05 Oct Agency Agreement – John Cunningham
A high-profile industry figure has called for an end to undocumented selling activity, which many agents believe is rife in their local market. John Cunningham, from Cunninghams Real Estate, says not having an agency agreement not only jeopardises potential commission for the agent, but puts vendors and agencies at risk since they’re unwittingly part of the issue. He is our guest today.
Kevin: I want to bring you a story now that’s prompted by some comments made by a very high-profile industry figure, John Cunningham, who is actually the managing director of Cunninghams Real Estate and also the Real Estate Institute of New South Wales deputy president.
John, welcome to the show, and thanks for your time.
John: Thanks, Kevin.
Kevin: The comment that I’m referring was breaching of the act, which is fairly common I understand in a tight market, and that’s really an undocumented selling activity. What’s your concern around this, and what’s actually happening, John?
John: What’s happening in a tight market, Kevin, is that agents tend to try to find ways around the legislation to get buyers into properties that aren’t on the market yet. In doing so, they’re creating an environment, I suppose, where you really have to know whether the best outcome is achieved, but at the same time they’re breaching laws that then can lead to fines and can lead to poor consumer outcomes, as well. I think it’s just a tip of the iceberg in many respects.
Kevin: Can agents actually get away with selling a property and achieving a commission when they don’t have a clear agency to sell?
John: In different states, that does vary. In New South Wales, for example, they must have an agency agreement to be entitled to commission and they must also have a contract to sale of land in place. It’s illegal to actually offer a property for sale without that. That does vary from state to state and from type of property, such as rural properties and so on. However, what it does do is it does leave the door open for it to be abused further, and I think the more people who get away with it, the more it’s going to happen.
Kevin: I believe, too, from a contact that we’ve had that Consumer Affairs in Victoria say that agents can legally show a property with the owner’s consent. That’s showing a property, but what about when you get to the point of contract? At that point, does there need to be a document between the seller and the agent in any state?
John: Yes, most definitely, in every state that requires a document to entitle the agent to commission. If they don’t have that, they’re not entitled to commission. They can’t charge commission and nor would a court uphold any claim for commission. The variation in the states is, in Victoria, you don’t need a contract for sale of land to offer property for sale, so any seller can show the property, but the agent is risking a fee if they don’t have the right documentation.
Kevin: Yes, we have seen in the past in really strong markets like we have now, where agents attempted to take on client listings, these are listings that aren’t necessarily going to be publicized so that they can get their buyers through it. This is the sort of activity you’re talking about, John?
John: Very much so, yes. In New South Wales it’s just problematic because of that legislation, so what people are doing is they’re bypassing the legislation. They might have an agency sign, for example, but they don’t have the right documentation in place to legally show that property. In that instance, the breach of the act is creating an un-level playing field in the marketplace. Buyers aren’t going to object and sellers aren’t going to object, so long as they get the outcome that they desire, but from an industry point of view, it’s a problem and it’s quite common.
Kevin: For buyers and sellers, it’s actually quite a desirable situation. For a seller, they’ll say, “We don’t have to do any marketing,” and for a buyer, “We’re going to get ahead of the market and maybe secure something before it hits the market.”
Kevin: What are the dangers here for buyers and sellers by engaging in this type of activity with an agent?
John: Primarily from a buyer’s point of view, you’re not necessarily dealing with a genuine seller. It’s one of those speculative “If I get the price, I’ll sell it.” They could be looking at properties and getting quite excited about properties that are completely unrealistically priced and a very low-motivated seller.
In that respect, it can be quite misleading, and in many cases, these things never come off because the seller’s expectations are way too high and they haven’t got the motivation to actually put the legal documentation in place, which does cost them money to do through lawyers or conveyancers. That in itself from the buyer’s point of view can be very misleading and deceptive.
Kevin: And, John, from a seller’s point of view?
John: From a seller’s point of view, I suppose they’re actually engaging in an activity that does breach the act and the agent can be up for fines. There are potentially fines for sellers, as well, but there’s never been enacted, primarily because it is a breach of the Property, Stock, and Business Agents Act. An agent can face some quite hefty fines in the event that they do go down that path.
From the seller’s perspective, they probably have very little to lose in doing it. They’re just dealing with an agent who’s obviously bending the laws, and you’re going to have to wonder what else they’re going to bend along the way.
Kevin: I do wonder, though, that any seller who would do that is probably not just going to do it with one agent. They may do it with several, and even though there’s no documentation between them, that could then lead to a dispute over commission, which can become very messy.
John: Completely, Kevin. That’s another byproduct of it, that you end up in a very messy situation – multiple buyers with different agents viewing the property. Then they might make a decision to appoint a single agent, but you have this raft of people behind who’ve seen it who are all going to be potentially up for a double claim of commission.
It’s messy, and I think it’s unprofessional. I think that’s probably more the point. As an industry, we’re trying to become more professional, and these sorts of activities just bring us down to the lowest common denominator, and the consumer suffers from that in the end.
We have to uphold higher standards in our industry to be treated seriously. I think the majority of agents do, but those that don’t, little things like this that they get away with, I think it’s the tip of the iceberg. If we’re going to be wanting to actually provide better consumer and customer experiences, we have to lift our game.
Kevin: Always good talking to you, John Cunningham. Thank you so much for your time, John.
John: A pleasure, Kevin. Thank you.