The Office of Fair Trading has recommended that the government consider legislation to regulate the payment of referral fees to estate agents, but stopped short of calling for them to be banned.

In a report on home buying and selling published last week, the OFT said its research had indicated there was a ‘clear theoretical problem’ with estate agents earning income from ancillary services sold to buyers, such as conveyancing services.

It cited the potential for distorted incentives that may create a conflict of interest with the estate agent’s duty to act in the best interest of the seller.

The OFT considered a number of remedies, including an outright ban, but said there was insufficient evidence to say whether this was a proportionate response, or whether it would be in the interests of consumers.

Heather Clayton, senior director for infrastructure at the OFT, said: ‘It is hard to say that referral fees should be banned. In theory they create a lot of problems, but that is not demonstrated in practice.’

She added that there would have to be a proper cost/benefit analysis before any regulation is introduced.

Richard Barnett, chairman of the Law Society’s conveyancing and land law committee, said: ‘With referral fees as they are, there is the potential for a conflict of interest.

‘I would like to see estate agents sign up to self-regulation, which would ensure transparency for consumers. Referral fees would be just one of many issues which would be covered by this, and would mirror, in the case of referral fees, our code of conduct.’

The OFT study also recommended that current legislation be relaxed to allow new entrants such as private seller portals and online estate agents into the market without them being hindered by inappropriate regulation.

Beyond that, it found the existing legislation regarding estate agents is ‘comprehensive and wide ranging’, and further regulation is unnecessary.

On home information packs, it concluded that HIPs had neither a positive nor a negative impact overall, but said they did have the benefit of making information available to buyers at an earlier stage in the process.

The year-long study found the housing market to be dominated by traditional high-street estate agents, which has led to weak competition. It found that consumers’ failure to negotiate on agents’ fees could have cost them up to £570m.

John Fingleton, OFT chief executive, said: ‘In the present economic climate it is more important than ever that people get a good deal when buying or selling a home.

‘Encouraging new business models, online estate agents and private seller platforms could put competitive pressure on traditional models and lead to better value for buyers and sellers. The government can help this process by updating legislation and making sure regulation only applies where it is essential to protect consumers.’