Estate Agents Who Play ‘Lawyer’

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

Estate agents often want to control the sale transaction, even to the point of telling the lawyer how to prepare sale documents. But what happens if the estate agent is asked to take responsibility?

For the past 4 years, as far as Ryan of Hocking Stuart Real Estate is aware, Hocking Stuart have been telling vendors’ lawyers how to prepare sale documents, by way of a two page letter of instructions and requirements.

We were concerned that an estate agent with no legal qualifications would want to advise a vendor’s lawyers on the preparation of legal documents, and so we put Hocking Stuart Real Estate to the test.

We asked:

• Did Hocking Stuart understand their own letter;
• Did Hocking Stuart believe they were competent to advise on legal matters; and
• Did Hocking Stuart accept responsibility for their advice?

It would appear that Hocking Stuart Real Estate has never been asked such questions before. First, they said “Yes” in answer to all 3 questions. But then they changed their minds, saying:

“…we do not accept any responsibility for any legal advice given to our vendors…” adding that“…the person who signed the letter is now in Germany.” (Perhaps we were to assume that a person who is in Germany can’t be held responsible for a letter written in Australia?)

Eventually, we received a letter from Hocking Stuart Real Estate stating,

“We request that all previous correspondence from our office be ignored.”

Why does an estate agent try to direct the vendor’s lawyer, but shy away from taking responsibility?

Obviously, no professional lawyer likes to be told by a non-lawyer how to protect his client’s interests, and I must confess to having felt professionally insulted to receive a letter from an estate agent purporting to advise me to “protect the vendor’s interests”. It was particularly galling, given that much of my working life is spent rescuing vendors and purchasers alike from problems caused by estate agents.

So, why do estate agents try to involve themselves in matters that are, at best, simply none of their business, and which are invariably beyond their capacity?

We believe it all has to do with the estate agent’s relationship with the property. The Exclusive Sale Authority, used by estate agents as their service contract, says that the estate agent is entitled to a percentage of the property if the property is sold. Thus, the estate agent becomes a part-owner of the client’s property. As part-owner of the property, the estate agent wants some say in the sale process in order to protect the estate agent’s interests.

Now, here’s the main point. The estate agent cannot get hold of his or her share of the client’s property unless a sale takes place, and the property stays sold.

It becomes even more important for the estate agent to control the transaction, when it is realised that the estate agent could lose everything if the vendor client takes the property off the market, or dismisses the estate agent and engages another.

We believe that part of the Hocking Stuart Strategy in attempting to control the vendor’s lawyer is to appear to be indispensable to the vendor, by exercising control over the vendor’s lawyer.

When Hocking Stuart confirmed that they were authorised to give us instructions concerning the sale, that they accepted full responsibility for the legal effect of the matters raised in their letter, and that they had properly advised our clients in relation to their legal obligations, we asked them tell us the nature and extent of the “legal advice” that had provided. It was at this point that Hocking Stuart Real Estate became rather coy.

Having received no response to our request, we again wrote to Hocking Stuart, and put the following to them:

“Please note that we have already discussed this matter by telephone, and were dissatisfied with the outcome, as it became apparent that:

• Your staff appear to have no knowledge of the contents of your letter dated 6 June, 2006, other than to say that it is regularly used by your office;
• You are presuming to direct us in the preparation of sale documents, and yet you appear to have no understanding whatsoever of the matters raised in your letter;
• You have confirmed that you have provided legal advice to our client regarding the matters raised in your letter, but such matters appear to be well beyond your competence.

We are concerned that your role in this matter is placing us and our client at risk. It appears that you expect to control the transaction, when it is apparent that you lack the competence to do so.”

We received a faxed response the same day, in which Hocking Stuart Real Estate stated …we do not accept any responsibility for any legal advice given to our vendors…” and advising us “…the person who signed the letter is now in Germany.

We reminded Hocking Stuart Real Estate that they had instructed us, on behalf of the vendors, to insert special conditions into the contract, and asked them why they were insisting on their insertion.

We had hoped that Hocking Stuart Real Estate would realise that they had over-stepped the mark, and would back away from their apparent attempt to seize control of the matter.

Finally, we received a letter from Hocking Stuart Real Estate stating,

“We request that all previous correspondence from our office be ignored.”

We most certainly regarded this request as being in the vendor’s best interests.

Comment and Opinion:

This incident highlights the massive flaw in the way real estate business is transacted in Victoria.

Estate agents should NEVER handle sale contracts, and should certainly never presume to be entitled to control sale transactions.

The single function of the estate agent is to introduce a potential purchaser to the property, and nothing more. It should then be left to the vendor and the purchaser to determine the terms and conditions of the transaction. If either party requires legal advice or representation they can engage a lawyer to act for them.

An estate agent, acting in pursuit of a hefty commission is always a party to the transaction, and is therefore in a position of conflicting interests if he or she attempts to exert any control. For a more thorough analysis of this issue, see our “Submission To The Estate Agents Council Regarding The Conduct Of Private Auctions”.

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