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Why is the public paying too much for cheap conveyancing?

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Pressure has been steadily mounting for more transparency and fairer pricing for the public when buying legal services.

Indeed, when the Competitions and Markets Authority (CMA) investigated the legal market they found that pricing was not transparent.  They have stipulated that for certain services such as conveyancing, lawyers had to put prices on their websites.

The CMA thought this would help consumers compare prices between law firms, and enable them to make more informed decisions.  In our opinion, this plan was at best optimistic. It certainly doesn’t help the public avoid paying over the odds for conveyancing.

How do lawyers get recommended?

The problem is how people get a list of lawyers to evaluate in the first place.

Price comparison websites appear to offer consumer choice between lawyers.  However, these sites need companies that are prepared to sell their services on price alone.  This gives them the appearance of independence.

Which is where a shadowy type of company gets involved.  They are called Panel Managers and it’s their job to negotiate pricing deals with law firms, in return for passing them work.  This work comes from many sources, including comparison websites, estate agents and mortgage brokers.

The panel manager will keep part of the fee that the consumer pays to the lawyer, and they will also ensure that whoever passes them the work, gets paid as well.  Which is where things start to go wrong for the public.

“It’s tough out there”

To be clear, there is nothing wrong in principle with paying someone in return for recommendations.  As long as the consumer is paying the same price for the work irrespective of how they selected the lawyer.   Also, the lawyer must be recommended on merit and not just because they receive money in return for that recommendation.

For many companies, the additional revenue that this  generates can be the difference between succeeding and failing.  A potential referrer wanted his clients to benefit from our services, but he couldn’t afford to give up the huge sums of money the panel manager was paying him.  He was prepared to put up with his clients complaining about the poor service they were getting because he was earning more money on referral fees.

The relationship between a panel manager and their lawyers is very similar to a drug user and their dealer, or a prostitute and their pimps.  Once lawyers become hooked on the cocaine of panel referral work they struggle to break free from these people.  With ever-increasing pressures on law firms to find work, they are hapless moths to the flame of the promise of consistent, albeit very low price, work.

Naturally, the panel managers exploit this weakness.  We have first-hand experience of threats by referrers who use panel managers to either sign up or lose the work.

What is the problem then?

The problem is not referral fees per se, but the disproportionate amount of money that panel managers take out of the system.  Consumers can pay DOUBLE for a service that the law firm would normally charge.  We have examples where law firms receive around £300 for a conveyance, but the consumer is paying nearly £800.

With low fees being paid to law firms, they are forced to increase the caseload each lawyer has to handle.  Huge sums of money and risks are involved in buying and selling houses.  The public will no doubt be shocked to learn that their lawyer may be running over 100 cases by themselves.

Often with paper systems and old fashioned working methods.

Is there a solution?

Although the CMA is investigating the transparency of referral fees from estate agents, it is unclear what will happen if they rule later this month that such fees are no longer legal.

It is not clear whether comparison websites will be covered by the same requirements, so there is potential loophole here meaning that consumers may continue to be exploited.

The reality is that until consumers’ attention is brought to the fact that they are paying 100% markup for a legal service, then such practices will continue.  The dismal performance and experience that most people have when buying or selling a property, will continue.