Commission Rage - Real Estate Rabies!

by Peter Mericka B.A., LL.B Real Estate Lawyer and Qualified Practising Conveyancer Victoria Lawyers Real Estate

Rabies is a terrible affliction. It can can quickly turn a friendly family pet into a vicious biting beast. Commission rage can have a similar affect on estate agents, changing them from ordinary salespeople into cruel and manipulative bullies.

Like rabies, commission rage cannot be treated. However, early detection means that a consumer can take precautions against its damaging effects.

What makes commission rage particularly dangerous is the fact that it is not immediately apparent. A seemingly kind and friendly estate agent may be in the grip of advanced commission rage, without showing any symptoms - that is, until the vendor or purchaser attempts to take control, or becomes reluctant to proceed with the sale. It is at this point the lip curls, and the snarling starts.

In this article we will examine the causes of commission rage, its signs and symptoms, and methods for minimising its impact.

Commission Rage - Initial Infection

The bite of the Exclusive Sale Authority

Initial infection occurs at the listing stage, as soon as the vendor has signed the estate agent's Exclusive Sale Authority. This document sets the period of time for which the estate agent has exclusive control over the listing.

The fever

Time feeds the commission-rage fever. As time runs out on the listing the fever increases, and the estate agent becomes increasingly agitated and desperate.

If a sale takes place well before the listing expires, the fever eases.

However, if a sale fails to eventuate before the listing expires, the fever rapidly develops into full-blown commission rage.

Commission Rage - Contributing Factors

Conflict of Interests

Commission rage is directly linked to conflicting of interests and the lack of resolve on the part of regulators in the real estate industry.

With the reputation for having the most corrupt real estate industry in Australia, it is not surprising that the most outrageous examples of commission rage originate from Victoria.

Real estate agents in Victoria regularly do business in circumstances of conflicting of interests, often aided and abetted by the lawyers and conveyancers whose role it is to protect consumers.

For example, it has never been the role of the estate agent to prepare the purchaser's offer. And yet, few conveyancers and lawyers prepare contracts for their vendor clients. Even where a contract is properly prepared for a sale, contract switching often takes place.

The usual scenario in a real estate sale is that the conveyancer or lawyer will prepare no more than the Section 32 Vendor's Statement and deliver this to the estate agent. It is expected by the conveyancer or lawyer that the estate agent will act for the vendor in delivering the contract to the purchaser, act for the purchaser by completing the purchaser's offer, and then act for the vendor again by advising the vendor on the offer. The conveyancer or lawyer then receives the completed deal from the estate, free of any responsibility for the legal well-being of either party.

If the contract is defective the estate agent refers the complaining party to his or her lawyer. If the estate agent is blamed for the problem, the estate agent tells the complaining party, "You should have consulted your lawyer."

Very few complaints ever result in the estate agent, the conveyancer or the lawyer being sued. All of these so-called professionals protect each other by perpetuating a system that promotes conflicting interests.

The payment by lawyers and conveyancers for "referrals" from estate agents exacerbates the problem. These often take the form of corrupt and highly illegal secret commissions. This process of corrupt payments, in turn, keeps conveyancers and lawyers compliant with the demands of estate agents, and no-one rocks the boat.

Rotten Regulators

Those whose role it is to regulate and control the industry have been profoundly negligent in their duties, not only to consumers, but also to the estate agents themselves. The fact that estate agents are paid a pittance in wages and are forced to rely on the huge commissions extracted from consumers contributes to the pressure on estate agents to effect a sale at all costs.

Consumer Affairs Victoria has demonstrated that it is unwilling to intervene, incapable of acting proactively, and determined to maintain the status quo. This is evidenced by some of the material printed by Consumer Affairs Victoria, which ushers consumers towards estate agents and away from those who will offer alternatives sale method is to those provided by estate agents.

Criminal deception in the real estate industry has long been ignored, and long-standing criminal provisions have been watered down by the introduction of lesser offences and lower penalties behaviours which, if permitted other than by estate agents, would see the perpetrators appearing in a criminal court on charges under the Crimes Act.

The best deterrent to criminal behaviour is the knowledge that the behaviour will be quickly detected and promptly dealt with. The failure of the regulators to act in cases of clear criminal conduct confirms to the industry that its boundaries of very flexible.

Cash-flow problems - Commission factoring

Estate agents with cash-flow problems may succumb to the temptation to borrow against commissions they cannot yet claim. See our previous postings on Commission Factoring.

Commission Rage - Common Symptoms

Taking control of the contract

In order to secure a commission, the estate agent needs to have the vendor and purchaser locked into a contract. In order to ensure that the parties are locked in and cannot escape, the estate agent will usually seize control of the sale contract. This is achieved by having a "pet" lawyer or conveyancer prepare only a Section 32 vendor statement without a contract (so as to allow the estate agent to prepared a Contract Note) or by contract "contract switching".

Estate agents often become quite snarly if a purchaser indicates and intention to obtain legal advice before signing an offer. Similarly, the estate agent will have the vendor accept a purchaser's offer without having the offer checked by the vendor's lawyer, just in case the vendor's lawyer should point out that the contract is not really in the vendor's interests (this is another situation where contract switching becomes a problem.

- advising the purchaser

- advising the vendor

- controlling the deposit

- hounding the parties for deposit release

- intervening to save a sale

- conditioning the vendor

- telling lies

- under quoting

- over quoting

- interpreting the law

- directing the parties' legal representatives

Commission Rage - Countermeasures

Engage an estate agent handler - an independent lawyer

Keep the estate agent away from the contract

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