When purchasing a home, you’ll often find that the agent has (at their disposal) a list of businesses that buyers can use to complete their purchase.

Whether it be tradespeople to complete renovations, staging companies to help with furniture hire or more directly related businesses such as finance brokers, Conveyancing companies or building and pest inspectors, there’s often an artillery of contacts that can be utilised.

So how does an agent acquire such a large list?

For me, 17 years in the game of selling real estate means that I’ve seen the good from the bad in many different industries and as such, my team has lists of people that have proven themselves to provide excellent service, an outstanding quality of work and most importantly, offer great value for money.

These days, there’s plenty of agencies that offer many of these services under their own roof and effectively, become a “One stop shop” which can certainly be handy for buyers and sellers.

But when these services are all part of the same company, it can create some grey areas.

All clients want to know that the services and advice they are provided is unbiased and not attached to a financial reward for the agent or agency that referred them.

Let’s look at some ‘real life’ examples (that I’ve witnessed over the past few months alone) of how a simple referral can be costly for the client that innocently accepted the advice…

1. The real estate agency has their own building and pest inspectors ‘in-house’ that come “highly recommended” by the agent. The client utilises the services of the inspector and as such, the inspector declares the home to be structurally sound and without termites. Three months later, the home was found to be riddled with termites and somehow the inspector didn’t see any evidence of termites when they inspected, even though it was clear that the home must have a large termite problem for a period that was a lot longer than three months prior. The client felt completely deceived and vowed to never again accept the recommendation of an inspector that was (in their words) “simply referred to push the sale through and not bother about looking after the consumer”.

2. The agent referred an ‘in-house’ finance broker that recommended a loan product from a certain financial institution to a buyer. The interest rates seemed a little high, but the finance broker assured the buyer that given their circumstances, this was the “only company that would approve the loan” so the buyers felt they had no other option. The loan was approved quickly. Less than one month after settlement, the buyers were referred to another broker and discovered that it was highly likely that most banks would have approved the loan at a much lower interest rate. It was revealed that the financial institution that approved the loan paid the highest commission to the broker of any financial institution and the agent was also well-rewarded for his referral. To move the loan to another bank, the client would have needed to pay very high ‘break fees’ so effectively, this decision cost these buyers tens of thousands of dollars whilst the agent and the broker lined their pockets.

3. The agent referred a staging company and despite the price being high, the sellers went with the agent’s referral. The client later discovered that the agent received a 20% referral fee for the entire cost of the staging (which came to more than $6,000). The client noted that the agent seemed to be more interested in referring this company than actually selling the property and at $1,200 per referral, it was clearly an attractive revenue stream for the agent.

Under the Real Estate Act in Queensland, any paid referral should be disclosed to the consumer, but the reality is that many aren’t disclosed at all.

I’ve had agents tell me that they have earned referral fees for recommending staging companies, finance brokers, Solicitors, painters, landscape gardeners, removalists etc.

A few years ago, an agent told me that he earned more than $8,000 in referral fees from one single client after referring a number of services and he joked that this was more than the commission he would have received if and when he sold the home.

I can honestly put my hand on my heart and declare that in my entire real estate career, I’ve never received a single cent for referring any companies on to any clients.

We normally refer a list of tradespeople and businesses that are ethical and provide excellent value for money in what they do or provide. I am at peace knowing that my clients are well looked after when they are referred to another company and that’s all I really care about.

Another thing that’s important…we don’t shove our referrals down the throats of our clients. If the client has their own contacts, all well and good.

The harder an agent pushes you to use their referrals or in-house services, the more you should think about why they’re pushing so hard for this referral.

So, here’s a way to avoid the clandestine business of referral fees…simply ask the agent if they (or the company they work for) are receiving any remuneration for recommending their client to this particular business or person.

If they hesitate or don’t look you right in the eye and state that they have no financial interest in the recommendation, it might be best to obtain your own referrals from a source that doesn’t have a financial agenda.

Until next week, Happy Listing & Happy Selling!