Buyer’s Agents – A Critique

Desperate times call for desperate measures. In the following article the REIV’s CEO Mr. Enzo Raimondo suggests that consumers are best served, not by their own legal advisers, but by commission estate agents who charge high fees for a service of dubious value.

We have examined Mr. Raimondo’s article on buyer’s advocates, and have provided some balance by way of a comprehensive critique.

	The Article
	Our Critique

The Article

The following article was written by Mr. Enzo Raimondo, and appeared in Domain Express – The Age – Saturday, 25 September, 2004 at p.2:

“When the market is soft, house hunters are best served by cluey buyers’ advocates

REIV members are regularly informed of changes to legislation and regulations affecting the buying and selling of property.

Our Critique

The first problem arises in the heading of the article:

“…house hunters are best served by cluey buyers’ advocates”

Mr. Raimondo’s own observations confirm that the commission estate agent is not as well qualified as the client’s lawyer:

“Entry level requirements (for entering real estate) are far too lenient and low – at present you need a 50 hour course to call yourself an expert” (Mr. Enzo Raimondo quoted in the Sunday Herald Sun October 13, 2002 p.78)

Whatever “cluey” means, it does not relate to skills, qualifications or representation.

“Negotiating a fair price for property in the current market is now more of an art than the hit-and-miss affair it was during the buoyant market of recent years.”

Why has negotiating a fair price for property been a “hit-and-miss” affair? The fact is that commission estate agents have always maintained close control over the whole of the sale transaction. By referring vendors and purchasers to favoured lawyers and conveyancers, commission estate agents have determined when and if consumers will be in a position to negotiate properly. If negotiation has been a “hit-and-miss” affair it is because commission estate agents have made it so.

“All this plays into the hands of the buyers’ agent…”

Because times are becoming difficult for commission estate agents they must find an alternative means of extracting commissions from the real estate market, and telling purchasers that they need the services of a commission estate agent in the guise of a buyer’s agent is a means of achieving this.

“…whose job it is to negotiate the best result for the purchaser.”

This assertion is quite false. It has never been the role of the commission estate agent whether as a vendor’s agent or a buyer’s agent to negotiate the terms of a sale on behalf of the client.

Only a qualified lawyer has the legal expertise and skills required to negotiation and draft the terms and conditions of a sale contract on behalf of a client.

“A trusted personal representative could be critical to securing the best property at the best possible price.”

This is correct. But it is important to note that the commission estate agent is not a true agent in this sense. According to the High Court a commission estate agent is simply an “introduction agent”, and does not actually represent the client in a true agency sense. Another way of examining this issue is to ask, “If a difficult legal issue arises, who will conduct the negotiations for me?” The answer, as always, is that the matter will be referred to the true representative of the client – their legal representative.

“Think of the acquisition or sale of a property (in terms of financial importance) as you would of an important court case. Would you not appoint a qualified representative to act for you when the other party has a trained professional acting on his or her behalf?”

This is where Mr. Raimondo shoots himself in the foot. It is a fact that the negotiation of a sale of real estate involves the giving of legal advice to the client in terms of legal rights and obligations arising under the Sale of Land Act and the Transfer of Land Act, as well as aspects of Contract Law, Torts Law, and other legal principles and rules.

Using Mr. Raimondo’s own analogy, we ask:

If you would use a qualified lawyer to represent you in court, would you not also appoint a qualified lawyer to represent your legal interests when negoitating the purchase of real estate?

Why would any consumer risk having everything fall apart because of a legal issue that the commission estate agent failed to recognise, and which she couldn’t fix even if she did recognise it?.

An expert should be used where expertise is needed. The first task is knowing who is the expert and who is not!

“A commitment to service and professional standards…”

If the buyer’s agent fails to secure a purchase for the client, there is no commission. This means that there is an enormous temptation on the part of the buyer’s agent to work on the purchaser client and “sign ’em up” for something, just to get the commission. Because the buyer’s agent is really a commission estate agent there is no fee paid for service, and even if there were, it would be very small as compared to a windfall commission.

Purchasers have enough to worry about, without the added risk of commission estate agents trying to “sign ’em up” for a property, just to secure a commission.

“…plus training on an ongoing basis…”

No amount of real estate training will equip a non-lawyer for the delicate art of real estate negotiation. Again, we refer to Mr. Raimondo’s observation that “Entry level requirements (for entering real estate) are far too lenient and low – at present you need a 50 hour course to call yourself an expert” (Mr. Enzo Raimondo quoted in the Sunday Herald Sun October 13, 2002 p.78).

Only a qualified practising lawyer is permitted to actually represent a client in terms of offering legal advice, performing legal work, and formally concluding a real estate sale. While a commission estate agent is permitted to fill in the blanks of certain standard forms, even this is done with the lawyer in the background taking responsibility for the client’s legal compliance obligations.

“Professional development has to be fine-tuned in response to feedback from a database such as the one the REIV has, which handles more than 40,000 telephone calls every year.

Only REIV members have access to the REIV property sales database. This is an up-to-date and comprehensive research tool that helps REIV buyers’ agents assess the latest trends in local markets in order to arrive at the most accurate market appraisal of a property.”

The value of the property is none of the buyer’s agent’s business! Unless, of course the buyer’s agent is going to use it against his own client, to convince her that “the price is right”. A purchaser’s lawyer will always advise the purchaser to make an informed decision as to price, usually by reference to an independent accredited valuer.

Or is the price data to be used by the buyer’s agent when “bargaining” with the vendor? It is a very foolish buyer’s agent who believes that he can convince a vendor to lower her price by reference to
the buyer’s agent’s research.

“Buyers agents are required to have professional indemnity insurance – an important consumer safeguard.”

It is all very well to have professional indemnity insurance, but more important is the type and extent of the policy.

Only qualified lawyers carry professional indemnity insurance cover in relation to legal work and legal advice. A commission estate agent will not have cover that extends to legal matters, and a consumer who relies on legal advice provided by a commission estate agent runs a very high risk indeed.

The lack of full professional indemnity insurance is one reason why the commission estate agent, when acting as a buyer’s advocate, prefers to rely on verbal communication only. By committing to writing, the commission estate agent risks being “caught out” by illegally giving legal advice, or improperly committing the client to a purchase.

Because the commission estate agent has only a rudimentary understanding of contract law, the risk of creating a binding contract through writing is very high. This risk, and the knowledge that his professional indemnity insurance will not cover such a mistake, causes the commission estate agent to shy away from any form of written negotiations.

What does the commission estate agent do when she receives a written counter-offer from a lawyer a part of a purchase negotiation? She passes it on to her client’s lawyer, of course.

REIV members are regularly informed of changes to legislation and regulations affecting the buying and selling of property.

Perhaps they are; but what use is such information if the commission estate agent is unable to actually use it?

Only a lawyer is permitted to pass on such information in the form of legal advice.

For example, simply telling a consumer that there has been a change in the Sale of Land Act is of no use unless the client can be advised as to what impact the change will have on the client’s legal position, what the client should do to ensure compliance, and what rights and remedies are associated with changed law.

How do commission estate agents find out how changes in the law will affect them? They ask the lawyer!