Provider fee markups: the invoice question to ask

Why this matters

Vendors typically encounter three or four agency-referred service providers during a sale: a building inspector (for the pre-sale report), a photographer, possibly a stager, and in some cases a lawyer or conveyancer. Each has a fee that appears on the marketing-budget invoice or as a separate vendor cost.

The agency's involvement in the referral can take several forms:

• Pure referral — the agency recommends the provider; the vendor engages and pays the provider directly. No agency involvement in the money.
• Pass-through — the agency arranges the work and invoices the vendor for the exact amount the agency paid the provider. No retained margin.
• Markup — the agency arranges the work, pays the provider a certain amount, and invoices the vendor a larger amount. The difference is agency margin.
• Referral fee — the agency recommends the provider, the vendor pays the provider directly, and the provider pays the agency a referral fee from the provider's own invoice.

All four are lawful under NZ law. What is not lawful is failing to disclose a material benefit when asked, or actively misleading the vendor about the fee structure. There is no single PCCC rule that specifically requires disclosure of provider markups, but several duties together bear on the question.

What the legal framework actually requires

The regulatory regime does not contain a single "referral benefit disclosure" rule. An earlier version of this page cited PCCC 2012 Rule 9.15 for that purpose — a mis-identification (Rule 9.15 addresses outside business activities, not referral benefits). The actual position is that several duties apply when a licensee recommends and arranges a paid service for a client:

• Rule 6.1 — Fiduciary obligations. A fiduciary must not profit from the relationship without the principal's informed consent. Retaining an undisclosed margin on a recommended service is in tension with that duty.
• Rule 6.2 — Good faith and fair dealing with all parties. Good faith implies the client would be told about a material financial interest the licensee has in the recommendation.
• Rule 6.4 — Not misleading; not withholding information that should in fairness be provided. The "not withhold" limb is directly on point: if a vendor assumes the invoice is a pass-through cost, withholding the fact of a markup is withholding information that should in fairness be provided.
• Rule 9.1 — Best interests of the client. A recommendation driven by a hidden retained margin, rather than by the client's interest in the best provider for the price, is in tension with the best-interests duty.
• Fair Trading Act 1986 s.9 — Misleading or deceptive conduct in trade. If the invoice or surrounding explanation creates an impression that the agency is not retaining a margin when it is, section 9 is engaged. The test is objective; intent is not required.

The combination is strong even though no single rule is. In practice, an undisclosed markup that comes to light in an REA complaint is most commonly framed under Rules 6.2, 6.4, and 9.1 — all three are likely engaged simultaneously.

This reflects a regulatory gap: the PCCC Rules 2012 were drafted in an era when the referral-margin question was less salient. The absence of an explicit "referral benefit disclosure" rule is itself a point worth raising in any submission on rule reform.

The question that reveals the structure

A direct, written request is the most effective approach. Template language:

Hi [agent], before the sale closes out, I'd like the fee structure on agency-arranged services clarified in writing. For each of the following providers recommended or arranged by the agency during this sale, please confirm:

1. The amount the provider invoiced the agency.
2. The amount the agency invoiced me.
3. Any referral fee or other benefit received by the agency, the licensee, or any associated party from the provider, directly or indirectly.
4. Any other benefit or advantage received in connection with this recommendation.

Providers to confirm: [building inspector name], [photographer name], [stager name if applicable], [any other agency-referred provider].

Please reply in writing by [date]. If no such benefits were received, please confirm that explicitly. This request goes to the licensee's fiduciary and fair-dealing duties under PCCC Rules 6.1, 6.2, 6.4, and 9.1, and to the Fair Trading Act 1986 section 9.

The written request does several things at once. It creates a record. It shifts the burden to the agency to disclose specifically. It narrows the scope of plausible deniability. It converts a grey area into a defined exchange.

What the reply typically looks like

Three patterns of reply are common:

• Full disclosure. "We invoiced you $1,800 for the building inspection; we paid the inspector $1,500; we retained $300 as an administration fee." This is what full disclosure looks like, consistent with the fair-dealing and fiduciary duties. If the fee structure is reasonable, no further action is needed. If it is not, the vendor can request an invoice adjustment.
• Pass-through confirmation. "We invoiced you the exact amount the provider invoiced us. No benefit was retained." Consistent with those duties.
• Evasion or refusal. "Our pricing is commercial-in-confidence." "Our arrangements with suppliers are confidential." "This information is not typically disclosed." These responses are not compliant with the fiduciary and fair-dealing duties. Confidentiality is not a defence under the Rule.

An evasive or refusing reply is itself significant. The Rule's obligation is clear; a refusal to comply with a direct written request is evidence of a breach of Rules 6.2 / 6.4 / 9.1 and can be cited in a subsequent REA complaint.

The better default: engage providers directly

The cleanest approach is to step outside the referral chain entirely. When the agency recommends an inspector, consider:

• Asking the agency for two or three inspector suggestions.
• Checking each against the LBP and NZIBI registers.
• Contacting your preferred inspector directly, engaging them, and paying them directly.

The same applies to photography, staging, and any other service where the agency has a referral relationship. Direct engagement removes the disclosure question entirely. The provider is accountable to you directly. There is no agency margin. The inspector's report is not filtered through the agency's relationship. The photographs are your photographs.

The agency may push back on direct engagement on the basis that "we have trusted providers" or "our integrated workflow is more efficient." Both are true statements; neither is a reason to accept an opaque fee structure. A trusted provider can still invoice you directly.

Scale of typical markups

Because disclosure is inconsistent, systematic data on NZ agency markups does not exist in the public domain. Industry-insider reporting and the occasional disclosed instance suggest markups typically fall in the range of 10% to 30% on the provider's invoice, with higher percentages on photography (where the markup is often embedded in marketing-budget line items) and lower percentages on commodity services. Some agencies pass through at cost; some do not. Some providers offer referring agencies volume discounts that they pass through; some do not.

For a vendor whose marketing budget is $8,000 and whose separate inspection and photography costs are $3,000, a conservative assumption of a 15% undisclosed markup across the package suggests $1,600 in non-transparent cost — the equivalent of several hundred dollars in commission. Disclosed, this is a legitimate business arrangement. Undisclosed, it is a breach of Rules 6.2 / 6.4 / 9.1 and, depending on scale, potentially a Fair Trading Act issue.

When the reply confirms a markup

If the agency's reply confirms a retained margin on any provider, three responses are available:

• Accept it. If the disclosure is made and the margin is reasonable for the service coordination work the agency performs, that is a commercial arrangement the vendor can accept.
• Request an adjustment. "The disclosed margin was not agreed in advance. I'd like to amend the invoice to reflect the provider's invoice amount." Whether the agency agrees depends on the specific circumstances.
• Escalate. If the disclosure was not made until requested (i.e., the agency failed to proactively disclose under PCCC Rules 6.2, 6.4, and 9.1), the vendor can file an REA complaint on the procedural breach regardless of whether the margin itself is accepted.

Where this guide sits in the section

Previous: The building inspection report: what NZS 4306 requires.

Related: Selective Approval Theatre.

Rules cited: PCCC Rules 2012 (Rules 6.1, 6.2, 6.4, 9.1), REA Act 2008 (s.134 where licensee is a party), Fair Trading Act 1986 (s.9).