Estate Agents Wanted – Conflict Of Interests?

OPINION
by Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

Ask any estate agent who they work for, and they will readily identify the vendor as their client. Ask the same estate agent about any duty owed to the purchaser, and the response “caveat emptor” (buyer beware) is blurted out faster than the answer to an easy question on a TV quiz show.

But ask the estate agent whose interests are being served when a purchaser is referred to a mortgage broker of the estate agent’s choosing, and the response is not as short or as quick.

We noticed this advertisement from a mortgage broker, and wanted to know why the mortgage broker would be advertising to estate agents, rather than to consumers. We also wanted to know why the mortgage broker would be offering $1,000 per head to the estate agent, rather than offering this incentive to potential borrowers.

Most importantly, we wanted to know whether the mortgage broker had any concerns about the conflict of interests involved, considering that the estate agent is paid a commission by the vendor to bring about a sale. Would the mortgage broker protect the interests of the purchaser as against those of the estate agent (for whose assistance the broker is paying $1,000) and the vendor? How do the broker and the estate agent deal with the issue of illegal secret commissions?

We put these questions to Mark at Pro Home Loans by sending an email to the email address provided in the advertisement. Receiving no reply to our email, we followed up with a telephone call. Mark was “with a client” when we called, but we were told that he would call back.

An angry man who identified himself as “Mark” called us and had quite a bit to say, but did not want the conversation repeated as his “comments” per se.

Conflict Of Interests

We regard the use of estate agents as referers of mortgage business as highly unethical and improper, as there is an inherent conflict of interests involved. Of course, those who are regular visitors to our websites will be aware that Peter Mericka is a Mortgage Broker and Peter Mericka sells real estate. So why do we insist that there is a conflict of interests where an estate agent refers purchasers to a mortgage broker?

It’s all about being paid by two opposing parties, and therefore being unable to properly serve either of them.

Is it possible for an estate agent to refer a purchaser to a mortgage broker without there being a conflict of interests? Of course. If the estate agent is representing the purchaser, and is being paid by the purchaser for this assistance, and the estate agent has a duty to act in the best interests of the purchaser, there is no conflict of interests if the estate agent assists the purchaser to find finance.

The conflict of interests arises where the estate agent is being paid by the vendor to bring about a sale. Here are just a few examples of possible situations of conflicting interests:

The estate agent could exploit the purchaser to help the vendor (and the agent).

• The estate agent could help the purchaser to fund an over-priced purchase.
• The estate agent could manipulate the finance condition to limit the purchaser’s ability to cancel the contract.
• The estate agent could suggest a “lender-of-last-resort” in order secure a sale.

The estate agent could exploit the vendor to help the purchaser (and the agent).

• The estate agent could avoid an unconditional contract in favour of one conditional upon finance.
• The estate agent could talk the vendor down in price to meet the finance limit of a purchaser.
• The estate agent could limit the vendor’s options under the finance condition.

The estate agent could exploit or disadvantage both vendor and purchaser simultaneously (the advantage of the agent).

• The estate agent could filter purchasers according preferential finance arrangements.
• The estate agent could combine a number of the above situations

Conclusion

In our view conflict of interests is probably the No.1 cause of corruption in the real estate industry. The use of commission-driven sales people to sell mortgage products to purchasers of the properties being sold by those same commission-based sales people is a recipe for consumer exploitation.

We will have more to say on this insidious practice in future postings.

To post your comment on this item, please return to