Why Are There Regulations On Quoting A Sale Price?

We continue our expose of the REIV’s use of the media and political lobbying strategies to prevent changes to real estate licensing laws. (For a detailed examination of corruption through political lobbying see Pigs at the Trough (Crown Publishers, NY, 2003) by Arianna Huffingtons.)

Why Are There Regulations On Quoting A Sale Price?

In his weekly propaganda piece, the CEO of the Real Estate Institute of Victoria (REIV) asks the question, “What are the regulations to quoting a sale price?” (Domain, The Age, Saturday, 17 December, 2005 p.17). He then runs through the silly and convoluted processes imposed by law on estate agents.

A more important question for Mr. Raimondo and the REIV is “Why were such complicated regulations introduced in the first place?” The answer lies in theconflict of interests that arises where commission-driven estate agents set themselves up as the advisors on the value of the property, the price the market will pay for the property, and the price the vendor should accept for the property.

Mr. Raimondo tells us,

“There are two stages to pricing and marketing a property for sale. First, the seller has to be given an estimate of the sale price by the agent: a single figure or a price range.”

Nonsense. There is no requirement for an estate agent to provide an estimate of the sale price. The sale price is a matter entirely for the vendor, without the self-interested involvement of the estate agent. Estate agents have promoted themselves as the experts in property valuation, and consumers have been conditioned into believing them.

The vendor should decide upon the sale price of the property. The estate agent can decide as to whether or not he is prepared to accept the listing if the vendor is too ambitious about price, but then the agent doesn’t want to lose the listing and the commission that comes with it. Enter the conflict of interests : the estate agent becomes involved in convincing the vendor about a more realistic sale price.

How should the vendor inform himself or herself about price? An independent valuer, who is trained in property valuation, and who can provide a well-researched and documented valuation will provide any vendor with a good guide.

Mr. Raimondo tells us,

“The second stage involves marketing a property for sale. There are three important things to keep in mind. First, a seller is not obliged to advertise a property in line with an agent’s estimate of the sale price. Second, an agent is not allowed to state an estimate of the selling price that is less than the single-figure estimate or the lower end of the price range set out in the authority with the seller, that is, an agent is not permitted to under-quote. Third, if a seller has authorised terms of sale and a selling price, an agent must not offer the property for sale at a lower price or on different terms.”

This paragraph is quite disturbing and hints at the problems endemic in the real estate industry. In what other industry is it necessary to explain that sales people are not permitted to cheat and deceive? Why is it assumed that deception is an expectation?

Let’s look at Mr. Raimondo’s statement more closely.

“A seller is not obliged to advertise a property in line with an agent’s estimate of the sale price.”

Does anyone out there really believe that when an estate agent quotes a selling price, the seller must sell for that price? Well, yes they do. We won’t go into the reasons why they hold such a belief, but you can guess as to who led them to it.

“An agent is not permitted to under-quote.”

This is just another way of saying that an agent is not allowed to tell lies or mislead or deceive people. Under-quote just sounds a lot nicer than “telling dirty lies”.

“If a seller has authorised terms of sale and a selling price, an agent must not offer the property for sale at a lower price or on different terms.”

Now, if the agent is authorised to sell a property for a certain price, why would the agent offer it at a lower price? Let’s not focus again on lies, deception etc., let’s look instead at WHY. Why would an estate agent do these things? The answer has much to do with the windfall commission an estate agent wins upon the sale, and the need to “win the listing”.

First, the agent must win the seller as a client. To do this the agent must convince the seller that he can get “the best price” for the property. Having impressed the seller with the prospect of a high price, the agent must then convince purchasers that the property is fairly priced. Finally, when the price offered by the purchaser is too different from the price expected by the seller, the agent must work on the parties, using a variety of methods to convince them that the property is worth more, or is worth less. Usually, the process is one of “conditioning the vendor” to accept a lower price.

Lies, deception, cheating. They have always been criminal offences, but only in the real estate industry is there a need for a special set of regulations that say, in effect, “Hey you know how the general population is not allowed to lie, cheat and deceive, well we’ve introduced regulations to say that estate agents can’t do those things either.”

A better way to deal with this widespread problem would be to eliminate or at least reduce the circumstances of conflicting interests in real estate. Here are a few pointers for the REIV and the regulators:

• Do not allow estate agents to have anything to do with determining market value, asking price or sale price.
• Do not allow estate agents handle real estate sale contracts.
• Train all estate agents to properly identify and avoid circumstances of conflicting interests.

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