The Tactics Used by Real Estate Agents in Australia

Real estate agents play a crucial role in Australia’s property market, acting as gatekeepers for those looking to enter the market. However, there are concerns about the tactics used by some agents that can mislead buyers and sellers. In a crowdsourced investigation conducted by Four Corners, over 100 people, including real estate agents, property professionals, buyers, and sellers, shared their experiences and insights into the industry. This article will uncover the tactics used by agents, the limitations of regulation, and the pitfalls to avoid when dealing with real estate agents in Australia.

Underquoting: “It’s everywhere… it’s really blatant”

One of the most common concerns raised by buyers is underquoting. This refers to agents intentionally listing a property with an unrealistically low price guide to attract potential buyers. Buyers may spend thousands of dollars on inspections and legal fees, only to discover that the property was never within their budget. According to Sydney agent Mark Jones, underquoting is widespread, particularly in the eastern suburbs of Sydney. He claims that price guides are often listed 20-30% below the actual selling price of the property, and sometimes even below the previous sale price. This practice is prohibited under Australian consumer law if it amounts to false or misleading conduct. In New South Wales (NSW) and Victoria, specific offenses for underquoting exist, and agents must keep records of comparable sales used to estimate prices. However, some agents manipulate this system by creating misleading paperwork to deceive regulators. In 2022, there were only five prosecutions against agents in NSW, none of which were for underquoting. The Real Estate Institute of NSW argues that underquoting is not as prevalent as the public perceives it to be.

Secret Commissions and Referral Fees

Real estate professionals often refer clients to other services, and in some cases, money changes hands simply for the act of making a referral. Referral fees can be paid to anyone who brings an agent a listing or a lead, and these fees can amount to 20% of the sale. This practice is considered normal in the industry, as long as it is disclosed. Each state and territory in Australia has different rules regarding disclosure of commissions received by agents. However, insiders claim that not all agents disclose these commissions to consumers. Lack of full disclosure makes it difficult for buyers to make informed decisions about whether they are getting the best deal. The Real Estate Buyer’s Agents Association and the Consumer Action Law Centre both highlight the uneven disclosure practices in the industry.

Conditioning: “Appraise high without accountability”

Real estate agents heavily rely on listings, and competition among agents can lead to questionable practices. “Conditioning” refers to the act of giving homeowners an inflated expectation of what their property could sell for, only to gradually adjust their expectations as the campaign progresses. This can involve appraising the property at a higher price initially and then slowly lowering the price to align with the market. This practice has been acknowledged by peak bodies in the industry, but it is not widespread. Real Estate Institute of Queensland CEO Antonia Mercorella emphasizes that agents should not inflate prices to secure listings and then try to convince the vendor to accept a lower price. A good real estate agent should be able to substantiate their price estimates.

Misleading Conduct

Many buyers have shared instances where they have been misled by real estate agents. One example involves John O’Brien and his wife, who bought a property in South Australia based on the agent’s advertisement that stated the property was 8 acres. However, they later discovered that the property was only 5 acres. The agent was found to have engaged in misleading conduct by South Australia’s regulator, Consumer and Business Services (CBS). The agent signed an enforceable undertaking to not make false or misleading representations, but there were no further penalties imposed. Each state and territory in Australia maintains an online register where consumers can check a real estate agent’s license. In South Australia, disciplinary findings are recorded on the register, but Four Corners found instances where undertakings were not disclosed on other agents’ licenses. The lack of transparency and penalties for misleading conduct is a concern for consumers.

Fines as a Deterrent

The regulation and enforcement of the real estate industry vary among different states and territories in Australia. Each jurisdiction has a different regulator and legislation governing the industry. In New South Wales, for example, Fair Trading officers can issue on-the-spot fines of up to $2,200 to agents who engage in misconduct. If court action is taken, the fines can increase to $22,000. However, some argue that these fines are not a sufficient deterrent for agents who make millions of dollars each year. The Real Estate Institute of New South Wales suggests that a better approach would be to work with the industry to improve compliance rather than focusing solely on imposing fines. The lack of consistent penalties across jurisdictions and limited resources for regulators raise concerns about the effectiveness of enforcement efforts.

Conclusion

The investigation conducted by Four Corners sheds light on the tactics used by real estate agents in Australia and the limitations of regulation in the industry. Underquoting, secret commissions, conditioning, and misleading conduct are among the practices that buyers and sellers need to be aware of. While some agents engage in unethical practices, it is important to note that not all agents operate in this manner. The real estate industry plays a significant role in Australia’s property market, which is worth over $9 trillion. Stricter regulation, better disclosure practices, and stronger penalties may be necessary to protect consumers and improve transparency in the industry.

For more information, watch Four Corners’ full investigation into the real estate industry on ABC iview.