STATUTES AMENDMENT (REAL ESTATE REFORM REVIEW AND OTHER MATTERS) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 7 March 2013.)

The Hon. T.J. STEPHENS (17:42): I rise to speak on behalf of the Liberal Party with regard to this bill. I acknowledge the member for Goyder in another place for his assistance and ongoing work on this bill; he really has been tireless in his efforts. It has been difficult to make sure that we have been quite steady in our resolve to support the industry with this bill, given that at different times there have been conflicting opinions.

Can I say from the outset, so that I am not accused of any conflict, that I have a son who has a real estate salesman's licence, recently obtained. I can indicate that I took no advice from him with regard to this bill. I would like that on the record so that I am not accused of not declaring that.

We on this side wish to make the real estate market as fair as possible for all parties, namely, the vendor, the purchaser and the agent acting on behalf of the vendor. The member for Goyder outlined the Liberal Party's position in regard to this bill in the other place. We have several concerns about the implications of the government's bill. Fundamentally, the Liberal Party wants less regulation and red tape where possible and necessary. In this case, some of the provisions in the government's bill would burden agents unnecessarily when, in practice, the provisions would do nothing for consumer protection which, according to the minister, is the raison d'être for this bill.

I flag that I will be moving amendments during the committee stage of this debate on behalf of the opposition, and they include removing the provisions covering the proposed nexus between the selling price and the reserve. These provisions imply that there is a collusion between vendor and agent to deliberately dupe an unsuspecting buyer. This is a rare occurrence at best and, when it does occur, it is bad practice and should be prosecuted under current provisions, but the opposition does not believe that the entire industry should be forced into a narrow 10 per cent range when pricing. As pointed out by the member for Goyder, the worth of the property to the vendor may be higher than the price range recommended by the agent. After auction, it is up to the vendor whether they wish to sell a property at a price lower than the reserve.

I would like to read into Hansard a very good letter I have received (and I think a number of members have received) from Steve von der Borch, who is a principal at Harcourts Aqua. I think that he describes very well what I think is very much a consistent opinion from the real estate industry. It states:

How Auction pricing legislation will affect you.

In November 2012 legislation passed the South Australian State Parliament with the effect of limiting reserve prices for properties to be sold at auction. The legislators have had concerns about 'bait pricing' but how will the legislation impact the various parties. What price is to be paid for 'transparency'?

It seems a very high one. It continues:

The essence of the legislation involves the vendor committing to a maximum reserve price at the point the property is listed. The reserve on the day of Auction will now be limited to an amount of 110% of the price quoted by the agent as a single figure and as authorised by the vendor.

Previously the vendor was required to declare an amount that was acceptable to them but with no obligation to accept any price whatsoever. This system worked well insofar as to a large degree it encouraged the vendor to authorise an advertised price but often they did so because they had no commitment to it. Occasionally, as their motivation and perspective on value changed, so did the vendors reserve price. Sometimes it changed to a degree that the reserve bore no relation to the price quoted.

At the point of listing the property for sale most vendors are not certain of what they will eventually require. We all would love to achieve a great price and most will eventually agree to meet the market. The problem more often than not is that we just don't know how much that amount of money is because we have no market feedback and the day is so far away. Now the legislation requires otherwise.

What we need to arrive at a final decision about what a property is worth is market feedback and all the facts that will impact value. This legislation presumes that before assessing the response of the market, before receiving the searches, before understanding the full impact of engineering aspects, pending approvals etc. the agent and the vendor will know the maximum amount of the reserve.

As an example: A vendor urgently needs to sell land with clear capacity within planning guidelines to accommodate two homes. An application for planning approval of three properties has been lodged by the vendor but there is no approval as yet and they can't wait for it.

The agent and the vendor forge ahead with the auction sale on the basis of what they know is possible and the prices are set accordingly. A week after commencing the marketing, to their surprise the vendor receives an approval for three homes. The property is now worth significantly more.

In this scenario the vendor and agent must wait until the agency expires (up to 90 days) before the reserve of a new auction campaign can be commenced. Alternatively the agent (who did not wrong) and the vendor can agree to part company by cancelling the agency and a new agent can be appointed to sell the property with a new reserve price.

2^nd Example: An agent (A trusted friend of the family), in the course of appraising a property outside of their normal area, makes an error when arriving at his/her recommendations about the worth of the property to be auctioned by assessing the value significantly lower than the real market worth. The vendor, trusting the agent's advice records their acceptable price accordingly. Shortly after, as the official searches arrive the agent discovers the error and reassesses the property to be worth significantly more than the original opinion as recorded on the agency.

In this scenario the still trusted family friend who is their agent and the vendor must wait up to 90 days so that the price can be recorded correctly in a new agency and the auction conducted in circumstances fair to the vendor. Alternately the agent can agree to release the vendor and a new agent appointed without the existing restriction on the reserve price.

The agent is punished for being honest and the vendor loses time or a trusted advisor.

An agent could be encouraged by the legislation in such circumstances to withhold their best advice.

3^rd Example: It is the day before the auction of a property where the vendor has authorised a price of $500,000 with every intention of setting a reserve within 110% of that. That morning the rear neighbour knocks on the owners door and makes a conditional offer of $585,000 subject only to finance. The vendor prefers a definite sale but the neighbour has made an impressive offer that has changed the vendor's perspective on the acceptable price at auction that may or may not match the pre-auction offer with bidding.

If the vendor could have had their way they would obviously now have set the reserve higher on the day and perhaps sell at a little lesser amount at auction to achieve the better conditions or if the bidding falls well short, take the conditional offer at far superior money.

However the new legislation won't allow that to occur. In this scenario there are a number of alternative courses of action open to the vendor.

The first is to cancel the auction and commence negotiations with all parties.

Secondly; the agent could run the auction with the auction reserve price at the legislated limit and then instruct the auctioneer to refuse bidding at or above the reserve price (which is a right of the vendor) causing the property to be passed in. Subsequently the agent would speak to the bidders and interested parties. Explain how the legislation doesn't aid in this situation and encourage all to submit offer.

Thirdly; the vendor could wait until the expiration of the existing agency or cancel the existing agency appoint another agent and auction the property with a new price statement.

4^th Example: Imagine for a moment we are in the early phases of a boom market. The agent can only look backwards at the market evidence, which suggests a market worth for the...property of $500,000. History tells us that in Adelaide in boom conditions we can experience a rise in prices of 25 per cent in as little as four or five months.

As the subject property is listed all the comparable sales support the agents estimation and the vendors requirements and the agency is formed accordingly. For a month after the formation of the agency the property is being prepared for sale. All the time market evidence is immerging casting doubt on the original estimation and vendors requirements as being far too conservative.

As the property commences its marketing campaign two properties with exactly the same essential elements are about to be auctioned. Both achieve prices that prove the value of the subject property to now be in the low to mid $600,000s.

As in all the previous examples, the vendor is stuck with the advice and the anchor of the price they declared on the agency at the time of listing. Either they part way with the agent who did no wrong and be able to quote a new price or they risk the auction with the reserve price legislated to be $50,000 below the current proven worth of the property.

In summary: This legislation has admirable aims but is obviously seriously deficient in addressing the consumer rights of the vendor while disproportionally boosting that of the buyer.

The driving concern of legislators has been to address the perception of deliberate bait advertising that occurs from time to time and the consequential disappointment of buyers who have possibly waisted time and money preparing for an auction. However, so often, what appears to be deliberate deception is simply the normal cycle of events that effect value of property, the agent's advice and the vendor's position on price as circumstances dictate.

This legislation has the potential to cause the agent to withhold valuable advice from the vendor because the legislation could put in jeopardy their agency for being honest.

A simple solution:

It seems to the writer that there is a much simpler solution that is fair but not without risk. It is one that involves preserving the logical rights the seller must have to determine without restraint at any time what price they will sell at and in what circumstances.

At the same time it is essential that any potential buyer is fully aware of the vendors rights and understands that there is a risk in participation in an auction process.

When the price statement is issued at the point of inspection the potential purchaser should be issued with written advice that would include statements to the following effects:

The buyer should seek independent advice about the estimated worth of the property and not rely upon any representation by the agent or auctioneer.

The Vendor has the right to sell or not sell at any price and is not bound by the price statement to set their reserve price at any level.

Fair warning of the circumstances surrounding price is appropriate as it encourages the purchaser to make an informed decision on their participation in any auction or auctions in general. If a buyer objects to auction because they perceive the risk to be too high then they need not feel compelled to participate. That is there right. It seems inequitable that because the buyer has not taken the opportunity to obtain independent advice on the worth of a property that the vendors rights be curtailed to the point of possible severe financial impact.

There it ends. Can I say that that letter is quite reflective of a number of concerns that individual agents have contacted me with and I think their concerns are well placed.

The Minister for Business Services and Consumers, during his diatribe in the other place, carried on about how this protects consumers, i.e. buyers, against the unscrupulous activities of agents and vendors but the reality is that in all business transactions, the monetary sum exchanged must be agreeable to all parties. The purchaser must be willing to pay and the vendor must be willing to accept—this is basic.

It seems the government has been carried away with its interpretation of consumer protection and forgotten that we operate within a free market system. While the consumer should have access to all the information, the consumer must also remain vigilant; hence the old adage 'buyer beware'. This does not mean, however, that any illegal behaviour on behalf of vendors or agents should not be prosecuted to the full extent of the law.

The point is that the opposition believes amendment of the current provisions is unnecessary; however, I understand that the industry is indifferent to the new wording. It occurs to us that the government's major incentive here is to score political points by feigning support for the consumer. However, there are three parties in most real estate transactions and all should be protected and dealt with fairly by the law. These provisions do not significantly increase protection for the purchaser while inhibiting the agents and vendors. It needs to be understood that buying and selling a property are not the same as buying a fridge, despite the misguided thoughts of the Attorney-General.

Moving to other provisions covered by this bill, the opposition supports the amended definition of small business, that is, those businesses worth $300,000, excluding GST. It strikes me as somewhat bizarre that the government seems confident enough to define small business in this situation but not in the case of the Small Business Commissioner Act. It obviously suits their interests to do so here.

This bill addresses sales agreement extensions which I will seek to amend should this bill reach the committee stage. The bill allows for extensions but requires both the vendor and agent to sign an extension, and the agreement may not be extended more than once. Why is this the case? If a property is not selling in a depressed or slow market, yet the sales agreement is still amenable to both parties, why should it not be able to be extended in perpetuity on the same provisions as before? We think it should, and I will seek to clarify the opposition's position on this during the committee stage.

The signing of agreement after agreement can become burdensome, not to mention tedious, if a vendor lives in a regional or remote area. The requirement to drive a few hours to sign exactly the same document over and over again is ridiculous and inflexible. The opposition will also seek to remove this red tape.

Finally, I wish to note the opposition's concern with single-price quoting and strict advertised price ranges. It is the government's intention to protect consumers, i.e. purchasers, from the big bad agent, yet in doing so it overburdens the vendor. I use 'big bad' facetiously here, as it is abundantly clear that the government is unnecessarily demonising the real estate agents of this state due to the unsavoury actions of a select few. This is not a smart way to legislate.

The bill states that an agent must give a genuine estimate of the selling price, which then forms the basis of the prescribed minimum advertised price. For a start, if this figure is an opinion, there should be room for error, which the existing legislation allows in the form of a range. This bill allows only for a single price. Secondly, if this flawed opinion is then used as the basis for an advertised price range, surely this price range will be flawed also.

It is my understanding that, although agents have knowledge of the real estate market, they are not experts in valuation. The bill allows a maximum penalty for a breach of the section just referred to of $20,000 or one year's imprisonment. This is pretty serious, considering the section is flimsy at best. I also question how effective enforcement will be, given that the existing legislation has provision for prosecution of unscrupulous conduct of agents and yet the number of prosecutions remains negligible. I will ask the minister in her summing up to tell us exactly how many agents have been prosecuted over the last few years, or how many agents they have even attempted to prosecute.

While there are merits to parts of this bill, much of it is typical of this government—all hat and no cattle—and therefore we look forward to the committee stage of this debate, when I will outline the opposition's preferred provision. With this in mind, we urge support of the second reading.

The Hon. R.P. WORTLEY (17:57): I rise for a few moments to endorse the remarks of my colleagues, particularly those of the Hon. Gail Gago, who introduced the bill to this chamber. The government has always supported the real estate framework, which promotes and protects the interests of consumers while at the same time enabling agents to conduct their business as expeditiously and efficiently as possible. It is essential that the government gets this balance right.

The government has identified continuing concerns about the practices of bait advertising and underquoting, and it is these concerns that underpin the bill we have before us today. In essence, the bill proposes to augment and strengthen consumer rights, foster more transparency in property transactions—especially auctions—and reduce administrative encumbrances on agents and auctioneers.

Buying a dwelling for ourselves and for our families is not only a significant financial decision but it is also an emotional one that takes into account deep needs to shelter and nurture our loved ones in a secure, happy and comfortable environment. Our homes are expressions of our lifestyles, our values and our aspirations. They are our stake in the future.

So, it is regrettable that bait advertising and underquoting are techniques we have become all too familiar with, if not by virtue of direct experience then through the accounts of our family, friends and constituents or in the media. As an example, if the price of a property is deliberately underquoted, prospective purchasers can be placed in a position where they secure finance to a particular amount, spend money in good faith on building inspections, pest inspections and the like, and still find on auction day that they have nowhere near the sufficient funds to secure the property. At the same time, the majority of ethical agents are being tarred with the brush of suspicion due to the actions of an unscrupulous few.

This bill aims to alleviate these problems by introducing a number of important measures that have been arrived at through extensive consultation and the preparation of a review report. In summary, these are as follows:

the sales agency agreement will provide details of comparable sales on which agents rely in arriving at a price estimate;

the sales agency agreement will be extendable for a single further period of 90 days if certain conditions are satisfied;

more flexible time limits will apply to the provision of a copy of the verification of the vendor's statement certificate and the sales agency agreement to the vendor;

auctioneers will no longer be obliged to announce each auction condition prior to the commencing of bidding;

the bidder identifier modes will be expanded to include letters, colours and other such features as well as numbers; and

the definition of what is a representation of the likely selling price for residential land will become more stringent.

In addition:

the definition of small business will be expanded;

the delivery of a cooling-off notice by email will be allowed, as long as the vendor agrees;

when buying residential land, body corporates will be able to avail themselves of the cooling-off period;

agents and auctioneers will be obliged to take all reasonable steps to advise potential purchasers of opportunities to inspect the vendor's statement; and

the display of the prescribed notice for collection at the open inspection of a dwelling, rather than its distribution to each individual potential purchaser, will be allowed.

Other applicable amendments relating to the quantum of the reserve price and to the disclosure by an agent to a potential purchaser of offers made by other potential purchasers have also been incorporated in the bill, as have certain sanctions for compliance failure.

In concluding these brief remarks, I note that Adelaidenow reported on 1 February this year that house values across the capital cities increased by an average of 1.2 per cent over January. This recovery trend is, of course, welcome, but it is an environment in which these necessary reforms—reforms that will enhance transparency and increase confidence for all parties to a real estate transaction—are even more crucial. I commend the bill.

Debate adjourned on motion of Hon. K.J. Maher.