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Round-up on issues for estate agents: commissions, underquoting and proposals for reform

The Estate Agents Act 1980 (Vic) (Estate Agents Act) regulates the conduct of real estate agents in Victoria, and has recently received a lot of attention in both the courts and from Consumer Affairs Victoria (CAV).

This article provides an update on three issues in particular:

  • Disclosure regarding commissions – in the recent case of Cross Country Realty Pty Ltd v Ubertas 350 William Street Pty Ltd, the County Court ordered estate agents to repay $3 million in commissions already received from a developer.
  • CAV investigations of underquoting – the CAV conducted more than 200 surprise inspections in late 2015. We discuss its investigation, and explain what is required by the law.
  • Proposed reforms to price disclosure obligations, announced for implementation in late 2016.

Disclosure regarding commissions

Section 49A of the Estate Agents Act sets out certain information which an estate agent must disclose regarding its commission when selling property, and creates an offence for the estate agent to obtain, or seek to obtain, payment where that disclosure has not been made.

Among other things, estate agents are required to hold a written, signed engagement, which discloses the details of any agreed commission or outgoings, and includes an approved rebate statement and approved statement in respect of the handling of complaints.

A failure to comply with s 49A can have serious consequences, as was recently demonstrated in the case of Cross Country Realty Pty Ltd v Ubertas 350 William Street Pty Ltd [2015] VCC 1012.

In that case, Judge Lacava, in the County Court of Victoria, ordered that two estate agencies, Cross Country Realty and Park Trent Properties Group, repay around $3 million in commissions already received from a developer, Ubertas 350 William Street, after failing to comply with their disclosure requirements under s 49A.

Facts

Ironically, the agents first commenced the proceeding against the developer, seeking payment of outstanding commissions for introducing purchasers in an off-the-plan development.  The developer issued a counterclaim, alleging that the agents had failed to comply with their disclosure obligations under s 49A, and accordingly they were not entitled to sue for commission or retain any commission previously paid.

The breaches of the Estate Agents Act were admitted in the agents’ pleadings.  On an application from the developer, Judge Lacava summarily dismissed the agents’ claim, and upheld the developer’s counterclaim, ruling that the agents had no reasonable prospects of success based on the authorities and the provisions of the Estate Agents Act.

In dismissing the agents’ claim, Judge Lacava referred to the decision in Oliver Hume v Land Source Australia Pty Ltd [2015] VSC 77, an interlocutory hearing before Justice Cameron in the Supreme Court, where Her Honour noted that the Estate Agents Act is intended to have ‘a strict operation’ and that a failure to comply with the terms of the Estate Agents Act may result in ‘harsh consequences’.

Key lesson – awareness of disclosure obligations

This case is a reminder that estate agents need to be aware of their obligations under the Estate Agents Act and ensure that their sales authority and disclosure are compliant.  If not, they may be prohibited from recovering commissions or ordered to reimburse commissions already received.

Similarly, while bad news for estate agents, developers should be aware of their rights in those circumstances, which may be exercised in the event of a dispute.

CAV investigations of underquoting

In 2015, CAV conducted more than 200 surprise inspections of real estate agencies in Victoria. A major focus of these investigations was the practice of underquoting.

The CAV has defined underquoting as when an agent misleads a potential buyer about the likely selling price of a property for sale, including by advertising a property at a price that is less than:

  • the seller’s asking price or auction reserve price
  • the agent’s estimate of the selling price
  • a genuine offer or expression of interest.

The Estate Agents Act offers protection to both sellers and buyers:

  • For purchasers, s 47C of the Estate Agents Act provides that an estate agent or representative must not, in making any statement while marketing the real estate, state as their estimate a price that is less than the estimated selling price disclosed in their written authority.
  • For vendors, s 47B of the Estate Agents Act provides that an estate agent must not make a false representation to the seller of real estate as to the agent’s estimate of the selling price.

CAV has wide ranging powers to inspect an estate agent’s files to determine whether an instance of underquoting (or any other breach of the Estate Agents Act) has occurred.  For example, CAV may require an estate agent to provide evidence of the reasonableness of an estimated selling price.

CAV has announced that, following their initial inspections, six estate agents in Victoria are being investigated further for suspected underquoting.

Accordingly, estate agents should take particular care when:

  • estimating the selling price of a property, for the purposes of their written authority
  • making representations about the potential selling price of the property to both sellers and buyers.

Similarly, buyers and sellers should be alive to those issues and aware of their rights.

Proposal for reform

On 4 March 2016, the Victorian Minister for Consumer Affairs announced plans to reform the price disclosure obligations under the Estate Agents Act.

The proposed reforms would require an agent to provide prospective buyers with an information sheet with the details of:

  • three recent comparable sales
  • the agent’s estimated selling price
  • the median sale price for that suburb.

The following changes are also proposed:

  • the prohibition of phrases in the advertised price, such as ‘starting from’, ‘over’ and ‘+’
  • restriction of advertised price ranges to within a 10% range
  • advertising to remain accurate throughout the sales campaign, and to be revised if a seller rejects an offer that is above the advertised price.

Details at this stage are relatively short, and there are a number of issues that will require some consideration – for example, identifying comparable sales in the context of a large scale new residential estate.  The Government has announced its intention to introduce the legislation into Parliament mid-year, for implementation in late 2016.

If you require assistance

Our lawyers are highly skilled in development transactions, commercial disputes and compliance with regulatory obligations.

If you require any assistance, please contact a member of our Maddocks Property & Development or Dispute Resolution & Litigation teams.

Authors
 GINA WILSON 2cm 300ppi B&W jpg 2011 Gina Wilson | Partner
Tel+61 3 9258 3005
gina.wilson@maddocks.com.au
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham| Special Counsel
Tel+61 3 9258 3652
E matthew.peckham@maddocks.com.au
SUZANNE TINKLER 5CM B&W JPG 2014 Suzanne Tinkler | Special Counsel
Tel+61 3 9258 3652
E suzanne.tinkler@maddocks.com.au
BRENDAN DUKE 5CM B&W JPG 2013 Brendan Duke | Lawyer
Tel+61 3 9258 3391
brendan.duke@maddocks.com.au

The Estate Agents Act 1980 (Vic) (Estate Agents Act) regulates the conduct of real estate agents in Victoria, and has recently received a lot of attention in both the courts and from Consumer Affairs Victoria (CAV).

This article provides an update on three issues in particular:

  • Disclosure regarding commissions – in the recent case of Cross Country Realty Pty Ltd v Ubertas 350 William Street Pty Ltd, the County Court ordered estate agents to repay $3 million in commissions already received from a developer.
  • CAV investigations of underquoting – the CAV conducted more than 200 surprise inspections in late 2015. We discuss its investigation, and explain what is required by the law.
  • Proposed reforms to price disclosure obligations, announced for implementation in late 2016.

Disclosure regarding commissions

Section 49A of the Estate Agents Act sets out certain information which an estate agent must disclose regarding its commission when selling property, and creates an offence for the estate agent to obtain, or seek to obtain, payment where that disclosure has not been made.

Among other things, estate agents are required to hold a written, signed engagement, which discloses the details of any agreed commission or outgoings, and includes an approved rebate statement and approved statement in respect of the handling of complaints.

A failure to comply with s 49A can have serious consequences, as was recently demonstrated in the case of Cross Country Realty Pty Ltd v Ubertas 350 William Street Pty Ltd [2015] VCC 1012.

In that case, Judge Lacava, in the County Court of Victoria, ordered that two estate agencies, Cross Country Realty and Park Trent Properties Group, repay around $3 million in commissions already received from a developer, Ubertas 350 William Street, after failing to comply with their disclosure requirements under s 49A.

Facts

Ironically, the agents first commenced the proceeding against the developer, seeking payment of outstanding commissions for introducing purchasers in an off-the-plan development.  The developer issued a counterclaim, alleging that the agents had failed to comply with their disclosure obligations under s 49A, and accordingly they were not entitled to sue for commission or retain any commission previously paid.

The breaches of the Estate Agents Act were admitted in the agents’ pleadings.  On an application from the developer, Judge Lacava summarily dismissed the agents’ claim, and upheld the developer’s counterclaim, ruling that the agents had no reasonable prospects of success based on the authorities and the provisions of the Estate Agents Act.

In dismissing the agents’ claim, Judge Lacava referred to the decision in Oliver Hume v Land Source Australia Pty Ltd [2015] VSC 77, an interlocutory hearing before Justice Cameron in the Supreme Court, where Her Honour noted that the Estate Agents Act is intended to have ‘a strict operation’ and that a failure to comply with the terms of the Estate Agents Act may result in ‘harsh consequences’.

Key lesson – awareness of disclosure obligations

This case is a reminder that estate agents need to be aware of their obligations under the Estate Agents Act and ensure that their sales authority and disclosure are compliant.  If not, they may be prohibited from recovering commissions or ordered to reimburse commissions already received.

Similarly, while bad news for estate agents, developers should be aware of their rights in those circumstances, which may be exercised in the event of a dispute.

CAV investigations of underquoting

In 2015, CAV conducted more than 200 surprise inspections of real estate agencies in Victoria. A major focus of these investigations was the practice of underquoting.

The CAV has defined underquoting as when an agent misleads a potential buyer about the likely selling price of a property for sale, including by advertising a property at a price that is less than:

  • the seller’s asking price or auction reserve price
  • the agent’s estimate of the selling price
  • a genuine offer or expression of interest.

The Estate Agents Act offers protection to both sellers and buyers:

  • For purchasers, s 47C of the Estate Agents Act provides that an estate agent or representative must not, in making any statement while marketing the real estate, state as their estimate a price that is less than the estimated selling price disclosed in their written authority.
  • For vendors, s 47B of the Estate Agents Act provides that an estate agent must not make a false representation to the seller of real estate as to the agent’s estimate of the selling price.

CAV has wide ranging powers to inspect an estate agent’s files to determine whether an instance of underquoting (or any other breach of the Estate Agents Act) has occurred.  For example, CAV may require an estate agent to provide evidence of the reasonableness of an estimated selling price.

CAV has announced that, following their initial inspections, six estate agents in Victoria are being investigated further for suspected underquoting.

Accordingly, estate agents should take particular care when:

  • estimating the selling price of a property, for the purposes of their written authority
  • making representations about the potential selling price of the property to both sellers and buyers.

Similarly, buyers and sellers should be alive to those issues and aware of their rights.

Proposal for reform

On 4 March 2016, the Victorian Minister for Consumer Affairs announced plans to reform the price disclosure obligations under the Estate Agents Act.

The proposed reforms would require an agent to provide prospective buyers with an information sheet with the details of:

  • three recent comparable sales
  • the agent’s estimated selling price
  • the median sale price for that suburb.

The following changes are also proposed:

  • the prohibition of phrases in the advertised price, such as ‘starting from’, ‘over’ and ‘+’
  • restriction of advertised price ranges to within a 10% range
  • advertising to remain accurate throughout the sales campaign, and to be revised if a seller rejects an offer that is above the advertised price.

Details at this stage are relatively short, and there are a number of issues that will require some consideration – for example, identifying comparable sales in the context of a large scale new residential estate.  The Government has announced its intention to introduce the legislation into Parliament mid-year, for implementation in late 2016.

If you require assistance

Our lawyers are highly skilled in development transactions, commercial disputes and compliance with regulatory obligations.

If you require any assistance, please contact a member of our Maddocks Property & Development or Dispute Resolution & Litigation teams.

Authors
 GINA WILSON 2cm 300ppi B&W jpg 2011 Gina Wilson | Partner
Tel+61 3 9258 3005
gina.wilson@maddocks.com.au
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham| Special Counsel
Tel+61 3 9258 3652
E matthew.peckham@maddocks.com.au
SUZANNE TINKLER 5CM B&W JPG 2014 Suzanne Tinkler | Special Counsel
Tel+61 3 9258 3652
E suzanne.tinkler@maddocks.com.au
BRENDAN DUKE 5CM B&W JPG 2013 Brendan Duke | Lawyer
Tel+61 3 9258 3391
brendan.duke@maddocks.com.au