How this investor bought 15 properties in 10 years and why he doesn’t recommend you copy him
Rasti Vaibhav has built a portfolio of 15 properties over the last 10 years, but he’s cautious about recommending oth...
The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.
Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.
She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.
“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.
“Until now this has been a grey area and there was nothing stopping this practice.”
Ms Porter said this has been a common practice in the industry.
"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”
She also said this process has been going on for decades.
"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.
Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.
"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said.
“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”
Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.