality is that it is almost unworkable and self-defeating.”

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