Much has been written about raising the standards in the real estate sector. The focus is always on sales and that we need such standards to protect the consumer’s most expensive asset. Very little has been spoken about the ethical arrangements between real estate agents.

Let’s take the elephant out of the room (so to speak) regarding consumers! The consumers we deal with are usually the most unethical of any business sector. The environment for unethical behaviour is not typically caused by industry participants, it’s created by the behaviour of the client.

I was reminded of this when talking to an accountant recently. He reminded me that solicitors and accountants are sufficiently grown up enough to know that clients can often be your first enemy. Both solicitors and accountants are aware that clients will use your services, refuse to pay and have another solicitor/accountant commence the work. The consumer will tell the “new” professional how bad the solicitor or accountant is and the incoming solicitor or accountant may or may not believe the story they are told. It is simply a way of cutting the bill, by moving from one professional to another.

It’s convention within the legal fraternity that solicitors can hold a lien over all their files until a bill is paid. In other words, the new solicitor can’t obtain any of the records or court documents without first paying the “exiting” solicitor, an agreed fee.

In the accounting world, they have an ethical clearance. That is, an accountant will seek from the former accountant, an ethical clearance, and any outstanding fees will be discussed and sorted out between them. The accountant taking over the file is duty bound to advise their client of what is the reasonable sum to pay. This ensures that businesses can’t “forum shop” by moving from accountant to accountant, without paying any fees.

Enter the real estate agent! Real estate agents live in an industry whereby they earn nothing unless they sell the property. It is a pure success-based endeavour, with no fee for service unless the sale is completed. Often, the first agent will do an enormous amounts of work in relation to marketing the property and most importantly, conditioning the vendor to the market. The second agent comes in, often uses the database from the other agent and then sells the property. The second agent in gets all the spoils.

This is an outstanding outcome for the agent who doesn’t win initial listing presentations. The person who puts in the efforts on the presentations and the education of the vendor, gets nothing, whilst the second person in takes advantage of that process. That’s not to say the second person in hasn’t also put in work to obtain the sale of property.

What has happened to the Real Estate Institute to allow this “dog eat dog” mentality to pervade the real estate industry? Fair Trading have woken up to it in property management, whereby the code of practice acts in a manner to ensure a proper transition of files from one agent to another. However, no one has thought about the transition from sales agent to sales agent; the protection of an agent’s intellectual property, and the people earning a fee for the work they have done.

Why doesn’t the Real Estate Institute or the Office of Fair Trading establish an ethical system whereby the second agent is required to obtain an ethical clearance? In receiving that clearance, the two agents must meet an arrangement on:
• The transfer of data from open houses to the second agent; and
• An agreement on the splitting of fees.

Where there is in dispute, a simple arbitrator could be appointed to make a decision on the division of fees. The Real Estate Institute wants to be an industry self-regulator. Well then, let’s do some self-regulation! Put in place an ethical system for the transfer of files and provide a mechanism whereby resultant disputes can be resolved by and for the agents.

Let’s not have the tail wagging the dog on this one – let’s not let the consumer play one agent against the other. And, don’t reward the lazy agent.

Real Estate is an enormously rewarding industry, but it is often soured by those who take advantage of the unethical environment which is created by the stakeholders – government, institutions and clients. If we can pause and think a bit, we can find a better way.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.