[Author – Tim ODwyer]
It has always been the law across Australia that real estate agents must act fairly towards their clients and disclose all relevant matters to them. One of the most fundamental principles of this Common Law duty of “utmost good faith” is that an agent simply must not buy a client’s property.
More particularly, an agent must not directly or indirectly be involved or beneficially interested in the purchase of any client’s property listed with the agent for sale – unless a fair price is being paid and the agent obtains an informed consent in writing from the client before entering into the sales contract.
Naturally enough agents are not entitled to any commissions from sellers on such sales, which my fellow Consumer Advocate, Neil Jenman, labels as “insider trading”.
Usually an agent will have a “beneficial interest” in the purchase of a client’s property listed for sale if the buyer is the agent, a salesperson, a close relative or family member of either or a company, firm or trust associated with the agent or salesperson.
All Australian States’ and Territories’ real estate statutes generally reflect these rules so any agent who illegally engages in “insider trading”, faces some severe penalties. Interestingly the consumer protection laws in at least two States, South Australia and Victoria, go further than the rest by requiring government pre-approval if an agent intends to obtain a personal or beneficial interest in the purchase of a client’s property. The agent must prove that the price to be paid is market value and that the sale will not be contrary to the client’s interests.
Agents’ clients are comparatively poorly protected elsewhere – particularly in Queensland, New South Wales and the ACT- where the real estate laws effectively allow an agent to obtain a beneficial interest in the purchase of a client’s property merely by securing the client’s consent. This written consent, unfortunately, need not be too informed. In both States (but not the ACT) the agent must act fairly and honestly (Qld.) or reasonably (N.S.W.). However there is no statutory obligation on the agent to provide the client with an independent valuation showing the property is being sold at fair market value, or to indicate any future potential of the property. All agents must blandly disclose is the fact of their proposed beneficial interest and the “nature of the interest”!
Needless to say, in neither State (nor in the ACT) do ill-informed but consenting sellers have the benefit of a cooling-off period.
The prescribed forms in all three jurisdictions are appalling, fine-printed documents obviously designed by bureaucrats with little understanding of the fiduciary norm of “full disclosure”. These forms are far from consumer-friendly and, reprehensively, contain no warning that sellers should seek independent legal advice before signing.
Only at the very end of the Queensland form – on the second page after the part where the seller signs and dates – is there a terse note that if you need “more information about this form”, you can visit the Office of Fair Trading’s website. “What the hell is a website?” many folk would ask. The New South Wales and ACT forms are no better, have no such note and are just as useless.
(A version of this article appeared in Australian Property Investor, in conjunction with a case-study and a comment from Queensland’s Fair Trading Minister.)