You often hear about buyers being gazumped or struggling to get the right information from the real estate agent to even be able to submit an offer.
And how about the sellers who don’t even trust their own real estate agent enough to take their advice?
These stories, and the many other grey areas surrounding real estate agents and their work, do not lead to the best results for buyers or sellers.
But would you feel more comfortable, as a seller or buyer, to hear that there is actually a legal framework that agents are bound to work within?
In this article, I want to dispel the myths and common problems that buyers and sellers have with real estate agents.
Because by understanding how real estate agents work, and their obligations to you, you can be armed with the best knowledge to help your property transaction go through as smoothly as possible.
Some people think that real estate agents can get away with almost anything.
But this is far from the truth.
What many people don’t realise is that the real estate industry is actually heavily regulated.
Real estate agents are constantly audited by the Australian Taxation Office (ATO), covertly spied on by Fair Trading at auctions, taken to Consumer, Trader and Tenancy Tribunal (CTTT) tribunals by tenants/landlords, and disciplined by the Real Estate Institute (REI), fined by Australian Securities and Investments Commission (ASIC) about advertising, and not to mention being sued!
As you can imagine this is a hazardous industry for a business owner with so many governing bodies keeping it in line.
Because of this and Australia's love for property, real estate agents are a target for governing bodies and journalists, as it seems that everybody wants to catch a real estate agent doing the wrong thing.
The truth is governing bodies love to make examples of real estate agents as it gets them a lot of publicity; it shows the public that they're doing their job.
And, despite the fact that most agents act in their client's best interest, unfortunately, there are some dodgy real estate agents out there, taking advantage of sellers.
Knowing the law can help you find a reputable agent who works in your best interest.
So let’s start with a common question I’m asked.
Real estate agents are obliged to present all offers to a seller before the contract of sale has been finalised.
Exceptions occur when, for example, the seller instructs their agent not to submit offers under a certain dollar figure.
Agents also have a statutory obligation to attempt to get the highest possible price for their client, who is the seller.
First and foremost, agents are obliged to be open and honest with buyers too.
That means as Fair Trading explains, if the information is known to the agent, they must not conceal or suppress information about a property if there is a reasonable expectation that the information will be of concern and is not readily apparent to a buyer or seller.
Agents have a duty to disclose information about council approvals, disputes, body corporate matters and the history of the property (including murders or suicides) - this includes keeping silent about anything which may affect a buyer's willingness to buy.
It’s a good question, and one with an interesting answer.
Unlike many professions, there aren’t many restrictions on real estate agents choosing to sell their own property, but they do have a duty to disclose that they own the property.
There is a misconception that if an agent sells their own property they will make a higher profit than if they were to sell another vendor's house.
That isn’t necessarily true, and if that were to be the case it would only be because they know how to make the right decisions for the market.
For example, a real estate agent would be unlikely to overvalue their property, and they know that if the property doesn’t get interest straight away then the price needs to be lowered, and quickly.
A vendor under the advice of a real estate agent might take a little longer to come to the same conclusion and therefore miss out on potential interest and possible sale.
Most agents just want to do their job to the best of their ability without being sued, fined or disciplined.
This is the underlying tone of the industry, but nobody really discusses it.
With every new tightening rule, law and regulation come more paperwork and administration.
Agents then find themselves using emails, text messages and databasing of diary notes just to cover their rear ends.
This comes as a double-edged sword for buyers and sellers as they want everything done cheaper, faster and better.
Sometimes this is impossible because buyers, sellers, and lawyers like to target real estate agents and inadvertently add to the red tape/cost of running an agency.
This has forced real estate agents to hold their ground on their fees or risk taking shortcuts.
For example, agents may say they have a property for sale, but in actual fact, they don’t yet have a signed authority.
It’s illegal for an agent to advertise a property for which they do not have any authority to act on behalf of the owner.
Gazumping is when you have a verbal agreement with a real estate agent or seller to purchase a property at an agreed price but then the property is sold to someone else, usually for a higher price.
Gazumping is a very real problem, but it's usually the lack of buyers’ understanding of the law and how contract signing works that gets them in trouble.
The buyers, in turn, blame the agent.
This is where agents’ databasing of diary notes and emails comes in handy.
Agents typically, especially in a hot market, have to repeat themselves several times to ensure that the buyer puts forward their best and final offer so they don't feel like we have done the wrong thing to them.
Yet some people who miss out on a property still complain that they would've been offered a higher purchase price if given an opportunity.
Of course, it’s easy for a buyer to say this when things have cooled off and they’re annoyed they have missed out.
The key to understanding this is not to crack open the champagne until the owner has signed the contract and it is dated.
Because without a signature and date the contract is invalid.
Signing a deposit cheque with your 10% does not mean you have purchased a property.
There are some sales strategies out there in which the agents get three signed contracts and then show the vendors from lowest to highest to get the vendors to agree to a price.
Across the country, if an offer is made on a property prior to the auction, both the buyer and seller can agree on the purchase.
However, until both parties exchange signed contracts of sale, the seller retains their right to accept higher offers.
As I mentioned above, real estate agents are also generally obliged to pass on any new offers to a seller before the contract of sale has been finalised.
There’s a fine line between being ‘gazumped’ and simply having some competition when you put in an offer.
This is why gazumping is legal in Australia.
As a buyer, the best way to avoid being gazumped and get your contract signed is to make your offer the most attractive one — this may not just be money but other things such as settlement terms, rent back options, etc.
To avoid missing out on an opportunity to raise your offer, I recommend staying in constant contact with the agent.
You have already indicated your interest, so it doesn't hurt your negotiation to keep calling them.
In fact, it can work in your favour if the agent slips up and unintentionally gives you more information.
If you are advised that other offers have been made, ask to have this in writing, Fair Trading NSW suggest.
While an agent is not obligated to provide this information in writing most agents will do so.
It is difficult not knowing where you stand when it comes to your offer.
A good way to combat this is to ‘call their bluff’ to make sure they haven’t created a Dutch auction - where agents personally negotiate the sale but continually disclose competing offers to each of the interested parties in an attempt to force buyers to leapfrog the competing bids - which is illegal.
Just ask outright.
Once again, asking if the other offer is in the form of a signed contract of sale can indicate whether any genuine bid has in fact been put forward.
If the answer is “no”, then you’re competing with a verbal proposal at best, or a downright fabrication at worst.
Don’t be backed into a corner.
Agents may get offended or annoyed but it’s a valid question that you can ask them during the negotiation to keep them in line.
And remember, if you are certain that you want the particular property, be ready to increase your purchase offer to the vendor.
Be aware that the vendor is generally not compelled to sell to any specific person and can change their mind at any time prior to the exchange of contracts.
Vendors may not necessarily sell to the person that makes the highest offer but may accept a lower offer from a prospective purchaser.
It depends on the type of market.
While it is typically not that common, it has been around since people have been buying and selling houses.
Gazumping is more common, however, is a hot property market where prices are moving upwards due to strong demand and the opposite is true in a falling market (gazumping would be less common without the strong demand to back it up).
When selling a property it obviously helps to get on well with your real estate agent, because distrust can cost you thousands of dollars.
When a seller signs an agency agreement with a licensed real estate agent they are in a legal binding contract to work in your best interest to get you the best price for your property.
Agents have a fiduciary requirement to work in your best interest.
It is illegal for them to work against you.
This is in the back of the mind of every selling agent.
They are in the middle doing their best to maintain their relationship with the buyer but also trying to achieve the highest possible price for your property.
Agents have their agency agreements audited all the time to see if there are any discrepancies that show collusion with buyers, nondisclosure, secret commissions, or getting the value of your property wrong.
They can be caught out very easily.
This is why you don’t really need to like your agent, but you do need to trust them because they have no choice but to work in your best interest.
Here’s a good example of how sellers can lose $10,000-$20,000 on a selling price by not trusting their selling agent.
The seller has an emotional attachment to their property and thinks it’s the best around - this makes sellers think their property is worth more than the market price.
Sellers then put their properties on the market at high prices which in turn kills enquiry and interest levels during the most important time of advertising - the first week or two.
You will almost always get a peak of interest in the first week.
The fact is, more interested potential buyers drive prices up, while an advertised but overpriced property drives inquiries down.
Remember… the advertised price is not your asking price, it is just advertising (backed up by comparable sales of course).
Your selling price is completely different.
Many sellers do not believe agents when they explain this and that is understandable when they are driven and blinkered by emotion.
The trick? See it from a buyer’s perspective before looking at it from a seller’s perspective.
This concept can help you achieve above market price for your property, as agents are in the market every day.
Remember the sale is not based on the advertised price but on what others are prepared to pay when competing against one another, this is normally called a “market price”.
I challenge you to look up the rules, laws, and regulations agents have to work within.
This will help you have more confidence in your property transaction and dealing with agents and in turn, will help your property sale, or purchase, go much more smoothly.