Continuing our theme on estate agents and their control over the contract stage of the sale transaction, the following is an extreme example of the way estate agents are empowered by their access to the contract, and how some will use that power to the detriment of all parties involved.
David Falk is a real estate agent in Victoria’s west. David Falk knows the power an estate agent has when he is able to control the sale contract. This was demonstrated when, in a fit of anger, he blurted out the following statement:
“Listen, your client had better get another solicitor, or I’ll be selling this property to someone else.”
In this posting I will examine this particular incident in detail, setting out all of the facts, and looking at the way the purchaser, the vendor and the lawyers engaged by each, were affected by Falk’s control of the contract stage of this real estate sale.
An Offer To Purchase
My client was interested in a property listed with David Falk. The lawyers acting for the vendor had prepared a Contract of Sale and delivered it to David Falk.
It should be borne in mind at this point that the vendor had engaged his own lawyer for the purpose of preparing the sale documents, being the Section 32 Vendors Statement and the Contract of Sale. According to the lawyer, the Contract of Sale had been prepared with a set of “vendor warranties”, required by law in this case because the vendor was an owner-builder.
It would appear that Falk, acting on his understanding of the law, decided that his simple REIV Contract Note was better than the contract prepared by his client’s lawyer, and took it upon himself to substitute the correct contract with his Contract Note.
Let’s pause here for a moment. On what basis did Falk, a non-lawyer, conclude that he had the right to abandon a full contract prepared specifically for this transaction, and substitute it for his own single page Contract Note?
Did Falk discuss this with the lawyer who prepared the proper contract? Apparently not; she would have told him not to tamper with the legal documents. In fact, when I spoke to the vendor’s lawyer she was shocked and annoyed to discover that Falk had switched documents!
I believe that the reason Falk switched contracts was that it was easier for him. As a non-lawyer, Falk probably found the full contract unwieldy and perhaps difficult to understand. The Contract Note provided by the REIV reduces the contract to a one page “fill-in-the-blanks” form, and allows the estate agent to deal with the sale without having to ask lawyers for guidance (its simplicity also makes it less likely that a consumer will ask any difficult questions).
Legislation allows estate agents to fill in a blank Contract Note form even though they are not lawyers. The supposed purpose of this relaxation of the law against non-lawyers performing legal work was to allow estate agents to assist an unrepresented purchaser (i.e. a purchaser who has not appointed a lawyer) to buy real estate quickly and simply.
Unfortunately, estate agents have manipulated this situation so that instead of assisting a purchaser, it can be used against the purchaser. It is now quite common for estate agents to effectively force a purchaser to make an offer on the estate agent’s terms (rather than on the purchaser’s terms) by ensuring that the purchaser does not use a lawyer, or by preventing the purchaser’s lawyer from seeing the contract, or by resisting attempts by the purchaser’s lawyer to make the contract fair. (For an example of contract manipulation by an estate agent see “Estate Agent’s Finance Clause” where a finance clause inserted into contracts by an estate agent has the potential to create some amazing problems.)
How To Get Rid Of A Troublesome Lawyer
Estate agents are well aware of the power they hold through the use of the Contract Note, and this power is magnified through the use of the Exclusive Sale Authority.
The Exclusive Sale Authority is the contract between the estate agent and the vendor. It binds the vendor so completely that, even if the estate agent is utterly incompetent, the vendor will still have to pay a commission. The obligation to pay a commission can continue even after the Exclusive Sale Authority ends or has been cancelled.
A vendor who signs an Exclusive Sale Authority is left quite vulnerable to bullying and improper practice. Here’s how:
We have been in the same position as the vendor’s solicitor in this case. Having prepared a full contract for our client, we discovered that the estate agent had dismantled it, extracted the Section 32 Vendors Statement, attached his own Contract Note, and passed the documents off as the vendor’s sale documents. When we discovered this, we made direct contact with the estate agent and demanded that he use the contract we had been engaged to prepare. We also informed the estate agent that he had no right to tamper with our documents without first discussing the matter with us.
Later that day we received a telephone call from the client. She was upset because the estate agent had told her “We can’t work with your lawyer, and if you want your property sold we suggest that you get another one.” The client did not know what to do, because the Exclusive Sale Authority bound her to the estate agent, and she was concerned that the estate agent would deliberately sabotage her sale unless she did as she was told. Because of our over-riding duty to the client, we advised her to engage another lawyer.
In the present case, Falk used the same technique, but used it against us when we were acting for the purchaser.
The client had come us to for pre-contract legal advice, and we were also asked to prepare his offer so that his offer was on his terms.
Let’s pause again at this point and examine the concept of offer and acceptance. A real estate sale takes place when a purchaser makes an offer to the vendor, and the vendor accepts that offer. Alternatively, the vendor may reject the purchaser’s offer, and make a counter-offer. This process of offer and counter-offer may continue until both parties are satisfied with the final contract, and the deal is done.
In this case we had received the Section 32 Vendor’s Statement, together with a mostly blank Contract Note provided by Falk (Falk had filled in his own name and few other details, but had left out the mandatory warranties and other crucial details. The document, incomplete and incorrect, was really quite useless).
Instead of using the useless form provided by Falk, we prepared our own contract document – one tailored to protect the interests of the purchaser, and which included conditions to allow for building and pest inspections. We advised our client to sign our Contract Note, and to deliver it to the estate agent.
It was later that day that I received a telephone call from an extremely angry David Falk. Why was Falk so angry? Because I had prepared my client’s offer the way my client wanted it, and not according to David Falk’s requirements.
It was at this point that Falk made the statement:
“Tell your client that he’d better get another solicitor or I’ll be selling the property to someone else.”
This statement left me with no alternative, but to invite my client to fire me. Why? Because as a lawyer I have a duty to put the interests of my client first. If my client was going to miss out on buying the property he wanted because of my involvement in the transaction, I had to give him the opportunity to throw me overboard. (Yes, I know it sounds sickeningly noble, but the reality of such a situation is that I am not permitted to allow my client’s interests to be threatened, and the failure of the sale would inevitably lead to the loss of my role anyway.)
Falk’s method was particularly cruel, as it forced me into a position of having to advise my own client to fire me in order to avoid the risk of losing the property.
All I could do was hope that my client would see the value in retaining me as the only person who was acting in his interests, particularly as against a bully like Falk.
My client was furious. He told me that he was not going to be told by an estate agent which lawyer he could or could not use, and confirmed that he wanted me to continue acting for him.
Was Falk Acting On Instructions?
I do not believe for one moment that the vendor had any knowledge of Falk’s behaviour. As I understand the situation, Falk was not acting on the vendor’s directions at all, and was simply trying to confirm his position of authority and power over the transaction and those involved in it. If Falk had been directed by the vendor to eliminate the purchaser’s lawyer from the process, he should have warned the vendor that such behaviour is improper and could constitute a criminal offence.
The Estate Agent Is Sidelined
After talking with my client, I telephoned the vendor’s lawyer. The lawyer told me that she had received my contract but was not happy, as it did not contain the vendor mandatory warranty conditions she had drafted. It was at this point that the lawyer and I realised that Falk had substituted the lawyer’s full contract with his own Contract Note, and that this was why no-one had been aware up to this point that the mandatory vendor warranty conditions were missing. The lawyer expressed frustration at Falk’s behaviour, but I gained the impression that it was not unusual.
We agreed that Falk should have no further role in the matter, and that the two parties should be permitted to get on with business without further trouble. The vendor’s solicitor prepared a fresh contract, containing the mandatory vendor warranty conditions, but also containing the conditions I needed to protect my client. The contract was submitted as the vendor’s counter-offer, and my client accepted it. Nice and simple, fair, and legal.
The Estate Agents Wins Anyway
What happened to Falk? Nothing. He should never have been involved in the contract stage in the first place, so it really didn’t matter to him that he had been sidelined.
The only reason an estate agent ever involves himself with the contract is to secure the commission by securing the sale. (I believe Falk would have been quite happy in the knowledge that the deal was proceeding without him. After all, the vendor would still have to pay the commission under the Exclusive Sale Authority!)
Before writing this posting I wrote to Falk, and put the following to him:
“I advise that I will be writing a posting for thewww.AustralianRealEstateBlog.com.au regarding the bullying behaviour of estate agents who will not allow purchasers to submit offers on the purchaser’s terms.
I will be referring to you as such a bully, and using the following points to support this claim:
- You received an offer I had prepared for my client, but failed to deliver it to the vendor.
- You telephoned me and spoke to me as per the attached letter.
- You attempted to force my client to dismiss me, by requiring me to inform him that he “had better get another solicitor”.
- You had been provided with a full contract, prepared by Sewells Larkins McCarthy, but you took it upon yourself to replace it with a Contract Note you had prepared.
- You displayed incompetence in your preparation of the Contract Note, as you failed to include a number of mandatory special conditions relating to owner-builder works.
- You were eventually sidelined, while the vendor’s lawyers negotiated the sale directly through our office.
- Our client succeeded in purchasing the property because he refused to allow you to force him to dismiss his lawyer, and because he instructed us to deal directly with the vendor’s lawyer.
- You have continued to use bully tactics, as indicated by an email (dated Thursday 19 July, 2007 7.52 pm). from Bruce Falk to another client of ours in which Bruce Falk states:
“Thank you for your offer, I must say I note your choice of conveyancer he likes to produce his own contract notes, we do not like this approach…the Vendor will not sign a document prepared by ‘Lawyers Conveyancing’ when a suitable REIV prescribed document was provided.”
I put it to you Mr. Falk that if, as Bruce Falk states, “the Vendor will not sign a document prepared by ‘Lawyers Conveyancing’ when a suitable REIV prescribed document was provided” it will be because you or a member of your office have intervened.
- You see nothing wrong with having put me in a position where I had to advise my client that his ability to purchase the property of his choice would be jeopardised if he were to continue to have me representing him.
- Your behaviour in putting me in such a position was particularly cruel, as it forced me into a position of having to advise my own client to dismiss me.
- Your behaviour was calculated to ensure that I would act according to your interests, rather than in the best interests of my client. In other words, your intention was to teach me not to mess with David Falk.
I wish to receive your written response within 3 days from the date of this fax, failing which I will assume that you wish to be regarded as having no comment to make.”
Falk chose not to respond.
The power the estate agent derives from the combined effect of the Exclusive Sale Authority and the Contract Note is a serious problem for consumers. David Falk’s behaviour demonstrates the power an estate agent can wield when he or she is able to control the contract.
The willingness of lawyers in Victoria to allow estate agents to control the contract stage of the real estate transaction has much to do with the improper use by estate agents of a power they should not have. This case also demonstrates that even where a lawyer prepares a contract with care and precision, an estate agent can still seize control of the transaction.
No estate agent should be permitted to have any involvement whatsoever in the preparation or execution of real estate contracts.