It is a sad fact of the current real estate industry that it is built on secrecy, and requires secrecy in order to function.
Among the best kept secrets in real estate are the following:
- Secret agent business – “Appraisals”: Only a qualified and accreded valuer is permitted to provide a formal real estate valuation, so commission estate agents call them “appraisals”. Vendors are rarely permitted to know the true value of their property. Most commission estate agents ensure that the vendor has no reference point other than the commission estate agent himself – the person who stands to profit from the vendor’s acceptance of valuation. This is a clear case of conflicting interests. A transparent approach requires that the vendor should obtain a valuation from an independent valuer chosen and engaged by the vendor personally.
- Secret agent business – Keeping The Parties Apart: Vendors are not permitted to be present while the commission estate agent conducts escorted property inspections, nor are the parties encouraged to make personal contact at any stage. When the vendor has no opportunity to cross-check information received from the estate agent, the opportunity for improper collusion or other forms of deception arises. Commission rage can easily taint a sale in such circumstances.
“Greedy estate agent fined $35,000 for scam”
This is the heading of an article appearing in The Age newspaper at page 7 on Thursday 12 June, 2003.
The article states that an estate agent, described in court as “greedy and dishonest” was fined $35,000 and sentenced to 6 months imprisoment. The sentence was suspended for 18 months. The agent discussed a price with the purchaser, but told the Vendor a lower figure. He then offered to split the difference between the two figures with the Vendor, as an addition to his commission.).
- Secret agent business – Verbal Negotiations: The commission estate agent is unable to conduct written negotiations, as doing so involves giving legal advice and the performance of legal work. Instead, the commission estate agent prefers to conduct all negotiations verbally. The result is often a game of “Chinese Whispers” with the true intentions of the parties having to be interpretted by their lawyers at a later date.Verbal negotiations also allow the commission estate agent to deny statements that were made, and to invent statements that were never made, if questioned about the insertion of special conditions into a Contract Note. Verbal negotiations often take place during escorted inspections, over the telephone, or in the privacy of the the commission estate agent’s office.
- Denying the opportunity for legal advice: A common problem experienced by vendors of residential real estate is the limited opportunity to obtain legal advice. Even where the vendor has engaged a qualified lawyer to prepare sale documents, the commission estate agent will ensure that the vendor signs the contract (as prepared or amended by the commission estate agent) before it is checked by the vendor’s lawyer. In extreme cases we have experienced commission estate agents who have taken it upon themselves to destroy a contract prepared by a lawyer in order to minimise the risk of the vendor’s lawyer advising the vendor not to accept a purchaser’s offer in its initial form.
To best way to achieve transparency in real estate transactions is to:
- Use a Real Estate Lawyer.
- Give all instructions in writing, and ensure that all negotiations are in writing.
- Maintain personal contact with all potential purchasers until the contract is signed.
- Always cross-check information with the party concerned. Purchasers should be able to check with the vendor to confirm information given by an estate agent. Similaly, vendors should have access to purchasers to ensure that information received from the estate agent is accurate.