'Top-slicing' exposed: Is everyone at it?

'Top-slicing' exposed: Is everyone at it?




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Property valuations are a fundamental requirement in any deal to ensure that the client can provide adequate security for the loan. However, it has been brought to our attention that a small number of brokers are exploiting valuation fees as a way of supplementing their commissions to survive in an increasingly competitive market, termed ‘top-slicing’ by industry insiders.

In most cases, both the intermediary and finance provider act as a third party between the client and valuation firm as specialists are instructed to conduct the report. As a result, the applicant rarely sees the final report which can mean that a fee escalation remains undetected. Some brokers may even specifically request the firm not to disclose their fee structure to the client, adding further cause for concern.

B&C was told that this is a highly lucrative income source for the broker community and whilst an administration fee is largely regarded as acceptable, a source suggested that some brokers make more profit from this than from commissions themselves.

Speaking to us about the motivations for this practice, Hinesh Varsani, Partner at Bellevue Mortlakes Chartered Surveyors, said: “Brokers may have several deals on the go at any one time, however, I get the sentiment that a lot of their deals get to penultimate stages, but many of them fall through due to valuation or lenders terms being revised at often last minute. 

“One also has to take into account that many lenders have stopped paying broker referral fees. Therefore this may have led to some brokers obtaining fees elsewhere along the process.”

We were told that this has happened for many years in the mortgage industry by Simon White, Director at London's Chartered Surveyors and Valuers (LSCV). He explained: “Some companies make a living out of this, for example panel valuation firms who act as a third party sourcing system will often take a 70 per cent cut of the fee charged to a client.”

Simon also highlighted the scale of the problem within smaller firms. He added: “At LSCV, this doesn’t often happen because we work with some of the largest international banks which are unconcerned with a making a few hundred extra pounds. However, in a past life working at a smaller firm, Ashdown Lyons, where we dealt with over 500 brokers, this happened on an almost daily basis.”

Giving us the insight about the prevalence of the issue from the other side of the fence, we spoke to Steve McColl, Partner at Soho Corporate brokerage, who said that it is not just brokers who are escalating valuations; instead the problem often originates from the valuer themselves.

Steve gave the following example: “The client states a property value at £1 million, the valuer quotes a fee of £1000 + VAT, based on the stated valuation. The fee of £1000 + VAT, reflects time spent and also PI cover. 

“The valuation comes back in at £750,000, the valuer does not refund any money to the applicant, even though there will be lesser PI usage. A valuation of £750,000 would likely be typically quoted at £750 + VAT, therefore the client has paid £250 + VAT too much.

“On top of this I am aware of certain lenders and packagers who grossly inflate valuation fees to 'receive a quick nibble'. Whilst a small handling fee I can see as reasonable, often we can be talking anything up to double the quote from the valuer, which is stretching the boundaries of what can be deemed fair and reasonable to a significant degree.”

When asked about possible solutions, Simon White told us that he has sat in on many meetings with other surveyors where this has been discussed, but there appears to be no quick fix.

He said: “The only viable solution for brokers working legitimately is to fully disclose what the funds are actually being used for. Brokers can set themselves apart from the crowd by making sure they are completely transparent.”

One of our sources did point out that this practice is not as bad as it used to be in the regulated environment since the introduction of Key Facts Illustration documents, but it remains a very grey area. From a lender’s perspective, they are unable to keep a check on this practice because they remain distance from the relationship a broker has with their client and therefore have little idea of the cost relayed back to them.

Nevertheless, it is the responsibility of the wider short-term community to ensure these practices are brought to light to guarantee that those who fairly and transparently bill their clients do not get penalised for the short-comings of others. 

Leaving us with a lasting thought, Hinesh Varsani added: “Many well regarded brokers we deal with build their reputation on trust, good service and delivering results, rather than trying to make a ‘quick buck’ which will inevitably lead to a ‘here today, gone tomorrow’ business model.”  


By Alexandra Jones

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