There is little doubt that the real estate industry in Victoria is the most corrupt in Australia. This is largely due to the power and arrogance of the Real Estate Institute of Victoria (REIV). The recent dismissal of Mr. John Keating from the REIV ethics committee is an example of the contempt the REIV has for ethical conduct, and for consumers generally.
In a front page article appearing in The Age newspaper, titled “Real estate rebel gets axe” (The Age, Saturday 13 March, 2010 p.1) journalist Marika Dobbin reports that a long-serving member of the REIV’s ethics committee has been dumped “because of his struggle against misleading price quotes“.
Estate agents are NOT valuers
The ongoing squabble over real estate appraisals can be summed up by referring to this sentence in Marika Dobbin’s article:
“Mr. Raimondo said the industry did not have a problem with underquoting, saying it was difficult to predict prices in the current market.”
The problem with real estate agents is that they receive no training whatsoever in valuing real estate. I have examined this problem in detail in a submission to the Estate Agents Council titled Modernising The Estate Agents Act 1980.
(See also “The Pricing Dilemma – An Agent’s View” by real estate agent Chris Warren, in which Warren concludes, “The only solution to my mind is for every owner to arrange their own independent valuation from a registered valuer. Then they have a price given to them in writing by a professional not involved in the sale of their property.”)
If, as REIV CEO Enzo Raimondo believes, it is difficult to predict prices in the current market, then why do real estate agents act beyond their competence? The answer is quite simple: real estate agents need to pass themselves off as valuers in order to control real estate transactions.
It’s all about controlling the sale transaction
By seizing control of the sale price, the real estate agent is able to control the vendor. Here’s how it works:
- The REIV and real estate agents in general pretend that it is the role of the real estate agent to estimate the value of the vendor client’s property. (In fact, real estate agents have neither the qualifications nor the competence to provide property valuations – hence Raimondo’s plea that it is “difficult to predict prices”.)
- Real estate agents use the opportunity to provide free appraisals as a means of winning listings. The free appraisal is a foot in the door for the real estate agent. (See our article “Free Valuation? Just A Foot In The Door!“
- The opportunity to estimate the price of a vendor’s property is also an opportunity to overquote the value (in order to win the listing and a commission) or to underquote the value (in order to ensure a quick sale and a quick commission).
- Establishing a vendor’s expectations sets the scene for the real estate agent to crow about having “exceeded vendor’s expectations” if the property sells for more than the estate agent’s appraisal. If the appraisal figure is too high, the vendor can be conditioned by the estate agent (who by this stage has firmly established him/herself in the mind of the vendor as the “expert” on real estate prices).
Most of the deceptions and manipulation strategies used by real estate agents against unsuspecting consumers are linked to the real estate agent’s control of price information.
Inherent conflict of interests
There is always a conflict of interests when the real estate agent takes a role in estimating or advising on the value or price of real estate. This is because the real estate agent has an interest in the vendor’s property, which extends to an interest in the bringing about of a sale – any sale, at any price. Consider these facts:
- Interest in the client’s property. Through the execution of an Exclusive Sale Authority, the real estate agent effectively becomes a part-owner of the vendor’s property – usually to the extent of 2%-3% payable as commission.
- Estate agent’s interest not realised without a sale. The Exclusive Sale Authority gives the real estate agent a set period within which a sale must take place, otherwise the agent’s 2%-3% stake in the vendor’s property disappears. The vendor may also disappear, and appoint another agent.
- Sale becomes the paramount goal of the agent. No sale, means no commission. Thus, any sale at any price will mean that there is at least some commission payable. The only obstacle between the real estate agent and the commission is the vendor who refuses to sell during the currency of the Exclusive Sale Authority.
- Controlling the price allows the agent to bring about the much needed sale. The real estate agent works on the vendor to establish him/herself as the “expert” on pricing. The vendor, having accepted the estate agents initial “appraisal” as to the value of the property, has nowhere to turn when the same real estate agent revises the appraisal downwards. Thus, the real estate agent is able to use price manipulation as a conditioning tool against the vendor. Real estate agent journals and training courses are full of articles on how an agent can condition the vendor into accepting an unacceptably low price for a property, and some of them are very sophisticated and highly convincing.
REIV as real estate rogue
The REIV never advises consumers to call upon the expertise of professional valuers. In fact, the REIV goes to great lengths to convince consumers that it is the role of the real estate agent to estimate the value of real estate.
So powerful is the REIV, through its ability to procure political lobbyists, and to call in favours from those whose role it is to regulate the industry, that it has managed to have legislation passed that actually requires real estate agents who have no training and no qualifications in property valuing to provide appraisals to vendors. (This outrageous state of affairs is examined in Modernising The Estate Agents Act 1980.)
The REIV cannot have it both ways
On one hand, the REIV promotes its untrained, unqualified members as having the skills needed to provide accurate property valuations. However, it then bleats about the difficulties associated with predicting market prices when consumers complain about incompetence or deception.
If the REIV were serious about ethics it would acknowledge the need for an independent assessment of property value, and advise consumers to obtain a valuation from an accredited property valuer.
The removal of John Keating from the REIV ethics committee has rendered the title “REIV Ethics Committee” an oxymoron.