A recent BBC Panorama undercover investigation has shone a spotlight on some disturbing dubious sales tactics being used by some estate agents.  The investigation focused on the practice of conditional selling and of overvaluing properties to attract clients. Solicitor Demelza Dunstan from Penderlaw’s Property team explains these terms and outlines their implications on your purchase.

An undesirable practice
The Panorama programme highlighted the fact that according to the 1979 Estate Agents Act, it is classed as an “undesirable practice” for estate agents to discriminate against prospective buyers if they don’t take out a mortgage through in-house brokers.  However, the wording of the 1979 Act seems to leave a grey area, enabling estate agents to accept buyers who use their own financial products, such as mortgages and conveyancing services, and put to one side other buyers who may even be offering more.

No requirement to use your agent’s recommended solicitor
To be clear, you absolutely do not have to instruct a solicitor recommended by either your mortgage broker or estate agent.

So, what is conditional selling?
This is where an estate agent will insist on a prospective buyer using the agent’s in-house services which might include a mortgage broker and/or a particular firm of solicitors for example. They tell the buyer that they will not be able to put forward their offer to the seller unless they go with the in-house options presented to them. Clearly, this is unfair, not to mention morally wrong, and agents have been reported to Trading Standards for using such pressured selling tactics for their add on services. The Property Ombudsman have also stated that the refusal of additional services by a buyer should not prejudice any offers or viewings made through the agent.

The Law Society’s view on conditional selling
An article in the i newspaper in 2023 quoted Sarah Dwight, solicitor and member of the conveyancing and land law committee at the Law Society. She said: “Conditional selling is against the rules in the Property Ombudsman’s Code of Practice and furthermore, the Estate Agents Act 1979 states that every offer must be put forward to a seller regardless of which mortgage broker the buyer instructs.  She said that “The difficulty is that in a slowing market, brokers and agents are more reliant on up selling other services.”

The impact of conditional selling on buyers and sellers
The practice is detrimental to both buyers and sellers alike.  Buyers often feel they have no choice but to go with the broker or solicitor their agent is insisting they use, or they risk jeopardising their purchase. They potentially could also end up paying more if they are not receiving the best advice.  If sellers are not aware of all the offers which have been made, they could unknowingly accept less money for their home than they need to.  Clearly, the only people benefitting from the practice of conditional selling are the agents who do it as they make more money from the referral fee they receive from the broker or solicitor with whom they have an agreement. 

Referral fees & what you should know
Estate agents make more money if a buyer uses their ‘in house’ broker or their recommended solicitor as, in the case of a referral, they sometimes get a referral fee from the solicitor, or if they directly employ the broker, they may receive a fee from the lender the client goes with.

You will also find that newbuild agents regularly refer to their preferred solicitors and therefore may receive a referral fee for doing so. However, by not using the preferred solicitor on a newbuild development and looking to instruct an independent solicitor, the advice received may be more impartial, given that there is no reliance on this referral fee, or the solicitor acting for you potentially worrying about annoying the agent, and risking losing the work stream received from them.

Why Penderlaw Solicitors do not pay referral fees
It is still reasonably common for solicitors to pay referral fees to estate agents. However, Penderlaw Solicitors do not pay referral fees to agents (or any other professional).  We prefer to rely on our good name to attract both clients and recommendations and feel that referral fees have the potential to detract from the transparency of the relationship between professionals and clients.

What is a Lender’s Panel?
Conditional selling needs to be  distinguished from the ‘Lenders Panel’ whereby a lender has a list of approved solicitors who are authorised to act on their behalf.  This can eliminate some solicitors when you are making your decision if they are not on the panel. When buying a property with a mortgage you will need a solicitor who will be acting on behalf of the lender who is providing your mortgage.  Lenders have their own selection criteria for solicitors acting on their behalf and solicitors who meet these criteria are listed on what is referred to as the lender’s panel.  If the solicitor you are proposing to use is not on the mortgage lenders panel but is able to meet their requirements then it may be feasible for them to apply to go on the panel for the purposes of your transaction if they are content to do so. The solicitor acting on behalf of the lender will make sure the ownership of the property is legitimate and also minimises the risk of property fraud.

Get in touch
If you would like to speak to us about a property matter, we would be pleased to hear from you.  You can contact our property team on 01872 241408 or email info@penderlaw.co.uk