What’s Wrong with Real Estate?

Some readers of this column would have tuned into ABC’s Four Corners program, Agents of Influence aired earlier this week. As a representative of the real estate industry, it was unpleasant watching. The program touched on several issues; conditioning, underquoting, hidden commissions, conflicts of interest, buyer agency and compliance. Taking each of these in reverse order, it might be useful to explore these matters from within a local industry context.

Compliance: Real Estate agents are licensed and regulated by both state and federal laws that hold agents accountable for their conduct. Complaints against agents are taken seriously with very few leading to disciplinary or legal action. In NSW, where the program explored agent compliance, a miniscule 0.008 percent of agents were prosecuted by the regulator in that state last year. These comments are the author’s own and may not reflect the opinions or policies of the Real Estate Institute of Western Australia / Australia.

Buyer Agents: Buyer agents are duty-bound to act in a buyer’s best interest in a real estate transaction. The program demonstrated conflicts of interest whereby sales agents were recommending the services of buyer agents that they had a personal and/or linked financial relationship with. In short, buyer agents must be clear about their fiduciary responsibility and actively avoid actual or perceived conflict of interest in their dealings with selling agents.

Conflicts of Interest: Agents need to better understand this part of their function. Consumers need to be acutely aware that agents representing sellers must act in their sellers’ interests and follow their instructions, unless those instructions are unlawful. Agents themselves sometimes stray into failing to discharge this fiduciary responsibility in the pursuit of finalising a sale. These laws treat buyers like they’re idiots.
Hidden Commission: Referring business to or recommending the services between agents is reasonably common (particularly amongst large franchise networks) whereby an industry standard of 20 percent of the commission earned is shared with the referring agent. Such referrals generally make sense but these arrangements must be disclosed to the client and are more reliable than the commercial on-line ‘agent finder’ services.
Underquoting: A lot of fuss about is made about underquoting and the flouting of laws that ban the practice. In brief, an agent is outlawed from quoting a likely sale price of a property that is substantially
below the realistic market price. These laws treat buyers like they’re idiots. Buyers know the market well and understand that it’s the relationship between a willing buyer and seller that reveals the price, not
what an agent says. Buyers are not disadvantaged by under-quoting; it just makes the agent look like a fool.
Conditioning: An unfortunate practice whereby agents seek to provide a vendor with an unrealistically
high expectation of a selling outcome in order to secure the listing then, once obtained, condition the seller down to accept a lower, or realistic, market price. Sellers should see this one coming a mile off and simply insist the agent provide proof and empirically justify their opinion of value before appointing them.

Real Estate is a career built on reputation. Those in the business that act unethically or outside the law get found out quickly and don’t last long.