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

Peter Francis is a high-flying legal-eagle with the high-powered law firm Maddocks Lawyers of Melbourne. Peter Francis wrote a letter to a vendor of real estate on behalf of a very well known real Melbourne estate agent, accusing the vendor of "dummy bidding". It is highly unusual for a lawyer to make a direct allegation of such a serious nature, and so I decided to investigate the matter.

Why did Francis write to the vendor?

Here is the letter written by Peter Francis of Maddocks Lawyers to the vendor. Details of the vendor and the estate agent have been blanked out because at this stage I want to focus on the letter, rather than the parties involved.

What is of particular interest is the following:

"...our client subsequently discovered that the person to whom the property was knocked down was a 'dummy bidder' and that he made the bid on your behalf within the meaning of section 38 of the Sale of Land Act 1962.

Of course, our client did not know and had no way of knowing that any of the bids which it accepted from the 'dummy bidder' were made on your behalf and were not genuine."

Given that the estate agent did not initially know that the bidder was a 'dummy bidder', something must have happened to bring this to the attention of the estate agent. What was the "smoking gun" that caused the estate agent to realise that he had a dummy bidding situation on his hands? In other words, what was the evidence?

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

Hot on the heels of the contract switchers at Barry Plant Real Estate Croydon comes Ranges First National Real Estate of Belgrave. But things get much worse when the switching of contracts is compounded with lies and threats as part of an attempted cover-up.

The contract switch

As usual (see other postings on contract switching), we told the Ranges First National Real Estate not to use the REIV Contract Note in our client's sale, as we had prepared a full Contract of Sale for this purpose. And as often happens in contract switching cases, the first we knew of the switch was when the estate agent sent us an REIV Contract Note attached to the Section 32 Vendors Statement.

I immediately sent a fax to Ranges First National Real Estate, addressed to sales consultant Jim Conder, and estate agency director Rik Rushton, asking for an explanation. Here is the explanation Jim Conder left for me by voicemail:

“Peter it’s Jim Conder from Ranges First National, I know you’ve sent us a fax in regards to the contract note.  There was no deception in using that, what’s happened is that the page in regards to not using a contract note was faxed to us and put in our file, the section 32 we had emailed and uploaded that, so what’s happened is we’ve got the section 32 prior to the fax, and given that to the clients, and obviously that fax has been put in our main file, and you’ll notice that the contract was written up the very next day.  So, it’s just obviously that fax did not come to my attention until that’s obviously been drawn up.  I’m happy to have it written up by both parties if that’s an issue, but there was no-one hiding anything or not wanting to use it.  It’s just that the fax has gone into one section, and the emailed section 32 has gone into another…”

OK, apparently poor office management had meant that an important fax from the vendor's lawyer had been filed without being read. I accepted this. However, Conder's explanation that he had received only the Section 32 did not ring true. The Contract of Sale and the Section 32 had been sent in a single PDF document, so it was not possible for Conder to have received only the Section 32. I concluded that Conder was telling porkies!

ASIDE: As disgraced US President Richard Nixon discovered, bad behaviour is one thing, but it's the lies and the cover-up that can really compound a problem.

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

According to Chris Vedelago, writing for The Age newspaper, "Falling sales levels and the prospect of a weaker market has led more than one in 10 real estate companies to consider selling up...The number of companies looking to move out of real estate has quadrupled...The Real Estate Institute of Victoria says agency revenues have dropped 20%." When things get tough for estate agents consumers must be ever more alert for crooked behaviour.

Times are hard for estate agents

"Softer market has estate companies ready to pack it in" is the title of the article by Chris Vedelago (The Age Wednesday 20 August, 2008 p.9).

According to Vedelago,

"Last month, the Real Estate Institute of victoria said that agency revenues may have fallen by as much as 20% across Melbourne in line with a decline in the number of transactions."

According to the CEO of the REIV, Enzo Raimondo:

"The good ones will survive and get stronger, while the marginal operators will disappear. That's not necessarily a bad thing, either."

What was left unsaid is the likelihood that these "marginal operators" will not leave this normally lucrative industry without a struggle, and there is nothing more dangerous for real estate consumers than desperate estate agents with cash-flow problems.

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OPINION
by Neil Jenman
Consumer Advocate

A former Ray White franchise agent, John Michael Talia, has been convicted of obtaining property by deception.

Last Thursday (August 14, 2008), after the guilty verdict was read out in the Victorian County Court, John Talia was remanded in custody. Locked up.

Well done prosecutors. It's about time that agents who rob the naïve and the elderly were properly punished - and the proper punishment for agents such as John Talia is a criminal conviction and a stint behind bars.

John Talia's crime was a simple and common real estate crime. He bought the home of an elderly man for less than its real value.

The elderly man's home was worth $300,000, but Talia, in his role as a real estate agent for Ray White in Doncaster (operating under the network slogan of "The Right Advice") made sure that the man received the wrong advice.

Talia arranged for the elderly man to be tricked into thinking his home was worth between $135,000 and $155,000. Talia then offered him $145,000.

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

Geoff Thompson is the Director of Barry Plant Real Estate in Croydon Victoria, and the Barry Plant Real Estate tag line is "The red carpet experience". I felt that the red carpet had been pulled out from under me and my client when Geoff Thompson's sales representative Pauline Ferguson switched contracts without my knowledge and without any explanation.

Secret contract switch

Contract switching is a major problem in the real estate industry. The reason contracts are switched by estate agents has nothing to do with protecting the client's interests, and can cause all kinds of problems for the client and their lawyer.

In an effort to reduce the likelihood of lazy or incompetent estate agents tampering with our clients' contracts, I advise every estate agent in writing, 'The REIV "Contract Note" is not to be used in this sale...', and I provide detailed instructions designed to ensure that the estate agent doesn't spoil the client's sale.

Unfortunately, some estate agents choose to disobey both the law and the directions of their client's lawyer.

Pauline Ferguson, switched the contract my firm had prepared, and replaced it with a simple "fill in the blanks" Contract Note. Neither Pauline Ferguson nor her boss, Geoff Thompson, made any attempt to discuss the matter with me (probably because they knew they would be told reminded that it is illegal for them to tamper with contracts), and secretly switched the contracts without my knowledge.

Geoff Thompson offers no explanation

As I have done with other contract switchers, I sent a fax to Geoff Thompson, addressed to "The Principal, Barry Plant Real Estate Croydon". I put the following to Geoff Thompson:

"We seek your explanation for the improper and unlawful “switching of contracts”.  We understand that it was Pauline Ferguson of your office who has switched the contracts, and that she is neither a legal practitioner nor a fully licensed estate agent.

In our fax to your office of 19th May 2008 we stated quite clearly:

“The REIV “Contract Note” is not to be used in this sale.  We have been instructed to prepare the legal documents by which the sale of the above property is to be effected, and we have prepared the combined Contract Note and Section 32 Vendor’s Statement for this purpose.  There is no need for the preparation of an REIV Contract Note

Our Contract Note and its Special Conditions provide the vendor with maximum legal protection, and take into account such issues as land identity, purchaser acknowledgements and warranties, and comprehensive default provisions.  No part of it is to be altered without prior consultation with us.”

Despite these clear instructions, the contract was secretly switched and replaced with a Contract Note drafted by a non-lawyer from your office.  No person from your office made any attempt to discuss the matter with the vendor’s legal representative, nor was our client advised to seek our advice before being invited to execute the substitute contract note.

We believe that the switching of contracts was kept from us because you and your staff knew that we would not allow it.

We regard this conduct as an illegal act of deception, requiring a full and immediate explanation."

Neither Geoff Thompson nor Pauline Ferguson had anything to say on the matter, apparently believing that by keeping quiet the problem would just go away.

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by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

Real estate consumer protection goes west as a result of a convoluted dog’s breakfast amendment to the law, according to Tim O'Dwyer.

Linda Lavarch MP noticed two Legal Aid lawyers sitting in the public gallery during a recent session of State Parliament.  “They had tears in their eyes as the Attorney rose to speak,” she later told her parliamentary colleagues before explaining how these lawyers saw firsthand the misery caused by payday lenders’ interest rates.  It was understandable, she said, that lawyers brought to tears by clients’ stories would be emotional over Attorney-General Kerry Shine’s Consumer Credit and Other Acts Amendment Bill which would limit the lenders’ charges.

Any conveyancing lawyers present would have also wept - less with joy over this long-overdue action, and more with despair over the betrayal of real estate consumers by the Bill’s unrelated amendment of Section 24 of the Legal Profession Act 2007.

While the Bligh government was effectively giving a green light to legally unqualified estate agents to continue to  prepare legally binding contracts, the weepiest moment came when the Attorney-General said the amendment gave “certainty” to agents and solicitors regarding their “roles and responsibilities” within property transactions.  Yet Mr Shine was aware of the inability of most agents to properly prepare contracts because his office had been briefed with examples of agents’ contractual recklessness, incompetence, ignorance and illiteracy.

The only “certainty” is that agents will continue to control the contracting process.

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Opinion by Neil Jenman
Consumer Advocate

Victoria's real estate industry is embroiled in another scandal. This time, the body at the centre of the scandal is the Real Estate Institute of Victoria (the REIV) and its CEO, Mr Enzo Raimondo.

The REIV is an industry association whose members comprise around 80 per cent of the state's 6,000 estate agents. The REIV's purpose is to protect the interests of its member agents. One of its aims is to convince the public that REIV agents are honest and ethical. It's a tough task.

As CEO, Enzo Raimondo is the REIV's main spokesperson. In my opinion, the REIV has the wrong person as its chief.

Since the turn of the century, Raimondo has made a constant series of embarrassing public blunders as he has sought, in many cases, to defend the indefensible.

Back in 2000, when the dummy bidding scandal was at its peak, Raimondo told an ABC Radio interviewer, "I'm not sure what is meant by dummy bids. I haven't heard anyone explain to me what a dummy bid is." The interviewer explained it to him, "Someone in the audience pretending to be a real bidder when they are not." Raimondo immediately hit back with this gem of wisdom, "The auction process has been around for a long, long time."

When Raimondo tried the same logic on Radio 3AW, the interviewer said, "Enzo, you are treating me as an idiot here."

And therein lies the problem that has plagued the Victorian institute this century. Enzo Raimondo's response to many scandals is to make an idiotic statement. In doing so, he not only damages his own credibility, he tarnishes every agent - good or bad - in the entire state.

It seems, finally, however, that Enzo Raimondo may have made one blunder too many.

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

David Sowersby is the Director of Walshe & Whitelock Real Estate, Brunswick and an Associate of the Real Estate Institute of Australia. David Sowersby is also a "contract switcher". Some years ago I pounced on Sowersby for "switching" contracts, and thought he had changed his ways. Unfortunately, it seems that when you've been in the industry as long as Sowersby has, old habits die hard.

Every property lawyer and conveyancing in Victoria is familiar with the grubby practice of "contract switching". It's where the lawyer or conveyancer prepares a contract for a vendor client, only to discover that the estate agent has "switched" the prepared contract for a simple one-page Contract Note. The Contract Note is a document distributed to estate agents by the Real Estate Institute of Victoria (REIV), supposedly to be used to assist a purchaser to submit an offer when no contract is available. Where a lawyer or conveyancer has prepared a contract for the sale the estate agent is required to use the prepared contract, and is not permitted to use the Contract Note.

Why do estate agents "switch" contracts? The most common reason is laziness. Basically, estate agents don't know much about contracts, don't like reading them, and certainly don't like having to answer purchasers' questions about them. The simple fill-in-the-blanks Contract Note is something of a no-brainer for the estate agent. Sometimes there may be more selfish reasons (See "Shane Lowe of Methven Real Estate - Switching of Contracts and Conditions").

What was David Sowersby's reason for "switching" a comprehensive Contract of Sale of Real Estate, containining special conditions designed to protect the parties, with a simple and inadequate Contract Note; particularly after he had been told off for the same thing in the past? I wrote to Sowersby as follows:

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

Estate agents have a marvelous talent for redefining words so that their everyday meaning is distorted to the point that they become oxymorons. The use of the word "transparent" by Real Estate Institute of Victoria CEO Enzo Raimondo suggests that the transparent "window" offered to consumers is really a two-way mirror.

We have previous demonstrated the way in which estate agents have redefined common words to suit themselves. For example, the word "sale" as defined in the Exclusive Sale Authority document produced by the Real Estate Institute of Victoria (REIV) is defined so that a property can be regarded as sold (and the estate agent can collect a commission) even if the property is not sold. See also our blog posting on the term "ethics" at Maitland Horler Ethical Agents - An Oxymoron?

It seems that estate agents have now redefined the term "transparency" as it applies to real estate transactions, so that the term refers to a concept similar to that of the two-way mirror. According to Wikipedia, "A two-way mirror, also called a one-way mirror, is a mirror which is partially reflective and partially transparent. It is used with a darkened room on one side and a well-lit room on the other, allowing those in the darkened room to see into the lighted room but not vice versa."

In a real estate transaction it is the consumer who sits in the well-lit room, while the estate agent occupies the dark side.

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by Neil Jenman
Consumer Advocate

Right now, in a lot of areas of Australia, there are a lot of unhappy property sellers. They can't sell. In some areas, some properties have been on the market for six months, even longer. To sellers, an on-going unsold property can be mental agony. It's like torture. They all have a breaking point, the day when they say, "Enough, I can't take it anymore, just sell it."

Ironically, once they make that final decision to sell - no matter what the price - the sellers' moods usually lift. It's gone. They can get on with their lives.

In an instant, these sellers go from unhappy to happy. There is nothing like a sale to improve the mood of even the most stubborn seller who owns the most hard-to-sell property.

Sadly, though, most sellers who have taken a long time to sell have usually sold for a much lower price than they should have accepted.

It need not have happened this way.

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by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

Carly Gillard was staggered, after settling the sale of her Northern New South Wales property, to find herself facing commission claims from two real estate agencies.  Her property had been listed with both agencies, but only one secured the sale.  She soon filed a claim with the NSW Consumer, Trader and Tenancy Tribunal to determine whether she was liable for two commissions and, if only one, which agency she should pay.

On 15th March 2006 Carly listed with Swann Realty (“Swanns”) under an exclusive agency agreement until 30th April.  While this agreement provided for non-exclusive selling rights from 1st May until the property sold or the agreement was terminated, it also explained how, if another agent sold her property, Carly might have to pay two commissions.  On 1st May, after Swanns’ exclusive agency ended, Carly gave a non-exclusive listing to Dillon Realty (“Dillons”).

On 28th April, Graham and Tracey Chapman, who were in the market to buy, arranged with Swanns to inspect Carly’s property.  But the appointment was cancelled. Another was made, and Chapmans inspected the property on 2nd May when they said they might make an offer. A couple of weeks afterwards Swanns showed them another property.

Chapmans also approached Dillons about properties for sale.  Carly’s was among those shown to Chapmans.  When Chapmans told Dillons they had already inspected it with Swanns, Dillons said this would be OK.  On 16th May Dillons notified Carly that a sale had been negotiated with Chapmans, but failed to mention that Swanns had shown Chapmans the property first.  Contracts were exchanged on 30th May.  After settlement on 14th July, Dillons claimed their commission.  On learning of the sale, Swanns also claimed commission from Carly.

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by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

This latest "Clayton's" finance approval letter is hot off my fax machine.

Last year I reported on an upbeat broker’s keenness to show me that my clients’ finance had been “approved” - by way of a copy of a letter from the lending bank confirming that the loan application had been “Unconditionally Approved.” (see: Clayton's Finance Approval (The Approval You Have When You Don't Have Approval)).

Responsible conveyancing solicitors warn their buyer clients not to get too excited about such Clayton’s approvals,  and to hold off on notifying finance approval to their sellers until they see all the lender’s terms and conditions – and are satisfied with the total deal.

Hot from my office fax machine, is a recent and not very different Clayton’s finance approval letter headed “Unconditionally Approved”. Needless to say, my clients will be advised not to make their purchase contract “unconditional” as to finance until they receive, consider and accept the lender’s “formal offer” with “ALL the terms and conditions of the loan”.  Follow the link to read the letter advising "Unconditionally Approved".

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by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

Although agents use slogans like "Nobody does it better", "The right advice", "More personal attention" and "We'll look after you", they are really offering buyers something for nothing. At all times the agency s legal duty is to their clients, the sellers. The agent s prime job is to find a buyer at "the best possible price and contractual terms for the seller".

The least expensive part of buying a home is the looking. Legals, searches, loan fees, stamp duties, insurance premiums and removalists' charges come later.

While "just looking", your only cost will be the time and effort put into that quest. Many hours will probably be spent with real estate salespeople keen to help you make your final choice.

Most home-hunters look with a real estate agency, yet this service is provided free. Why so?

"Buyers do not pay fees to the agent. The agent receives commission from the seller."

This answer comes from a brochure produced jointly and incredibly - by a Real Estate Institute and a Law Society. The brochure continues:

"A real estate agent, as the agent of the seller not the buyer, is responsible for obtaining the best possible price and contractual terms for the seller. The agent will receive a commission from the seller when the property is sold."

Although agents use slogans like "Nobody does it better", "The right advice", "More personal attention" and "We'll look after you", they are really offering buyers something for nothing. At all times the agency s legal duty is to their clients, the sellers. The agent s prime job is to find a buyer at "the best possible price and contractual terms for the seller".

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by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

Victoria’s solicitors have been informed by their Legal Practitioners’ Liability Committee (“LPLC”) that their mishandling of property conveyancing is one of the most costly sources of clients’ negligence claims. Whether acting for vendors or purchasers, conveyancing solicitors have been warned to be especially careful regarding Section 32 Statements.

Section 32 of Victoria’s Sale of Land Act 1962 requires vendors of real estate, before contracts are signed, to give purchasers a signed statement containing prescribed information and three warnings. 

The first warning is:

The use to which you propose to put the property may be prohibited by planning or building controls … or may require the consent or permit of the municipal council or other responsible authority.  It is in your interest to undertake a proper investigation of permitted land use before you commit yourself to buy.  

Perhaps because Victoria is known as the “Garden State”, the second warning is:

The property may be located … where commercial agricultural production activity may affect your enjoyment of the property.  It is therefore in your interest to undertake an investigation of the possible amenity and other impacts from nearby properties and agricultural practices and processes conducted there. 

The third warning is shortest:

You should check with the appropriate authorities as to the availability (and cost) of providing any essential services not connected to the property.

Depending on the type of property sold, the Statement must include...

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It would appear that Barry Plant Real Estate has adopted the tactic of having a "gazumping" clause inserted into real estate contracts. We again warn consumers against allowing estate agents to tamper with the contract.

A "gazumping" clause is a special condition which is inserted into a purchaser's offer by an estate agent. Effectively, it allows a latecomer to the sale to submit a "bid" to the vendor. If the latecomer's bid is on "more favourable terms" than those in the existing contract, the vendor can invite the purchaser to match the bid. If the purchaser fails to match the bid, the vendor can cancel the contract.

As with other private auction situations, it is possible for a contrived offer to be put to the purchaser, with a view to having the purchaser increase the price or alter the terms of the contract. Such conduct would probably constitute a criminal deception.

The first estate agent to adopt the "gazumping" clause was Ian Reid who became known for having his own Gazumping Clause and his Finance Clause inserted into purchasers' offers. We exposed the "Ian Reid Strategy" some time ago, but we have not seen it adopted by other estate agents until now.

I contacted Barry Plant to find out why Barry Plant Real Estate had resorted to the use of a "gazumping" clause.

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