The Ultimate Real Estate Sales Office
OPINIONby Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
The ultimate real estate office model has arrived. It’s the ILP – a lean, clean sales machine that combines the roles of lawyer, conveyancer and real estate agent to provide an optimum real estate service on a fixed fee basis. Anyone can establish an ILP, including real estate agents, conveyancers and accountants, to provide clients with a one-stop-shop for real estate sales and related legal services.
Introduction
ILP stands for Incorporated Legal Practice, and an ILP is simply a company which offers legal services. According to the Legal Profession Act 2004:
“An incorporated legal practice is a corporation that engages in legal practice…whether or not it also provides services that are not legal services.” (Section 2.7.4 Legal Profession Act 2004)
“Before a corporation starts to engage in legal practice in this jurisdiction, the corporation must give the (Legal Services Board) written notice, in the form approved by the Board, of its intention to do so.” (Section 2.7.7 Legal Profession Act 2004)
In other words, if it is decided that a company is to become an ILP the company must inform the Legal Services Board of its intention to engage in legal practice, and when it commences to do so it becomes an ILP. Of course, the company must comply with the provisions of the Legal Profession Act 2004, but provided it follows the procedures specified in the Act it can offer real estate sales services without having to observe either the Estate Agents Act 1980 or the Conveyancers Act 2006. The ILP allows a business to operate under one Act instead of being burdened by three. It’s that simple!
The unique position of the ILP
The sale and purchase of real estate is a legal transaction from start to finish, so it makes sense that an ILP should be selling real estate for its clients.
The conventional method of selling residential real estate usually involves three different and specifically qualified representatives, each representing the vendor under their own Acts:
1. The lawyer – Legal Profession Act 2004
2. The conveyancer – Conveyancers Act 2006
3. The estate agent – Estate Agents Act 1980
Usually, a licensed real estate agent deals with the marketing and sale of the property, a licensed conveyancer or a conveyancing lawyer attends to the conveyancing transaction, and a qualified legal practitioner attends to the associated legal work.
While there is some overlapping of tasks, no single profession has ever attempted to offer consumers a true one-stop real estate service. Lawyers have always sold real estate, but with the passing of legislation to control “land agents” back in the 1920’s lawyers tended to confine themselves to conveyancing matters, leaving the sales role to the newly created “real estate agent”. Over time, real estate agents came to monopolise the sales function, and through successive amendments to legislation governing the conduct of real estate agents, they have come to dominate the industry.
A licensed conveyancer who wants to sell real estate must become a licensed estate agent. Similarly, an estate agent who wants to provide conveyancing services must become a licensed conveyancer. But an estate agent who is also a licensed conveyancer is prohibited under the Conveyancers Act 2006 from providing conveyancing services in a transaction where he or she is also acting as the estate agent (See Section 50 Conveyancers Act 2006). In other words, the roles of conveyancer and estate agent are mutually exclusive. Furthermore, an estate agent who is also a licensed conveyancer is still unable to provide legal advice or to perform legal work beyond that involved in a simple conveyancing transaction.
An ILP, on the other hand, can offer ALL services. For example, an estate agent who becomes an employee of an ILP is entitled to represent a client in every aspect of a real estate sale transaction, from the taking of initial instructions and the preparation of sale documentation, through the sale negotiation process, to the conveyancing transaction, and all the way to settlement and beyond. Of course, the estate agent would have to receive appropriate in-house training and would work under the supervision of the Legal Practitioner Director of the ILP, but this is no different from an estate agent’s representative who works under the supervision of their estate agent principal, or a paralegal who works under the supervision of a licensed conveyancer.
Consumer demand for greater competition, transparency and integrity in the industry, coupled with recent changes in legislation and technology, have made it possible for a person with no formal qualifications to establish and operate a one-stop real estate shop in the form of an ILP, provided that at least one director of the ILP is a qualified lawyer. It is the role of the Legal Practitioner Director to ensure that the ILP complies with the provisions of the Legal Profession Act 2004. (Section 2.7.10 Legal Profession Act 2004)
Lower overheads and fewer compliance issues
As discussed above, a licensed conveyancer who also holds an estate agent’s licence cannot simply operate as a real estate agent/conveyancer. The licensed conveyancer would have to hold both an estate agent’s licence and a conveyancer’s licence. The licensed conveyancer would also have to comply with both the Conveyancers Act 2006 and the Estate Agents Act 1980, and ensure that the business did not breach the Legal Profession Act 2004 (many conveyancers and estate agents overreach their roles and end up in breach of the Legal Profession Act 2006, exposing their clients to loss in the event that their professional indemnity insurer refuses to meet a claim resulting from such overreach).
Insurances create another problem. Two policies of professional indemnity insurance would be required, as well as two policies of fidelity insurance.
Membership of professional associations is a further expense. Estate agents rely on the Real Estate Institute of Victoria for membership benefits and support, while licensed conveyancers are members of the Australian Institute of Conveyancers.
Remuneration models create further headaches, as most real estate agents belong to franchise groups which impose their own rules and requirements on members, and use varying formulas for collecting franchise fees. Everyone is out for their cut – the franchisor, the agency owner, the listing agent, the selling agent. The life of the real estate sales representative can also become quite miserable when income is uncertain, and intra-office rivalries can diminish standards and client satisfaction.
Compare all of this with the ILP. The ILP operates pursuant to the Legal Profession Act 2004, without reference to either the Conveyancers Act 2006 or the Estate Agents Act 1980. The ILP requires only one policy of professional indemnity insurance and one policy of fidelity insurance, and both of these insurances are sufficient to cover every aspect of the ILP’s role in the sale of real estate, as well as the provision of other legal services required by real estate consumers (e.g. Wills, powers of attorney, general conveyancing services, mortgages, leases and any other areas of legal expertise the ILP may decide to develop).
Elimination of improper practices
Real estate agents have a dreadful reputation, largely because of commission-driven individuals who will stop at nothing to achieve a sale and win a commission that is out of proportion to the value added to the transaction by the estate agent. As observed by the Estate Agents Council in its Modernisation Review Position Paper:
“It has sometimes been remarked it is within the very nature of a profession which relies on commissions that sometimes untoward practices occur while trying to secure the listing or sale.” (Estate Agents Council, Position Paper – Modernising the Estate Agents Act 1980 July 2009, p.12)
Operating on a fee-for-service basis, in accordance with the law, and under the direct supervision of a qualified Legal Practitioner Director, ensures that the staff of an ILP are not tempted to act improperly, and are motivated to conduct transactions transparently, efficiently and legally.
A working example of the ILP
To view an example of an ILP which has been established specifically for the purposes of offering consumers real estate sales services visit the Lawyers Real Estate website at:
lawyersrealestate.com.au.
Seminar for accountants (and others)
The real estate ILP is the perfect vehicle for any lawyer, accountant, estate agent or conveyancer who wants to expand or recession-proof his or her business by cross-selling real estate services, conveyancing services and basic legal services.
I have been invited by Continuing Professional Development Seminars to present seminars on the use of the ILP as a vehicle for accountants to offer real estate sales services to their clients. While this seminar is aimed specifically at accountants, the matters covered are relevant to anyone who is considering establishing an ILP for the purposes of selling real estate:
Victoria
Seminar title: “Real Estate & Conveyancing For Accountants”
Date: Tuesday 10 November, 2009
Time: 9.30 a.m. – 4.00 p.m.
Presenter: Peter Mericka B.A., LL.B – Legal Practitioner Director of Lawyers Real Estate Pty Ltd.
Venue: Rialto Ballroom 2, InterContinental The Rialto, 495 Collins Street, Melbourne.
Brochure & registration form: To download the information brochure and registration form CLICK HEREWestern Australia
Seminar title: “Real Estate & Conveyancing For Accountants”
Date: Wednesday 18 November, 2009
Time: 9.30 a.m. – 4.00 p.m.
Presenter: Peter Mericka B.A., LL.B – Legal Practitioner Director of Lawyers Real Estate Pty Ltd.
Venue: Duxton Hotel Perth – Duxton 4, No.1 St. Georges Terrace, Perth.
Brochure & registration form: To download the information brochure and registration form CLICK HERE
Recommended reading
I strongly recommend the following book to seminar attendees, and anyone contemplating a career in real estate:
SOLD by Brendan Gullifer. (More information)
What the critics have said about SOLD:
“Moral outrage meets a sense of humour as Brendan Gullifer explores the unscrupulous side of the Melbourne real estate scene”
(The Courier, Ballarat 12 August, 2009.)“I thought it was tremendous fun. And let me tell you, you’ve met these people. They probably sold you your house.”
Jennifer Byrne, First Tuesday Book Club, ABC Television, 7 July, 2009
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