Contract Note Banned! Estate Agents Lose Deception Tool

Published 22 September 08 06:45 AM | Peter Mericka 

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

 

The document known in the real estate industry as “the standard REIV Contract Note” has been banned.  As from 28 September, 2008 the only document available to estate agents will be the standard form of contract prescribed by the Estate Agents (Contracts) Regulations 2008 or a contract prepared by a Legal Practitioner or a Licensed Conveyancer.

Contract Note – A Deceptive Title

The single page Contract Note was favoured by real estate agents in Victoria, firstly because of its name.  Everyone knows what a contract is, but what is a Contract Note?  Whenever a purchaser asked an estate agent if the Contract Note they were asked to sign was an actual contract, the answer was always a firm “No”, followed by the words, “it’s only an offer, and there is no contract unless the vendor accepts it.”

Technically, this explanation was true.  No mere document is a contract unless it has been executed by the parties. But this was not really the question being asked.  The question “Is this a contract?” was really a question about whether or not the purchaser was entering into a binding contract.  But the estate agent was always able to avoid having to answer this question truthfully because the name of the document, “Contract Note” suggested that it was something less than a binding contract.

The new Contract of Sale of Real Estate is appropriately titled “Contract of Sale of Real Estate”.

Contract Note – An Alternative Contract

The Contract Note was also deceptive insofar as it presented as a lesser alternative to the full “Contract of Sale of Real Estate” which was also prescribed in the Estate Agents (Contracts) Regulations 1997.

The fact that two contract documents were prescribed, one being the Contract Note and the other being the Contract of Sale of Real Estate, made it even easier for real estate agents to pretend that the Contract Note was either not a contract, or a lesser form of contract.

In fact, the Contract Note was every bit as powerful as the full version of the Contract of Sale of Real Estate.  It was just that the details were hidden from consumers.

Using the concept of “incorporation by reference” the Contract Note displayed only brief details of the transaction on its face, but it bound the purchaser to all of the conditions contained in the Contract of Sale of Real Estate by including the following clause under the heading “SUBJECT TO”:

“The general conditions of sale, other than GC3, contained in the Contract of Sale of Real Estate prescribed under section 10 of the Estate Agents Act 1980.”

Of course, no purchaser would go to the trouble of looking up the Estate Agents Act to find out what the full Contract of Sale of Real Estate contained.  Not that it would do them any good anyway, as Section 10 the Estate Agents Act has been changed by subsequent amendments to to the point that a lay-person would soon lose the trail.  So what would the purchaser do?  The purchaser would ask the estate agent.

There are three problems with estate agents who answer questions asked by purchasers in relation to contracts.  First, the estate agent doesn’t want to purchaser to be “spooked” into seeking legal advice before signing.  Second, the estate agent doesn’t know anyway.  Third, it is illegal for an estate agent to offer legal advice to anyone, let alone a purchaser in circumstances where the estate agent is in a conflict of interests.

The answer of the estate agent was invariably, “It’s just standard wording, and if there’s a contract later it will have the general conditions in it.” Technically true, but highly deceptive nonetheless.

More about "Contract Note Banned!"...

Lawyers Conveyancing is proud to sponsor the REIC

Filed under: REIV, Deception, contract of sale, contract note

Comments

# Tim O'Dwyer said on September 22, 2008 7:15 AM:

Clearly right across Australia agents are prohibited by law from “giving legal advice in relation to a property contract or other document”.  

But when it comes to clinching an exclusive listing or closing a sale, old persuasive habits die hard.  Any agent’s explanation – however simple, qualified, or helpful – of any form, clause, contract or document will be in breach of the law.  

The sooner consumers, solicitors and conveyancers start reporting agents' illegal advices to the appropriate regulatory authorities the sooner the rogues in real estate will realise their job is to sell. Not to give legal advice.

# Peter Mericka said on September 22, 2008 10:36 AM:

Sorry Tim, but I have to pick you up on this one.  It is NOT the role of the estate agent to sell.

The role of the estate agent concludes once the estate agent puts the purchaser in contact with the vendor. It is then up to the two parties to negotiate throught their legal representatives in order to bring about a sale.

I do acknowledge, however, that the majority of lawyers and licensed conveyancers in Victoria  have become dependent on estate agents for referrals (see http://reic.com.au/blogs/australian_real_estate_blog/archive/2007/08/03/richard-wood-solicitors-free-movie-tickets.aspx for example) and this dependence has allowed estate agents to assume the role of defacto lawyer at the sale stage, which in turn has given rise to the myth that the estate agent has a genuine role in the sale process.

That's why the death of the Contract Note is so important.

# Tim O'Dwyer said on September 22, 2008 11:08 AM:

You must understand, Maddog, that this old Watchdog comes from Queensland where the government-prescribed real estate agency listing authority refers to the client's appointment "of an agent to sell a property."

Of course it follows here, despite my many years of protesting like yourself, that Deep North agents are legally green-lighted to control the whole goddamn marketing, negotiating and contracting process.

# Peter Mericka said on September 22, 2008 11:34 AM:

Consumer Affairs Victoria is no less stupid in its understanding of real estate law.

In its publication "Real Estate A guide for buyers and sellers" (which can be downloaded at http://www.consumer.vic.gov.au/CA256902000FE154/Lookup/CAV_Publications_RealEstate_Buying_and_Selling_a_Home/$file/realestateguide.pdf and which could equally be titled "An Idiot's Guide To Real Estate" CAV insists on making a contribution to the pool of misleading material being thrown at consumers.

In the section titled "Dealing With An Estate Agent" at page 11, it tells consumers:

"Anyone who is in the business of

buying, selling, leasing or otherwise

dealing with property on behalf of any

other person, must hold an estate

agent’s licence or be employed by a

licensed estate agent as an agent’s

representative."

Seems that the clowns at CAV still have not read the definition of "estate agent" in the Estate Agents Act!

# Stan said on September 22, 2008 1:07 PM:

i know i am sticking my neck out here but as an estate agent i find that the contract note is best for everyone because it is easy to read and needs no explanation and you can not be accused of playing lawyer if you do not have to explain anything of provide legal advice and i think it will just slow things down if contract notes are banned

# Peter Mericka said on September 22, 2008 4:34 PM:

Hi Stan,

Thank you for being courageous enough to stick you neck out, but I am sure that you're just one of many estate agents who take this approach, so I won't be pulling any punches.

As an estate agent, on what basis do you determine that the Contract Note is "best for everyone"?  I can understand that it may be best for you, but you're hardly the person to be determining what is best for the purchaser and the vendor.

Also, how does the use of a proper contract "slow things down", and why does it matter if things go a bit slower than you would like?

# A Random person said on September 24, 2008 11:27 PM:

Although we just recently landed our place so hopefully don't have to deal with any form of real estate contract for a while, I'm curious about what the "CONTRACT NOTE" will be replaced with.. is it a standard, Govt. issued document with clear options to choose for all parties?

Even in our period of househunting I experienced some of the tricks documented elsewhere on this site when being rushed through filling in the "Contract Note" by an eager agent.

# Chris said on September 24, 2008 11:28 PM:

Hi Peter,

Could you point me to an online resource where I can find this "standard form of contract prescribed by the Estate Agents (Contracts) Regulations 2008"? I'd like to see what it looks like.

Thanks,

Chris.

# Peter Mericka said on September 25, 2008 5:39 AM:

Hi Chris and A Random Person,

I can answer both of your questions in one.  We have recently set up a website called http://www.realestatedocuments.com.au which we hope will become a resource for everyone interested in, or involved in, the real estate industry.

I will be writing a detailed explanation of the new Contract of Sale of Real Estate for the http://www.realestatedocuments.com.au website shortly.

# a random person 2 said on September 28, 2008 2:36 PM:

Peter you criticise CAV yet they were the people that stated conveyancers could prepare section 32's a long time ago when you said it was criminal for conveyancers to do it. After The Law institute wasted over a million dollars of public money following your view and others with narrow minds you have been proved wrong and now conveyancers are licensed in victoria after many years.  You owe the CAV and the conveyancers an apology.  Comeon Peter we are waiting....

# Peter Mericka said on September 28, 2008 10:50 PM:

Hi A Random Person 2,

Why do you choose to be anonymous?  I thought only estate agents need the cloak of anonymity.

I assume that you are a licensed conveyancer, who was previously an unqualified, non-lawyer conveyancer.  Let's see how your position stacks up by examining what you would tell a client who asks you if, as a licensed conveyancer, you perform legal work for your clients.

Do you answer by telling the client, "Oh, we conveyancers don't do legal work and we never have.  There is no legal work whatsoever associated with conveyancing."

Or do you tell your clients that as a licensed conveyancer you are now permitted to perform legal work, while unlicensed conveyancers are not?

Do you see any parallels?

# Peter Mericka said on September 30, 2008 6:01 AM:

Hi A Random Person 2,

Your abusive comment has been moderated.  You must understand that this is not a facility for allowing angry, frustrated people to hurl abuse from the bunker of anonymity.

You obviously have some issue with me, and you are entitled to have your say, but you must identify yourself if you wish to take the issue further.

# Peter Mericka said on September 30, 2008 9:31 AM:

Hi A Random Person 2,

Your latest attempted comment has also been moderated.

OK, I understand that you are a conveyancer, that your are extremely disappointed with me because you believe I had some influence over the Law Institute of Victoria and that I am partially responsible for the Conveyancers Act spoiling the lucrative free-for-all industry which allowed you to build a flourishing business.

Allow me to throw down a challenge to you. Write a posting for this blog, under you own name, and I will ensure that it is published in it entirety.  Vent your spleen, scream your frustrations with gusto, but take responsibility for what you say, and expect to be taken to task if what you say lacks merit.

I look forward to receiving your posting by email.  Can't be fairer than that, can I?

# Peter Mericka said on October 1, 2008 9:13 AM:

Hi A Random Person 2,

Your third attempted comment has been moderated because you want to make personal attacks without identifying yourself.

I note your explanation, "...due to legal reasons I am unable to identify myself..." but I can think of no legal reason that would prevent you from enjoying free speech so long as it does not constitute actionable defamation.

What "legal reasons" could possibly prevent your leaving a comment on a blog?

I really do tire of people who want to attack me, have their attacks published by me, but don't want me to know who they are.  Can you empathise with that?

# Austin said on October 2, 2008 1:57 PM:

Empathy?! From an estate agent? good luck

# Peter Mericka said on October 2, 2008 7:52 PM:

Hi Austin,

I think "A Random Person 2" is a conveyancer rather than an estate agent.

What I find amazing is that "A Random Person 2" and his/her type seem to think they have a right to say as they please anonymously.

One of the problems in this rotten industry is that people who call themselves professionals don't have what it takes to stand up and take responsibility.

"A Random Person 2" is just one more pathetic example.

I like to quote that now famous cartoon in which one dog tells another, "On the internet no-one knows you're a dog."

# Chris said on October 6, 2008 12:30 AM:

Hi Peter,

Looking forward to reading your explanation of the new Contract of sale that replaced the banned Contract Note - just checked on the http://www.realestatedocuments.com.au, it still says "coming soon".

# Peter Mericka said on October 6, 2008 10:15 AM:

Hi Chris,

I'm nearly there, but it's been a huge task.  I am also drafting an easy-to-use version of the new Contract of Sale of Real Estate which will be available to anyone and everyone free of charge (no need to buy them from the REIV or the LIV any more).

I expect both documents to be available from the www.RealEstateDocuments.com.au website by the end of the week.

# Agent said on October 6, 2008 12:56 PM:

Hi Peter,

By everyone, does that include agents? I must admit I do like the new forms and from my limited experience in using them I find purchasers far more comfortable with them than the old contract note. Do you see any errors or ommissions in the new forms?

# Peter Mericka said on October 6, 2008 1:30 PM:

Hi Agent,

Yes, it will be free to everyone, including agents.

I have had a look at the RIEV version of the new Contract of Sale of Real Estate, and I find it rather deceptive in that it has been created in two parts, the first being a stapled booklet containing the General Conditions, with the second being the Particulars of Sale.

It would appear that the REIV wants estate agents to be able to treat the insert as a stand-alone document, and to this end they have the words "Contract of Sale of Real Estate" printed across the top of it.

It seems to me that idea is that the estate agent whips out this insert, and deals with it as though it alone is the contract, gets the purchaser signed up, and then hands the purchaser the General Conditions booklet as an afterthought.  While this may allow sleazy estate agents to trick purchasers as they previously could with the Contract Note, it also sets up decent estate agents for allegations that they did not provide the General Conditions booklet at all - a silly move on the part of the REIV.

The Contract of Sale of Real Estate I have prepared follows the format set out in the Estate Agents (Contracts) Regulations 2008, while also making the document familar and user-friendly for estate agents.

It also states on the front of it that an explanation of the details of the General Conditions is available at www.RealEstateDocuments.com.au.  This allows purchasers, vendors, estate agents etc. to gain a greater understanding of general conditions of the new Contract of Sale of Real Estate.

It also avoids the problem of  purchasers asking the estate agent to explain the General Conditions.  Estate agents will be able to refer such enquiries to the www.RealEstateDocuments.com.au website.

What's in it for me?  If I provide a superior Contract of Sale of Real Estate documents free of charge, so that estate agents, lawyers and conveyancers don't have to purchase them from the REIV or the LIV, there is a likelihood that this document will become the most used.  If this occurs, consumers are likely to purchase my comprehensive explanation of the General Conditions.  As I see it, everyone benefits.

# Agent said on October 6, 2008 2:16 PM:

Peter,

The issues of having a seperate conditions handout also surprised me. I would have thought it would have been better to bundle it all together much as Auction Contracts have always been. Having said that, I don't make the rules, I just do my best to follow them.

I will look more closely at your version of the Contract and see if it suits our purposes.

Regards

# Peter Mericka said on October 6, 2008 2:20 PM:

Hi Agent,

I would certainly appreciate any feedback you have to offer on it.

# Peter Mericka said on October 6, 2008 3:32 PM:

Hi Agent,

I have now uploaded the new Contract of Sale of Real Estate at www.RealEstateDocuments.com.au and would appreciate any feedback you'd like to offer.

# Agent said on October 9, 2008 12:27 PM:

Peter,

I have just downloaded your contract and had a close look at it. There is no doubt, in my opinion, that it is better than the REIV one. The idea of making it openly available is also a great idea. I understand that this will also benefit you and your business so no one should lose by using this form of the Contract.

Regards

# Peter Mericka said on October 9, 2008 12:40 PM:

Hi Agent,

Yes, it surprises me that the REIV could be so stupid in their approach to this.  I woul have thought that by keeping it all simple and fair, and abandoning the old "short form" contract concept they would have gained more credibility for themselves and their members.

Now they're going to have me snapping at their heels and warning consumers about being duped.

# Australian Real Estate Blog said on October 9, 2008 2:37 PM:

OPINION by Peter Mericka B.A., LL.B Real Estate Lawyer Qualified Practising Conveyancer Victoria Director

# mother said on November 3, 2008 3:07 PM:

Man you are copying western australia in handing out a general conditions booklet. You are also going down a slippery slope such as has happened in western australia that the contract now is not able to stand if the buyer just refuses to settle. that is if the customer decides for any reason they dont like the house they bought 2 months ago they just phone up the settlement agent and say im not proceeding. How fair is this to the seller? I want to tell you truely it is happeneing all the time over here and there is nothing anyone can do about it, buyers are gaming the system because these new rules allow them to. So talk about a misleading form what about a misleading buyer.