Fair Trading Audits

Lucas Cannan: Where are they focusing their efforts?

Andrew Coulson: It's interesting last year fair trading was basically focusing their efforts in regions we saw a sweep through the Sutherland Shire, we saw a sweep going up the Northern Beaches. This year we're seeing them go from Menai to Sutherland Shire to Northern Beaches, Hornsby. They were going all over Sydney.

Brian Cannan: Blue Mountains

Andrew: Yeah, they're not picking one particular area we're hearing from agents all over Sydney.

Lucas: More of a scattered approach you could say. Ok well let's start with previously and when they were doing those sweeps they had I suppose focuses on maybe three years of CPD certificates or this in the last what six seven eight weeks what have they been focusing on?

Andrew: Yeah we saw last year perhaps after the under quoting guidelines had come in in January last year they were giving agents a little bit of time to get their policies and procedures in place. Now it seems that they've decided well you've had 18 months 17 months since the legislations come in let's get out there and see that you're complying with the legislation.

Brian: They were giving warnings. Now they're not. Now they're fining.

Andrew: Yep yep the smiling Assessors you could call them.

Lucas: So they've definitely got a couple of golden rules that they see to be focusing on first one being the 10% rule. Is that right?

Brian: Absolutely and under quoting guidelines very clear you can have the price range 10% only from the bottom of that range so from the bottom range to the top of the range there can only be 10%.

Lucas: So really clearly obviously if the bottom figure in the range is $1 million you can't go anything more than $1.1 million. We've heard some pretty out there stories. Haven't we?

Brian: There has been a few yeah you know and and some agents are saying they're being tough you can put it that way I mean one agent had $950,000 to $1,050,000. They were $5000 over, should have been $950,000 to $1,045,000 and they were fined. They weren't happy about it but legislation's black and white can't be any more than 10 percent from the lowest price.

Andrew: That's it and and there's no arguing it is the law you can't say are you but I'll you'll have a look through three other files you won't or it's only 5%. I've been a good boy I haven't done anything else it's TLC: Tough Luck Charlie! You break the law and you get fined.

Lucas: And they are just not taking any prisoners in that regard you've got to make sure ten percent from that lowest figure. Okay what about developments? That seems to be a interesting.

Andrew: It is insomuch as you can look through any newspaper any weekend and you'll see development sites advertised from and they give the ranges and the legislation makes it quite clear you cannot use the words "from", "over", "above", "plus" or any similar word.

Brian: Yeah it's for residential but development sites are included in residential but they will allow more than ten percent on off the planned development and development site so you know if you had one-bedroom apartment priced at $500,000 to $600,000 and I only said from then and and that's it's hard to get out of your dialogue but $500,000 to $600,000 that's more than 10% that's fine you know two bedrooms $700,000 to $800,000, three bedrooms you know $1,000,000 to $1,200,000 that's fine you can you can have that as long as that's the asking price.

Andrew: That's right you've got the asking price of the unit so if you've got a one-bedroom at $500,000 you've got a one-bedroom at $800,000, you can say $500,000 to $800,000 but as soon as that $500,000 sells the advertising needs to be adjusted accordingly so yes it's quite clear but it again you use that word "from" in your advertising whether it be on the web in the paper wherever when they see that word "from" and of course they're allowed to go back twelve months to when this legislation came in or 18 months to when this legislation came in.

Brian: They can go back further we had one agent who's put a new website up and the IT guy grabbed all the all the listings across but he pick one from over 18 months ago and it's not being it's not being offered anywhere that is one page on the website.

Andrew: But it's now under new legislation.

Brian: It had "from" and they got fined and I thought that was really tough it was it was a clerical error, an IT error, but they're still fighting for it.

Lucas: So we know that Fair Trading before they get into an office they're often going to check either some marketing online or whether there be as they walk through on their window display what are they going to look for when they come into the office?

Brian: Well when they walk in that they'll either pick from three to five properties in your window or off your website and just say I want to look at these properties. They mightn't have the address I'll point him out to you or they might have the address and I'll pick them randomly and they'll ask to look at the file I'll open up the file and the first thing they're going to look at is the agency agreement.

Andrew: And not how much you're charging or what version you're using. They're looking at...

Brian: One thing.

Andrew: Your estimate of the likely selling price and to make sure that it is within the ten percent range.

Brian: That's their starting point

Andrew: Exactly right.

Brian: And straight from there they and look at your marketing and if you are putting a price or a price range on and it's within that especially an auction property it is within that estimate and they're going to be following that through too if you change your estimate we'll talk about that in a moment that you followed that through if I had offers and you've changed those offers so we can talk about that as well they use follow the whole process of the sale to make sure that you're sticking within the guidelines.

Andrew: The main thing that they seem to be looking at is is that estimated price reasonable? Can you substantiate that price that you're putting in your agency agreement, that it is reasonable and what evidence you have to support that.

Lucas: So you need some sort of paperwork in this regard.

Brian: Yeah, they're not gonna argue what price you put in it they're not real estate agents they don't want to be real estate agents okay they enjoy what they do and that's fining agents but but they they they won't argue that the figures you put in they're gonna see how you've been able to justify those figures.

Andrew: That's right and I mean there's no requirements in the law that says how many there should be there but obviously if you can't find enough comparables then you may need to examine other methods to substantiate your appraisal.

Brian: Well we know from visiting one of our clients that one comparable is not enough because they're saying that that that they're arguing that that's not enough and you need to show how you arrived at your estimate. Some people say three but you know I'd go three to five if you can, but more importantly you just can't print off RPData and say there they are you go to make a little notes to say why are you using this as a comparable, land size...

Lucas: How do the compare, how do they not compare?

Brian: Doesn't have to be an essay just you know its land size same type of property just see they can see that you've actually looked at it and you've seen why you're going to use that.

Andrew: It's important to have that data there I mean if we don't have the three sales what else would we use?

Brian: Well you know you can use market conditions you could use seasonal factors on the beaches you know you could use the vendors motivation or vendor's circumstances, it's lots of other things you can use.

Andrew: Yeah material facts.

Brian: Absolutely.

Andrew: The zoning.

Brian: Especially with the change in zoning in Sydney at the moment. Things being rezoned all over.

Andrew: Exactly right so all that sort of information and any other evidence you've got like your clearance rates your days on market your auction rates.

Brian: Is it a buyer's seller's or a balanced market?

Andrew: That's correct all this sort of information adds to what Fair Trading love, paperwork to see that yes this isn't just a hit and miss.

Brian: Well let's talk about that shall we, paperwork. Are you good at paperwork?

Andrew: Leave it out. The girls here, think you're terrible at paperwork!

Brian: Look I'm terrible at paperwork, they give me something they got a photocopy because I'm gonna lose it within within a day so but the issue is you're gonna need systems in place to make sure the paperwork is there and if you don't want Fair Trading knocking on your door compliance is not happening to when they walk in compliance is everyday thing and if you have the right paperwork in your file they're going to leave you alone.

Andrew: Yeah exactly right so you want to make sure that you've got good evidence wrapped around that after we've been able to substantiate the file the estimate then they're going to make sure that we've kept that reasonable throughout the program.

Brian: And reasonable is in the guidelines they say that agents should revise their estimate on a weekly basis.

Andrew: Well how would you do that?

Brian: Well at a sales meeting just a minute part of that sales minute that doesn't they're not saying you got to change it it's your estimate if you believe it that still stays the same. But in the past we used to put it on our agency agreements, set and forget.

Andrew: Yes

Brian: Now you've got to move it around depending on the feedback that you're getting whether it's up and depending on market places whether it's down there looking for that movement.

Lucas: So if you were an agent out there or even a licensee or anyone in that regard if you were to do almost a little internal audit on yourself or a sales file you would do by starting off with your agency agreement looking at that certainly the likely selling price then looking at your evidence as to why you think that's reasonable then the next thing that the Fair Trading will look at is the marketing and make sure that all marries up then you guys mention the review if there's any change up or down and that the marketing is then going to be reflected in that change as well. Is that going to be a good framework to be able to check up.

Andrew: That's a great start they they'll go through their tick boxes of okay I'm looking for this this this this then it'll get to any office that says what's your communication been like with the customers.

Lucas: Yes if you get an offer and that it's rejected on price and you do have to move your estimate up which is something the undercoating guideline mentions because it talks about what's in the Property Stock and Business Agents Act but also about what's in Australian Consumer Law and this is where the offers come into it so let's say we had a range of say $1,000,000 to $1,100,000, 10% and we had an offer that was rejected on price at $1,020,000 and that's happened say two weeks into the campaign what is Fair Trading going to look for?

Andrew: Well of course we are going to before we actually submit that offer of $1,020,000 we're going to qualify the offer and make sure that if there's any terms and conditions or restrictions around that is it subject to finance it's subject to their mother-in-law having a look at it what's going to be the situation whether that is a genuine offer where they can proceed straight away.

Brian: But if it's rejected they're going to look at that you've moved your price range to $1,021,000 or higher and if you don't and your misleading buyers believing something that's not true they'll fine you.

Andrew: Yep that's exactly it.

Lucas: Because their understanding is that if you've rejected an offer at that level to continue advertising there at a price that's less is misleading the buyers.

Andrew: Yeah that's right. So it's again it's it's a matter of documenting all communication with your clients you're going to do that any email inquiries you're going to drag to your file and maintain documentation.

Brian: They'll look at those emails. They'll be looking at those emails. Yeah and you have to move it up so there's no doubt about that and where they find that is because you've got to document all offers to your owner so they look at the document see the often and see that you haven't moved it up and it's a timing error.

Lucas: Well it's certainly going to be a it is a focus and has been a focus for Fair Trading.

Brian: It's going to be for a little while now so check your files.

Lucas: It needs to be our focus as well. Now another interesting thing that Fair Trading is is checking a lot is the fall prevention guidelines.

Brian: Yeah this is kind of a bit of

Lucas: Out of left field almost!

Brian: It is yeah I gotta say I you look at the fraud prevention guidelines and they say guidelines and I've been saying for for quite a while they're guidelines you make up your own and do all of this and so fraud prevention.

Andrew: Well they're out there again when they've inspected offices we've had a selection of fines being issued as well as warnings being issued for not having that in the file of course it all came from a few years ago when people in Western Australia and the ACT had properties sold that the owners didn't sign off on agency agreements they were away.

Brian: It came for the property management and they change their information and then they decided they want to sell really quickly so the agent sold it really quickly and didn't checked it.

Andrew: The crux of it is now Fair Trading wants us to prove/check that the person signing our agency agreement is the owner of the property.

Lucas: And now in these prevention guidelines they do talk about our responsibilities as an agent so there isn't specifically anywhere in the Property Stock and Business Agents Act or regulations which talk about fraud prevention, however what they do refer to if they are going to enforce this is going to be in relation to our rules of conduct.

Brian: That's true.

Andrew: Yeah well the rules of conduct are within the the regulations there's three different means of conduct that this applies to and if we don't carry out our responsibilities in getting the ID checked then we're breaching the rules of conduct.

Brian: Which rules?

Andrew: I would say honestly professionalism we required to use skilled care and diligence in the execution of our duties.

Brian: That's rule three and four.

Lucas: Act in the best interests of your clients.

Brian: That's rule six.

Lucas: The big one?

Brian: Fiduciary obligations, rule two. They're tying it all to the fraud prevention guidelines.

Lucas: A lot of the rules of conduct do overlap with each other.

Brian: They do.

Lucas: And that's why they're pulled out these four and they've become a big potin. So the rules say there needs to be some sort of procedure within an office in order to check that the owner of the property is that actual owner.

Andrew: Yeah we'd like to see our driver's license rates notice forms of ID and it's remember it's something that the agent signs off on to confirm that they have..

Brian: Some agents are getting photocopies of it and you can that's good risk management but yeah as long as you sign it that you viewed them and recorded what you viewed and document that's fine, that's not a problem. I mean they have an ID one anyway the Commissioner suggested one.

Lucas: A form, you mean?

Brian: A form.

Lucas: So they have a suggested form in which that you could utilize if you want to do is you're part of your policy and procedure in what you would check every time you sign an agency agreement.

Brian: That's both through sales in property management.

Lucas: It is so the first one is what they are what in that particular form is they want to check someone's primary proof of identification what's the first tick box that you should look at?

Andrew: Driver's license is the easiest.

Brian: Passport.

Lucas: Passport, so that's the easiest way and then they also ask for.

Brian: It's photo ID.

Lucas: A photo ID, they also ask for a secondary form of personal identification, being?

Andrew: Rates notice is the easiest one so that's the third yeah you could use a credit credit card or a Medicare card.

Brian: Electricity, gas you can use those.

Lucas: Obviously the idea of the primary proof is to check that I know that you're Brian Cannan, I can see your identification. Second to that is obviously if I was a little bit someone's say driver's license for example it's obvious that they don't necessarily own the property that's on that particular license so it doesn't check proof of ownership what does the form say in terms of how to check someone's ownership of a property?

Brian: Current rate notice.

Lucas: Pretty simple, so having those three tick boxes is what the guidelines recommend to utilize within an office in and around a policy and procedure around that as well.

Brian: It's important what Andrew said earlier that they are checking they're giving some warnings and they have fined. If you're not doing it we recommend that you do.

Andrew: Again just like when the under quoting guidelines came in we needed to change our habits we need to break old habits move into new habits it's exactly the same with the fraud prevention guidelines.

Brian: The agents who are using the Fair Trading suggested form they're finding it's not hard. It's got Fair Trading on it, just saying this is a new rule that Fair Trading has brought in is what I've got to do.

Andrew: Exactly it just a matter of changing your habits.

Lucas: So if anyone out there who doesn't have these sort of policies or procedures in their office, if you want to let us know you can comment below or send me an email lucas@thinkrealestate.net.au. I'm more than happy to share an example policy and procedure that you can use with the Fair Trading suggested documentation as well because at the end of the day we're here and we want to help every agent out there and to help sure that their make sure they're doing the right thing they may be doing the right thing to make sure their paperwork backs that up.

Brian: We don't want you fined.

Lucas: All right, so everyone out there that is Episode 1 for Think Tank. Thank you very much for joining us. If you have any questions feel free to comment below and if you did want to copy those fraud prevention policies let me know send me an email lucas@thinkrealestate.net.au. On behalf Andrew, Brian and myself thank you very much for joining us.

Brian: Thank you.

Andrew: Thank you.