If Governments Trust Estate Agents, Why Shouldn't Consumers?

Published 19 May 11 09:48 AM | Peter Mericka 

OPINION
by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

 

To my mind agents particularly should be prohibited from giving buyers so much as a bus timetable, and from recommending even the local Chinese restaurant. Needless to say, solicitors and other service providers to residential buyers should also be prohibited from acting if they are not independent of everyone else involved in the transaction.

A recent edition of Australian Property Investor Magazine ( http://www.apimagazine.com.au/ ), on sale at newsagents across the country, included a case study on victims of a real estate scam. Cassie and Luke were buyers from out-of-town. They were told by a Queensland agent that the sellers of a certain property would refuse to accept anything lower than $420,000. So the buyers offered this and were pleased when it was immediately accepted. Less than a year later they needed to sell and discovered, to their horror, that the best price they could get was $400,000. Moreover, they found out that their sellers had listed the house for sale for $350,000. So Cassie and Luke had paid $70,000 more than the sellers' (undisclosed) asking price.

Queensland's Fair Trading Minister commented in API on how these buyers might get compensation from a Claim Fund on account of the licensed agent's conduct. Here are the essence of my comments which API published for balance:

Wouldn't you love an agent to sell your property for $70,000 more than you had listed it for? It beggars belief that in this case the agent was not also rorting the seller in some way.

Whatever, this sort of despicable scam can happen anywhere in Australia. Crooked estate agents are not confined to Queensland. If you have lost money as a result of being misled by an agent this way (or in any other way), every State and Territory has a government-established fund from which you can claim compensation. Whether you get any compensation, however, is another question.

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Filed under: Estate agent, Deception, Contract, property fund

Comments

# Catherine Cashmore said on May 19, 2011 12:36 PM:

I would suggest buyers employ an independent buyer advocate to 'level the playing field' (note - one that doesn't practice vendor advocacy).  Selling agents are required by law to work in the best interests of their client - 'the vendor!' Their job is to secure the highest possible price - and if they happen upon an inexperienced or un-educated buyer, it's not hard to convince them the price they're asking, is exactly what the property is worth -  (not just what the vendor 'desires'.). The vendor pays a sales agent in the region of 10K to market and sell their property. To expect  the fee to also cover the sales agent giving reliable advice on the property's value to a buyer, is ridiculous.

# Peter Mericka said on May 19, 2011 12:45 PM:

Hi Catherine,

Unfortunately, there is no such thing as an "independent" buyer advocate - buyer advocates are just estate agents in sheep's clothing.  Furthermore, buyer advocates are under the corrupting influences as vendor estate agents, insofar as they position themselves so that they win zero if their client does not make a purchase, but they become entitled to a massive windfall if their client buys.

Obviously, the motivation for collaboration (conspiracy) between buyer's agent and vendor's agent is ever present.  One can imagine a buyer's agent telling a vendor's agent, "Mate, we both want this to happen so you talk your vendor down, and I'll talk my purchaser up, and you and I will have a win-win!"

I can assure you that no buyer's advocate ever advises a purchaser not to proceed with a purchaser because it's not really a good idea (which would probably involve the giving of legal advice) or that it's not a good investment (which would probably involve the giving of financial advice).  Thus, the buyer's advocate will always encourage a purchase, just as the vendor's agent will always encourage a sale.

The only person who can provide true representation and consumer protection is a qualified legal practitioner.

# George Rousos said on May 19, 2011 12:50 PM:

Hey Tim,

Wouldn't they have grounds to seek damages under the Competition and Consumer Act 2010 ??

The limitation period of 6 years would apply I think - from the day on which the cause of action that relates to the conduct accrued.

If the agent has PI Insurance, it should be a slam dunk and easy to settle without going to court.

Anyway my friend, this article compliments your story aswell.

http://www.abc.net.au/news/stories/2010/05/29/2912882.htm

# Catherine Cashmore said on May 19, 2011 1:13 PM:

You're completely wrong Peter - a good buyer advocate will charge a set fee (set in advance), not commission based on the properties value.  Like all bushinesses  they depend on referrals, therefore to survive in the business for more than a couple of years, they'll need to make sure they purchase well for their clients. Good, independent, buyer advocates are under no compulsion to purchase the first property they come across - unlike a sales agent who only has the property listed to sell, advocates have the pick of the market. They spend much of their time talking clients out of properties NOT into them. If you are not paying for advice; if you are receiving free advice; if your advocate is being paid by someone else; then he or she is WORKING for someone else. By law a Real Estate Agent may have only one principal in any negotiation. The principal is the person who is paying the agent. This is the person who the agent is working for. A buyer advocate works for the buyer - and in the best interests of the buyer.

# Peter Mericka said on May 19, 2011 3:14 PM:

Catherine, as a lawyer I regularly represent purchasers, a few of whom have used buyer advocates, and I can assure you that they are utterly worthless in doing any more than simply finding a property for someone who is time poor.

I also sell real estate for my clients, and I live it when a buyer's advocate calls about one of my clients' properties because I know that their client wants the property, they want their client's fee, and my client can simply name his/her price and the deal's as good as done.

The concept of the buyer's advocate is an invention of local estate agents who envy the system in the USA where purchaser must use an agent to gain access to properties on the market, and vendors pay a 6% commission, with 3% going to the vendor's agent and 3% going to the purchaser's agent.  Money for nothing, protected by regulations that ensure that the monopoly stays in place.

# Peter Mericka said on May 19, 2011 4:03 PM:

Catherine, you might want to have a look at a document written by Alan Kohler regarding buyer advocates: http://bit.ly/jClS3K

Also, in November, 2010 I wrote to Mr. Frank Valentic (named as the REIA's 2010 Australian Buyer's Agent of the Year), Mr. Warwick Brookes (Vice President of the Real Estate Buyer's Agents Association of Australia - REBAA), Mr. David Morrell of Morrell & Koren, one of Melbourne's best known buyer advocate agencies, Mr. Warwick Brookes of Domain Property Advocates, Mr. Michael Ramsay of Michael Ramsay Property, and Ms. Janet Spencer of Buyer Solutions.

Each of these buyer advocates was sent the same letter, a copy of which can be viewed at the following link: http://bit.ly/j0PQqG

You will see that I asked each of them some very difficult questions about buyer advocacy.  I also asked them about the outrageous assertion made on the REBAA website that a buyer's advocate will "Review and explain all legal documents to the buyer".

Their response?  Well, there was no response whatsoever, but I did see that they very quickly changed their fact sheet to remove any reference to reviewing and explaining legal documents.  (Compare the fact sheet on the REBAA website with the one attached to the letter I sent.)

I wonder if there are any buyer advocates out there who would be prepared to identify themselves and to respond to the issues I raised in my letter?

# Catherine Cashmore said on May 19, 2011 6:27 PM:

Peter - you are under the miss apprehension that every professional person - apart from yourself - is dishonest. In fact a reputable real estate agent acting in the best interests of their client (and being paid a fee to do so) will do as good a job in their industry as any accountant, solicitor, or doctor for that matter. Every industry has people who bring it down through unethical practice. It is the job of others within the industry to rise above this and act in the best interests of their client at all times - to be open and honest - and prove through good practice that they do so. Those that don’t will eventually reap their due reward through word of mouth.  

I don't for one moment dispute that there aren't bad buyer agents, bad sales agents, bad lawyers, bad building inspectors, bad solicitors, bad police men and so forth. However that wouldn't stop me using a professional in these industries - I would simply make sure I did as much due diligence as possible before employing them to work on my behalf.  Mortgage brokers receive a commission from the lender for arranging a loan, however I would still use one to arrange my home loan - and trust there are those who conduct themselves ethically.  As you mention, you sell real estate, and in doing so, there is nothing what so ever to stop you 'buying' a listing and 'screwing' your vendor down in price during the campaign to get the deal across the line!  However I trust you don't do this! You are certainly not the only person who knows how to 'act' for people’s property matters professional manner. I know of many like-minded individuals.

A good buying agent will evaluate their client’s needs - search, assess, and more importantly, work to negotiate the best deal possible for each client. The best buying agents will work tirelessly to save their clients’ both time and money – like any industry, they know if they do a good job, it will be paid back two fold through referrals. .  They will walk buyers away before they pay too much - they will walk them away from poor investments.  They will provide them with extensive historical sales data, zoning information, arrange building reports, - the list goes on - and provide as much information as possible in order to make sure all due diligence has been done prior to negotiation – including having the contract checked by a ‘good’ solicitor and negotiating any changes that need to be made.  They will certainly not need to talk their client into buying unwisely simply get a fee – any more than I’d suggest you would talk your clients into selling for a poor price simply to get a fee.  Buying agents negotiate properties daily, and therefore know the tricks sales agents use to cajole buyers into paying too much and can avoid this.  On the flip side – find a good sales agent and you’ll get someone who can negotiate a fantastic price for your property – who has experience to market it well, to work tirelessly to get buyers through  the door, and take the time to squeeze every last penny from the buyer on behalf of their client.

There are good and bad in all industries.  If I was selling a property I wouldn’t hesitate to use a good agent. If I was buying a property, I wouldn’t hesitate to seek out a good buying agent.  If I wanted a structural report on a house, I would not hesitate to find a good building inspector who’d take the time to do a thorough inspection, not just a ten minute walk through – as many do!  If I was investing in shares, I’d seek out someone who could give me advice on the best course of action. I have no problem paying people who I know will do a better job than myself because of their industry experience, and in the course of doing so, potentially save me a lot of time, money, and stress.

# Peter Mericka said on May 20, 2011 9:42 AM:

Hi Catherine,

That was a very long attempt to justify the unjustifiable Catherine - I've heard all of that propaganda before.

The difficulty estate agents have to overcome is their reliance on improper conduct.  For example:

There is a conflict of interests where the estate agent inserts special conditions into a purchaser's offer.

There is a conflict of interests where an estate agent advises a vendor on the value of their property, when the agent has a pecuniary interest in the outcome of the sale.

There is a conflict of interests where an estate agent advises a vendor to lower their price "to meet the market" when the agent has a pecuniary interest in the outcome of the sale.

There is a conflict of interests whenever the estate agent offers any form of legal advice, financial advice or commercial advice to a vendor or a purchaser when the agent has a pecuniary interest in the outcome.

Catherine, a "good" agent is one who does not charge a commission based on the value of a client's property, does not offer advice that he or she is not qualified to give, doels not offer advice that he or she is not disqualified (by conflicting interests) to give, and who observes the lawyer/client relationship.

Bearing the above in mind, can you call yourself a "good" estate agent Catherine?

Finally, read through the criminal behaviours on this page, and you will find that most of them are common day-to-day practices of real estate agents.  The fact that these are serious criminal offences is of no concern to real estate agents, or even to Consumer Affairs Victoria - they are just part of every estate agent's tool kit: http://www.lawyersconveyancing.com.au/deception.asp

# Tim O'Dwyer said on May 20, 2011 12:39 PM:

I have one or two friends in real estate (scouts honour!).  One of these agents, Chris Warren, (who has taken note of my many warnings to real estate  consumers over the years) now gives these commendable tips to his seller clients and buyer customers (my comments on some tips are in brackets):-

TIPS FOR PRUDENT SELLERS

• Before you list your property for sale, obtain an independent valuation from a registered valuer. (Chris and I agree that this gives sellers a wonderful negotiating tool!)

• Obtain your own building and pest inspections, and consider fixing any problems arising from those inspections before putting your property on the market.

• Check with your council that all structures on your property have been fully approved and passed all inspections.

• Full disclosure is important so please inform your agent before you list about any issues with your property which could adversely affect an eventual sale.

• Please ensure your conveyancing solicitor checks any sale contract before you sign it.  (Note how Chris does not want to recommend any particular solicitor to his seller clients.)

TIPS FOR PRUDENT BUYERS

• Before you look for a property, try to arrange pre-approval of your finance.  You should find out, in the process, how much you can borrow, what your repayments will be and how to best structure your loan.

• When you have found your dream property, please ensure your own conveyancing solicitor checks the contract before you sign it. (Note again that Chris, very wisely and professionally, wants no part in his buyers’ choice of solicitor.)

• Insist on at least 21 days for finance approval because all lenders need at least this much time to approve finance applications.

• Ensure your contract is subject to building and pest inspections, even if you are buying a new home. (No recommended time limit here, but I’d suggest 21 days ideally.)

• Stay in touch with your conveyancing solicitor throughout the coveyancing process.

# Catherine Cashmore said on May 20, 2011 2:05 PM:

Hi Peter - thank you for your response.  It's clear it's given to validate the practice you 'preach'. It's good to see that you now have your full real estate licence. Thankfully I can safely say that I have always acted in the best interests of my clients and never acted outside the law. Can you say the same Peter?

# Peter Mericka said on May 20, 2011 2:28 PM:

Catherine, you're falling into the same trap as other real estate agents who profess to be the "good" real estate agents.  You are attacking me instead of looking in the direction I am indicating.

I am not the bad guy because I draw your attention to what's rotten in our industry.  As a lawyer and as a licensed real estate agent, I am telling you that the system is corrupt, and we need to do something about it.  I do what I can to draw attention to the problems.  Complaining about the fact that I am exposing these issues does you no credit, and does not further the cause of ethics in real estate.

Catherine, what are you doing to try and change what's wrong in the industry?

# Andrew Kiss said on May 22, 2011 11:37 AM:

Interesting article. I wonder how often this 'actually' happens. I mean, surely, the 'average Australian' would due their DD about comparative house prices before signing a contract. With websites, it's as quick as 5 minutes!

Just my thoughts.

http://propertyinvestinginaustralia.blogspot.com/

# Les said on May 22, 2011 1:35 PM:

Really, someone paid $70,000 above market value (and, apparently, the listed price) simply because an agent told them to? Are there really such simple (foolish) people in this world? The buyers were from "out of town"? Would it not be a funamental principle of investing to make oneself at least reasonably knowledgeable about the commodity one proposes to purchase prior to making the investment? Perhaps the agent in this case was dishonest, but surely investors need to get some basic education before making a major purchase, particularly if purchasing outside the area they know? To do otherwise would be foolish in the extreme.

# Les said on May 22, 2011 1:42 PM:

Peter, the only reason your (legal) profession exists is because people (in the case of real estate, property buyers and sellers) are unable to keep their word in honouring an agreement. Why does the public need lawyers to handle their conveyancing any more than you suggest they (do not) need a real estate agent. If there were no need for real estate agents, why is the real estate industry a multi-million-dollar industry in every Australian state and territory? Any business for which there is not a need cannot last long. As far as I know, the real estate industry has been around for well over a century. The public will make its own decision on whether real estate agents are needed, with or without your rhetoric. If there is one profession that would save the public millions or billions of dollars expended needlessly, then surely it is the legal profession?

# Les Moriarty said on May 22, 2011 2:18 PM:

Why is it that some solicitors spend so much time criticising practices in an industry about which they know little (reale estate) rather than seeking to expose and eliminate dodgy practices within their own (legal) industry? Of course there are dishonest real estate agents, just as there are dishonest solicitors, doctors, teachers, politicians and plumbers. The real issue with property transactions is greed - not by agents, but by buyers and sellers. Eliminate greed from the human instinct and you will eliminate 99% of problems within real estate. For people from outside the industry to stand back and continually attack agents and so-called unethical practices is pointless. If a property doesn't sell it is because the owner wants more than fair market value (greed). If a property sells too cheaply, it is because someone wants to buy something for less than fair market value (greed). It's really that simple, despite all the huffing and puffing about wicked real estate agents by "consumer advocates", noble members of the squeaky clean legal profession etc.

# Les Moriarty said on May 22, 2011 2:56 PM:

Peter, I believe your statement that "the only person who can provide true representation and consumer protection is a qualified legal professional" is a nonsense. As a real estate agent, I am quite able to represent the interests of my seller in a transaction. Why are you able to do it any better than I? Because you have a law degree? I don't think so. Gaining an agreement on price between a willing buyer and willing seller is not a legal issue. You make it sound as though parties to a transaction are coerced, pushed, duped into the agreement by unscrupulous agents, whether they act for the buyer or the seller. Again, a nonsense. Mostly, parties to a real estate transaction are intelligent, educated adults well able and eager to make buying and selling decisions without having their hand held by a solicitor, who would charge them for the role of hand-holder in any case. As the seller's representative, I don't purport to represent the buyer in a transaction. They can use a buyer's agent if they wish, take advice on legal matters from their solicitor if they wish, investment advice from their financial adviser if they wish, etc. etc. But to suggest that you, or someone like you, is better able to represent the seller in the sale of their property than I am able to, is incorrect. (Obviously, the suggestion suits you, because you profit from it.) The fact that you want a foot in both camps, achieving an agreement between buyer and seller and then handling the contractual matters through to settlement, suggests to me that you simply want to make more money than you would by handling the legals alone (despite the morally superior position you assume in your posts). Or do you offer the negotiation part of the transaction to your clients free of charge?

# Peter Mericka said on May 22, 2011 6:58 PM:

Les Moriarty, please have a read through the material provided at these two links, and then come back to discuss why real estate agents have no role to play in fair and open real estate negotiations:

Real Estate Sale Negotiation - Lawyer vs Estate Agent

and

Criminal Deception In Real Estate

# Dan Statlander said on May 25, 2011 9:54 PM:

I am also a agent, but this type of cheat is unacceptable.

Dan Statlander

http://www.statelandbrown.com

(Real estate experts in Boca Raton Florida)

# Caroline Edson said on May 28, 2011 4:53 PM:

There are a lot of opinions flying around here which is great.  Peter you make some very valuable points & I have taken time to read through the articles that you have directed other people to via this post.  Catherin is right though that not every buyers agent will act unconscionably & to assume that they will is unfair.  Les too makes a very valid point.  Whilst these buyers were from out of town it is still there responsibility to do their due diligence:  Look at what other similar properties are on the market are listed at, look at registered real estate boards such as RP Data to see what has been selling in the area.  By doing either of these things they would have gotten a pretty quick indication that they were receiving information that may have been misleading & not in their best interest.

# Property Lawyers Melbourne said on May 30, 2011 4:38 PM:

I do agree with Mr. Dan Statlander but i think that estate agents are doing things that supports the consumer for having the advice about the things.

# valerie thomas said on June 4, 2011 12:35 PM:

My son recently bought his first home in melton south, victoria. The agent said all the appliances worked, the garden would be cleared and the place would be clean for settlement day.

During final inspection, we walked into a nightmare. There was overflowing skips, with rubbish all over the lawn, a garage that looked like the tip, plus every room of the house had rubbish everywhere and it stunk so bad we needed face masks. the shower doors were broken, a window was broken and none of the appliances worked.

For settlement to go through, the agent said she would fix it and that all will be well, which was another lie.

No one out there could help us. The only advice given was to settle on settlement day.

We rang the reiv, consumer affairs, solicitors, etc, etc and no one could tell us how to improve things.

What I find amazing is how the agent says we were told what the vendor told her and chooses to ignore the reason my son bought this home was due to what she said.

The bad guy walks today, which is meant to happen, so that the courts get paid, the solicitors and offcourse the tax man.

How do we make a claim for funds lost due to an agents lies?

# valerie thomas said on June 4, 2011 12:40 PM:

Buyers Beware!!!

Something I see is needed today due to so many people having greed issues is..........

If a vendor does the wrong thing to a purcheser, plus an agent lies alot to the purchaser, someone is given the power to hold back funds at settlement, until the dispute is dealt with. This rule would prevent people needing to take up court space, etc.

# Cairnhill Community said on June 12, 2011 4:47 PM:

It's because of scammers that consumers think so little of us.