r Mericka B.A., LL.B
Real Estate Lawyer
We have seen that client trafficking, where payments are offered in return for estate agent “referrals” is a problem, but it’s not just payment that corrupts the relationship. The true corrupting influence is the dependence of the parties on the referral relationship. For a referral to be of value to the parties who matter, the referral must be anonymous.
A good referral
To put it simply, a good referral is one that is made for the right reasons, and which will benefit the right parties.
An estate agent acts properly when he or she recommends a solicitor/conveyancer on the basis of professionalism, and the solicitor/conveyancer to whom the client has been referred is unaware of the referral.
The client is being assisted, insofar as she is being referred for reasons that are of benefit to him. The solicitor/conveyancer is being rewarded for good work and service by the fact that “word-of-mouth” is contributing to her reputation and generating work.
A self-serving referral
As soon as the party to whom the referral has been made is informed, the referral becomes self-serving.
Why would the estate agent tell the solicitor/conveyancer of the referral? The obvious answer is that the estate agent expects something in return. The estate agent may not expect payment, but he will expect a quid pro quo, perhaps a relationship involving mutual referrals, or a “good word” here and there. This is the start of creeping corruption.
Referral used as a form of control
Referrals from estate agents to solicitors/conveyancers allows the estate agent to cast himself as the High Priest of the real estate transaction, while the solicitor/conveyancer assumes the role of mere acolyte.
(A prime example of this is the ritualistic passing of the contract from the solicitor to the estate agent. The solicitor/conveyancer prepares the contract of sale, but then delivers it to the estate agent. The estate agent is permitted to take full control of the sale transaction on behalf of both parties, including all of the legalities associated with the final drafting and execution of the contract, and then delivers the completed “deal” to the acolyte.
It is then the acolyte’s role to examine the contract, and explain to her client what he has signed. It is also the acolyte’s role to placate the client when the client discovers that the contract as finalised by the estate agent differs from what the client wanted.)
Estate agents make it their business to harass any solicitor/conveyancer who does anything that may jeopardise a sale. Remember, the estate agent’s commission of many thousands of dollars hangs in the balance.
If a solicitor advises the client to “cool off” because the contract was not prepared as she wanted it, that solicitor risks future referrals being sent elsewhere, and this can affect the way the solicitor advises her client. On the other hand, if the solicitor was unaware of the referral, and of the estate agent’s “expectations”, she may not be so concerned about the estate agent’s reaction.
A dose of reality
Sure, estate agents, solicitors, conveyancers, accountants and most professionals enter into referral relationships; that’s how business operates. But in most cases the potential for corruption is small or non-existent. For example, if a solicitor refers clients to an account, and vice versa there is little likelihood that the relationship will be damaged if both parties act properly and professionally.
However, in real estate transactions the situation is entirely different. The estate agent stands to win or lose many thousands of commission dollars if a sale fails to proceed. It may be in the purchaser’s best interests to cancel a contract, and it may be in the best interests of the vendor to allow the purchaser to cancel. But the estate agent will lose a commission. It is at this point that the estate agent sets to work, not to save the purchaser or the vendor, but to save the sale. And this is the crucial point:
The estate agent works not for the vendor or the purchaser, but for the sale!
The solicitor/conveyancer does not assist the estate agent by saving the client, but by saving the sale.
Real estate transactions are unique, in that they involve many thousands of dollars being made on the basis of decisions made by other people. The estate agent cannot afford to simply stand by and watch a commission-generating deal being jeopardised because of advice offered to one of the parties by an independent solicitor/conveyancer.
The likelihood of corrupt intervention by the estate agent, and quiet acquiescence by the solicitor/conveyancer is so great that ANY client referral made on the basis of a relationship between the estate agent and the solicitor is tainted.