The Property, Stock and Business Agents Act 2002 brings a new approach to professionalism for property agents.
Agents need to be acutely aware of the fiduciary nature of the relationship with their client (the principal). The relationship between principal and agent places an agent in a position of trust, confidence and responsibility in which their foremost duty is to act in the best interests of their client and deal ethically with all parties involved in property transactions.
Agents must always deal with their clients free of the influence of any interest which may conflict with a client’s best interests. These general principles are set out in the Conduct requirements which apply to all licence and certificate holders.
The legislation includes several provisions which require agents to disclose certain information to consumers. The aim of these requirements is to:
A real estate agent or salesperson who is acting for a client in respect of the sale or purchase of land is required to disclose certain relationships and any benefits they or others may receive in relation to the sale or for referring the client or a prospective buyer to a service provider.
A real estate agent or salesperson engaged to sell property for a client must make these disclosures to their client (the seller) and also to prospective buyers where applicable. A ‘prospective buyer’ is a person believed to be a potential or likely buyer of land, if they have made an offer to purchase the property.
An agent acting for a buyer (a buyer’s agent) must make the disclosures to their client (the buyer).
Section 47 requires two kinds of disclosure, as follows.
1.Where the agent refers their client or a prospective buyer to a person (or firm) for professional services associated with the sale or purchase, the agent must disclose:
(a) any relationship, and the nature of the relationship, the agent has with the service provider – this includes a family, business or fiduciary relationship, or a relationship where one of the persons/firms involved is acting or generally acts under instructions from the other, and
(b) whether the agent expects to receive any consideration, whether it is money or some other form of benefit, from the person/firm to whom they have referred their client or a prospective buyer and, if so, the value of the consideration.
Examples of service providers include a legal practitioner, conveyancer, finance broker, financial adviser, finance provider, insurer, building consultant, pest inspector, property valuer, another agent etc.
The agent does not have to disclose the amount of any fees the service provider will charge the consumer for providing their services. Fees for professional services are negotiated between the consumer and the service provider.
What has to be disclosed by the agent is any relationship between the agency and the service provider and whether any money or other consideration will be received by the agency for the referral.
The disclosure should be made at the time of the referral.
2. Where a person to whom the agent has refered their client or perspective purchaser, is to receive a benefit in connection with the sale or purchase, or for promoting the sale or purchase or for providing a service in connection with the sale or purchase, the agent must disclose the amount, nature and value of any benefit the person will receive from the transaction. Disclosure only needs to relate to matters the agent is aware of.
Under this requirement, the agent must disclose any monetary or other benefits which someone will receive conditional on whether the property is bought or sold, for example, commissions to a property marketing company, or a success fee. Other examples include:
The agent is not required to disclose a professional service fee that will be charged by a service provider to a client for a service (that is, the fee the finance broker will charge the buyer to arrange finance or a loan establishment fee charged by a bank).
What is required to be disclosed is any additional benefit the person will receive on the basis of a successful sale or purchase of the property. For example, the agent or seller may be using the services of a professional marketing company to promote the sale of the property – the fee the agent or seller is paying the company to provide the service does not have to be disclosed to prospective buyers, but if the company will also receive an additional bonus or commission or similar when the property is successfully sold, this would have to be disclosed.
Disclosures required by section 47 must be made in writing on an Office of Fair Trading approved form and must be acknowledged in writing by the person to whom it is given.
Disclosure must be given and acknowledged at the time the agent refers the client or prospective buyer to a person.
Consumers expect the agent that they contract to undertake his or her duties fairly and openly to achieve the best result for them.
Generally, the Act prohibits real estate agents and their sales employees from obtaining or being connected to the obtaining of a beneficial interest in the sale of a property. Obtaining a ‘beneficial interest’ includes:
An agent or salesperson is considered to obtain a beneficial interest if the interest is obtained by:
A real estate agent or salesperson is prohibited from obtaining a beneficial interest in the property in respect of which they are acting unless:
The client’s consent must be given in writing in an Office of Fair Trading approved form.
If a licensee is selling land or other property in which they have an interest (for example, if the agent is the director of the company that owns it; or if the agent is a director of a corporate licence holder and sells his or her property as an individual), the interest must be disclosed in any advertisement published in connection with the property.
Another aspect of the agency relationship that demands greater transparency is the receipt of rebates and discounts by agents in relation to expenses payable by the client, such as advertising and property maintenance.
These benefits from third parties have usually been received without the knowledge of the client, who is required to pay the full cost of the service. These ‘commissions’ provide the real estate agent with a financial advantage over and above their agreed fee.
To ensure there is full disclosure to consumers, section 57 of the Act requires that licensees set out in agency agreements the source and estimated amount of all rebates, discounts or commissions that they will receive from third parties in connection with any expenses payable by the client under the agreement. The client’s consent will need to be obtained where the agent wishes to retain entitlement to these benefits.
If the agent fails to make the required disclosures, they lose their entitlement to be reimbursed by the client for any expenses incurred under the agreement.
Where agents give general financial advice as an incidental part of selling land, they will be required to give the following information and warnings:
To support the Act’s approach to competency and professionalism, a comprehensive set of Conduct requirements has been introduced to provide agents with a guide to the professional and ethical standards expected by the public.
The Rules which support the Act’s disclosure requirements are set out below.
Any agent who refers a principal or prospect to a service provider must not falsely represent that the service provider is independent of the agent. If the agent will receive a financial benefit for the referral or if they have a personal or commercial relationship with the service provider, then the nature of the relationship and the amount of benefit must be disclosed.
An agent acting for a seller is required to inform their client in writing of all offers of purchase made up until exchange of contracts has taken place. The exception to this requirement is where the client has given alternative written instructions – for example, the seller may instruct the agent not to forward offers under a specified amount.
This Rule supports the requirement to disclose a beneficial interest, by preventing an agent from holding back genuine offers from buyers in preference to a lower offer from a relative or business associate of the agent.
Often when a prospective buyer submits a purchase offer to an agent, the agent will ask for a partial deposit to reinforce the offer. The agent is required by the Rules of conduct to: