The Legal and Ethical Quandary of Real Estate Referral Fees in Australia
In Queensland, a prominent conveyancing firm has created an alarming advertisement boasting “We have given out over $1 million in cash to our referral partners” igniting a thought-provoking discourse that concerns both legal and real estate sectors in a debate regarding the ethical and legal ramifications of referral fees.
The Unethical Aspect
While referral fees might be legal in some states, they have sparked an ethical debate. Many legal experts and industry insiders argue that the practice is unethical, as it can create a conflict of interest between real estate agents and conveyancers. The primary concern is that when a financial relationship exists between an agent and a conveyancer, the interests of the agent may supersede those of the client.
| Rule 12 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 “Conflict concerning a solicitor’s own interests 12.4 A solicitor will not have breached this Rule merely by— …. 12.4.3 receiving a financial benefit from a third party in relation to any dealing where the solicitor represents a client, or from another service provider to whom a client has been referred by the solicitor, provided the solicitor advises the client— …. (i) that a commission or benefit is or may be payable to the solicitor in respect of the dealing or referral and the nature of that commission or benefit, (ii) that the client may refuse any referral, and the client has given informed consent to the commission or benefit received or which may be received, 12.4.4 acting for a client in any dealing in which a financial benefit may be payable to a third party for referring the client, provided the solicitor has first disclosed the payment or financial benefit to the client.” |
The ‘Referral Fee’ Landscape
Three Australian states, Western Australia, South Australia, and Tasmania have outright banned the practice of legal firms paying referral fees to real estate agents. However, in other parts of the country, referral fees are legal as long as they are transparently declared pursuant to Rule 12.4.3 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015.
Concerns and Legal Ramifications
Victorian conveyancer, Paul Garson has been vocal in expressing their concerns. Garson believes that the practice is widespread and unethical, even when legal. He emphasises that buying property is one of the most significant financial decisions people make, and their interests should be protected.[1]
He points out that the situation has escalated to a “bidding war” in parts of Victoria, where conveyancers offer increasing amounts to real estate agents in exchange for referrals. Such payments, often called “kickbacks,” have the potential to compromise the integrity of the legal profession and the real estate industry.
The issue could potentially lead to conflicts of interest, which is a significant concern for both clients and the legal profession. Real estate agents who accept referral fees may prioritise conveyancers based on the fees they receive, rather than the quality of service.
Shane Budden, the Queensland Law Society’s senior counsel on ethics, notes that this issue has reached a point where real estate agents sometimes demand referral fees. This raises questions about the authenticity of the recommendations they provide to clients.[2]
The Realestate Agents Position
In Victoria, the Real Estate Institute of Victoria has warned agents against accepting referral fees, citing the potential for conflicts of interest. However, the stance varies across different states. Antonia Mercorella from the Real Estate Institute of Queensland believes that referral fees are acceptable, provided they are declared, and as long as there is no conflict of interest.
Impact on Consumers
The debate over referral fees ultimately impacts the consumers, as they may find it difficult to differentiate between conveyancers offering quality services and conveyancers who are placing the highest bid for business. Consequently, this practice could lead to increased costs for clients as firms may be pressured to raise their fees to cover the referral payments in the instance these practices remain a standard. It is vital for clients to be aware of the referral fee arrangements when choosing legal services, as transparency is critical in this context.
The legal and ethical debate surrounding referral fees in the Australian real estate market highlights the need for clarity and ethical standards. While it is essential for businesses to market their services, the interests and well-being of consumers should remain paramount. Victorian and Queensland lawyers as well as industry insiders are calling for regulatory changes to ensure transparency and ethical conduct in line with the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015.
The impact on clients’ property transactions and the reputation of the legal and real estate professions is a matter of significant concern, making it a subject that demands careful scrutiny and action in the Australian legal landscape.
[1] https://www.abc.net.au/news/2023-08-09/conveyancers-paying-fees-to-real-estate-agents-for-referral/102539502
[2] Ibid