Estate Agent Referrals – Punishment & Corruption
OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
I have previously written about estate agents who refer clients to “pet” solicitors and conveyancers in return for payment, and the corrupting effect this has on the industry. An equally insidious form of client referral is the “punishment referral”. This is where the estate agent refers clients away from a lawyer or conveyancer as a form of punishment.
Two separate but related incidents involving two Ray White Real Estate agencies drew my attention to the preparedness of estate agents to punish non-compliant lawyers and conveyancers by interfering in the lawyer/client relationship and referring the clients away to a “pet” conveyancer.
The first involved estate agent Sid Jackson of Ray White Real Estate Hornsby, New South Wales. The second involved Matthew Hurlston of Ray White Real Estate in Carnegie, Victoria. In each case my role as consumer advocate and legal representative of the clients put me on a collision course with the estate agent. In each case, the estate agent took the opportunity to “refer” a potential client away from me, and to a preferred conveyancer as a warning that they will not tolerate non-compliance.
Because my client-base is not confined to my local area I do not rely on estate agent referrals, so the behaviour of these two estate agents was not of any major concern to me or to my firm. However, most lawyers and conveyancers rely heavily on a local client-base for their survival, to the extent that some will even offer gifts and other incentives in order to ingratiate themselves with local estate agents.
Punishment, by way of referring clients to competitors, can devastate the business of a sole practising lawyer or conveyancer. Consequently such a punishment, or the threat of such a punishment, can severely affect the ability of a lawyer or conveyancer to properly represent their client, particularly where the conduct of the estate agent may be in question.
I have known contract-switchers to attempt to refer clients away when their conduct has been questioned, and in one extreme case I was told by an estate agent, “If we lose this sale because of you we’ll make sure that none of our purchasers ever go near you.“
The following examples highlight, not only the preparedness of estate agents to bully lawyers and conveyancers, but also the trivial matters that can trigger such bullying.
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10 Comments
yes yes yes it is about time this problem was given some attention because as a conveyancer who tries her level best to protect her clients i have been blackballed by a local estate agent just for protecting my client – and the estate agent as well
i found out i was blackballed when i did friends contract and he was told by the estate agent that agents can not work with me because i put sales at risk and the agent said to go to a conveyancer two suburbs away
By all means complain about estate agents who do this, but what happens after everyone is done complaining – they will just keep doing as the agents say, that what!
Hi AboutTime and Realist,
I understand that it’s very difficult to do anything about this form of bullying.
I wrote to Consumer Affairs Victoria about David Sowersby of Walshe & Whitelock Real Estate (who has been featured on this blog as a “contract switcher”) back in 2003.
Sowersby had switched one of my contracts, and when I complained about it to him he ushered my vendor client off to a “pet” lawyer in order to punish me. When I spoke to the client about it she said to me that she had no choice, as Sowersby had an Exclusive Sale Authority and therefore total control over her sale.
I didn’t blame the client, as I could understand that she too was a victim. But I was disgusted with CAV. CAV’s attitude was that Sowersby could refer clients as he pleased, and they weren’t interested in details.
Sometimes blogging is the only way to make this form of corruption apparent. As for doing something about it, I think estate agents will have the upper hand until lawyers and conveyancers can wean themselves off those referrals.
When will reliance on referrals become a thing of the past? Ask Richard Wood Solicitor that question.
The effect of the payment of referral fees is that Estate Agents will tend to recommend those firm’s that will pay referral fees rather than recommending a firm of solicitors that will do the best job for the client. It is also considered likely that elderly and vulnerable client’s will be steered towards firm’s that pay referral fees. This often results in a firm out of the area being recommended.
Myrtle Beach Real Estate
I’m not sure where to ask this, but in the above instance, this raises a question that I have never thought of as needed discussion before, as the practice is so widespread, but Peter could you tell me, when you asked…
“Please admit or deny that you will be receiving any form of reward, whether by way of commission, payment or gift from any person in relation to your role in the sale of the property in Victoria.”
…would it be a legal concern if he was to get a referral commission from his colleague in Victoria?
For example, if an agent has a past client that they still correspond with (as agents should do of course) and that past client wishes to sell a property in an area that the agent does not deal in, would it be of legal concern to refer the client to a trusted colleague or a franchise of theirs in another area, and expect a payment for said referral?
This is of course providing the agents don’t EACH receive a full commission, but a percentage of the one commission is divided between the two agents, one for bringing in the business, and one for executing the sale.
Thanks in advance for your reply.
Glenn Twiddle
Real Estate Training Australia
Hi Glen,
You refer to a “trusted colleague”. This suggests to me that the referring estate agent would be making the referral on the basis of “trust”, and that the client being referred would also believe that “trust” is the reason for the referral.
If the referral is on the basis of trust I see no problem. However, as soon as cash is involved the trust element become questionable.
There is no legal problem if the client is fully aware that the referral is being made in return for a payment, but the elements of deception and illegality creep in if the client is not fully aware of the cash payment and its circumstnaces.
The cash aspect inevitably raises a question about the ethics of the estate agent who holds his hand out for payment. Is the estate agent so hard up for cash that he would need to exploit a relationship based, at least initially, on trust? You can see that this question is a very difficult one for the estate agent to answer without appearing tainted.
I really do not believe it is impossible for an estate agent to refer a client to someone else in return for cash without their ethics and business skills being called into question.
I’d be happy to discuss any particular examples with you.
Thanks for your opinion, Peter. I see what you’re saying about full disclosure to the client (always a necessary thing) so thanks for that.
This practice is very very widespread, by agents who, like me, h ave never even thought twice about it.
Thanks again,
Glenn
http://www.glenntwiddle.com.au
So Peter – Just to clarify you comment above in response to Glenn. When you said….
“I really do not believe it is impossible for an estate agent to refer a client to someone else in return for cash without their ethics and business skills being called into question.”
Are you saying that if an agent refers a buyer (and I assume you would include a vendor) to any professional invloved in the purchasing (or selling) process and recieves any form of material benefit (money, gift, etc) in return, then this act automatically brings their (business) ethics into question?? I just want to be clear abut the statement you are making.
Assuming you agree with the statement above (as I have paraphrased it) is the main ethical issue for you the fact that they are an agent (and already stand to benefi financially from the sale) or the fact that the agent may be motivated by the financial reward for referring? Another way to ask the same question is, do you have an issue with the financial reward for referring someone to a professional or is it because the agent is the one doing the referring??
Thanks for you response.
Gavin Jackson
Hi Gavin,
I must correct myself. I do not believe an estate agent can refer a client to someone else in return for cash without the estate agent’s ethics being called into question.
Yes, if an estate agent refers a buyer to any professional involved in the purchase or sale of real estate in which the estate agent has a personal interest (i.e. will receive a commission for bringing about the sale) that estate agent’s ethics are called into question.
The reason for the ethical dilemma Gavin is that the estate agent, through operation of the Exclusive Sale Authority, becomes a part owner of the vendor’s property, and is therefore an interested party. In other words, the estate agent stands to gain if the sale proceeds. It’s a classic conflict of interests.
In addition, the estate agent is in a fiduciary relationship with his client. This means that any profit made on the transaction, no matter how it comes about, is the property of the client. If the estate agent keeps the payment it can be viewed as a theft from his own client.
Finally, payments of bribes in the real estate industry has the effect of hobbling those whose role it is to protect the vendor or the purchaser from the other party and from the estate agent.
I am really appreciate from your suggestion Peter. Thanks