Expert: Being paid ‘on both sides’ not to be outlawed, but it's complicated
tax-and-legal-advice
1 minute read

Expert: Being paid ‘on both sides’ not to be outlawed, but it's complicated

Expert: Being paid ‘on both sides’ not to be outlawed, but it's complicated

by Tim Neary | June 26, 2018 | 1 minute read

Property commentator and valuer, Suburbanite’s Anna Porter, said that the practice of being paid “on both sides of the fence” is due to be outlawed under new legislation, but one solicitor has responded saying that while the legislation has indeed been amended, it has yet to take effect, and the practice of receiving compliant, disclosed referral commissions is not about to be outlawed.

Paid, money, hands, being paid
June 26, 2018

Craig Swan, a specialist solicitor practicing in the area of Agency and Property, said earning a commission from both sides — the vendor as well as the purchaser — on the same transaction, is and always has always been, illegal.

Mr Swan said that nothing in the new legislation, the Property and Stock Act 2002, is going to change what is already a breach of the act.

“Importantly, most intermediaries know, understand and respect the law in this regard, but, as is often the case, there’s always a few bad apples that have brought this aspect of real estate referral sales into disrepute,” Mr Swan told SPI.

“What is far more worthy of attention by the regulator is the incidence of those referral intermediaries, typically mortgage brokers, financial planners and accountants, who remain unlicensed but continue to receive a share of the commission from introducing their client base to those acting as the sales agents for the sellers of property.”

Mr Swan said that acting in the capacity of an agent without holding a licence, is a “fundamental” breach of the act.

He also said that “whether palatable or not”, referring buyers to a vendor or vendor’s agent is clearly one of the defined activities of an agent.

“Understandably, this does not sit well with the emergence of a thriving referral sales industry, where the promoter actively recruits referral intermediates, such as mortgage brokers, financial planners and accountants, without making it clear that in order to be compliant, the referral intermediary needs to hold a licence.

“Failure of which has implications for both the party receiving the payment, as well as the party making the payment. This said, there are, as you’d expect some enlightened and informed operators, that have always understood and valued the need to be compliant, and many have joined their ranks over the recent past. But, there are as many that remain either willfully ignorant and/or actively non-compliant.”

Levels of compliance

Mr Swan said that holding a licence is the first level of compliance, but that there is also a second level.

“Beyond simply holding a license, when receiving payment for introducing a client that results in a successful sale, there is a second level of compliance that the referral intermediary needs to comprehend and satisfy.

“Let’s take for example a mortgage broker, who holds a real estate agent’s license, and receives commission from a vendor. In other words, a situation which is common place and compliant.

“Provided that this commission is disclosed to the broker’s client, and the broker does not also receive a fee or commission from the client, then the broker has clearly identified the potential conflict of interest and has managed it — which is what the law requires.”

Mr Swan said that, by the mortgage broker disclosing the commission to their client, they have clarified that they do not act in a fiduciary capacity in regard to the sale of the property.

He said they are then satisfying their compliance obligations — and have then addressed the second level of compliance.

Changed conditions ahead

Consequently, Mr Swan said that July 1 2018 does not herald a new era in regard to those receiving commission from real estate sales.

“Being required to hold a licence has been the law for decades already,” he said.

“Managing client risk, as between offering mortgage broking services, property sales and/or financial planning services, to the same client, is also nothing new. Nor is the requirement for holding the relevant licence or authority, if you’re active and being remunerated in a particular regulated market sector.”

Instead, he said that the referral sales industry should be aware that when the new Property and Stock Act takes effect later this year the requirements necessary to apply for a licence will change significantly.

“The pathway to obtaining a real estate licence is going to become far more costly, will take much more time and most critically, will require 12 or 24 months practical experience.”

Mr Swan said that as a result of the changes, the value of holding a real estate licence, as well as the other licenses being retained in the new act, “will increase by multiples”.

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