Commission Factoring – A Dangerous Development

Peter Mericka B.A., LL.BOPINION
by Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
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We have argued that real estate commissions are a major cause of corruption in the real estate industry. But what if the drive for commission is intensified? What if the estate agent has spent the commission in advance, and fears that the sale may collapse?

It is the common experience of lawyers and conveyancers that estate agents involve themselves in real estate contract matters when they have no right or reason to do so.

Commission rage is often a factor, as the tendency to meddle in contract matters appears to rise with the estate agent’s need for money.

This flyer is being distributed to Melbourne estate agents, with the message,

“Why wait six weeks or more for commissions to be paid? It’s your money, so get paid NOW!”

It appears that an estate agent with cash-flow problems can now spend the commission in advance.

Does this mean we can expect more desperate attempts by estate agents to control real estate contracts?

Commission-Driven Misconduct

An estate agent who anticipates a commission in excess of $10,000 just for having two parties sign a document, will often go to extraordinary lengths to bring about this simple occurrence. The desparation of some estate agents leads them into behaviour which is not just wrong, it is actually criminal.

Commission-driven misconduct can include the following:

  • Over-quoting on property value to win the listing and a chance of commission;
  • Under-quoting on property value for quick sale and quick commission;
  • Involvement in formulating of purchaser’s offer (to avoid loss of sale and commission);
  • Preparing special conditions on behalf of the purchaser in order to limit the purchaser’s opportunities to cancel the contract;
  • Pressuring vendor to sign the contract to secure the sale (and the commission);
  • Falsely denying a purchaser’s right to cancel (in order to save a commission);
  • Advising parties against obtain legal advice (to avoid cancellation and loss of commission);
  • Pressuring purchaser’s lawyer to advise purchaser to continue with sale (to save commission);
  • Pressuring vendor’s lawyer to prevent vendor from consenting to cancellation (to save commission);
  • Harassing the vendor to arrange deposit release (to access commission funds)before settlement;
  • Pressuring vendor’s lawyer to arrange deposit release (to access commission funds) before settlement;
  • Pressuring purchaser’s lawyer to have purchaser agree to deposit release (to access commission) before settlement;
  • Pressuring vendor’s lawyer to pay commission to the agent from trust funds.

In extreme cases, estate agents have attempted to have a “troublesome” lawyer (i.e. one who will not put the estate agent’s interests above those of the client) fired!

A Major Misconception

Estate agents believe that they are entitled to a part of the deposit, when in fact they are not. The estate agent is entitled to deduct commission from the deposit only when the vendor becomes entitled to it.

The conversion of the deposit, from funds held on behalf of the purchaser, to funds payable to the vendor (and therefore accessible to the estate agent) becomes the estate agent’s primary goal. This is why lawyers and conveyancers are forced to deal with desperate agents who push and pester for the release of deposits from the moment the contract is signed – not because they want to help the vendor, but because they want to help themselves to the cash.

The Cash-Strapped Estate Agent

Why would an estate agent pay for a factoring service? Factoring is often used to solve cash-flow problems. But the factoring solution is expensive in itself. It may be concluded that a factoring service would be a last resort, as most estate agents would avoid factoring expenses if they could.

Some Serious Questions About Factoring

Does the “need” to resort to factoring rise in proportion to inability of the estate agent or agency to generate enough income?

If an estate agent is forced to consider factoring, would he or she also be forced to consider improper methods of generating additional income?

Where an estate agent has been paid in advance, how impartial and client focussed can he or she be if one party or the other is considering cancellation before settlement?

Is factoring itself a symptom of a very greedy and selfish industry?

Someone Wake The Regulator

Does it occur to those whose job it is to regulate the industry that there is a problem when commission-driven desperates think of their clients’ deposits as their own?

Perhaps the regulator should come out of hibernation and have look at this dangerous development in the real estate industry.

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