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

Second Reading

Adjourned debate on second reading.

(Continued from 9 April 2013.)

The Hon. J.A. DARLEY (17:13): I rise to speak on the Statutes Amendment (Real Estate Reform Review and Other Matters) Bill. The bill implements the recommendations of the review into the Land and Business Sale and Conveyancing Act 1994 and addresses other issues raised during the consultation process. It also incorporates a number of additional changes on related grounds that the government considers necessary for inclusion in the bill. The bill has three main objectives, namely, to strengthen the rights of consumers, to increase the level of transparency of real estate transactions, particularly auctions, and to reduce the administrative burden on real estate agents and auctioneers.

The most significant changes involve bait advertising and underquoting of price ranges by real estate agents. The bill addresses this issue by creating a nexus between the selling price sought by or acceptable to the vendor and the reserve price set by the vendor. The bill requires an agent's genuine estimate of the selling price to be expressed in the sales agency agreement as a single figure, as opposed to a price range. In the case of auctions, it restricts the reserve price to 110 per cent of the selling price sought by or acceptable to the vendor as stated in the sales agency agreement. According to the government, the benefit of this is said to be that it will provide a greater level of certainty by meeting the expectations of prospective purchasers where the auction of a property is based on advertising that reflects the genuine selling price of the vendor.

In terms of marketing, if an agent makes a representation as to a likely price for the property, the price must be expressed either as a single figure or two single figures in combination—with the first figure constituting the lower limit of the range and the second, the upper limit. The upper limit will not be allowed to exceed 110 per cent of the lower figure. The bill also provides that a sales agency agreement for the sale of residential land by auction may not be varied by increasing the amount specified in the agreement as the selling price sought by, or acceptable to, the vendor. This last measure is aimed at ensuring that the vendor's price is not set low for the duration of the marketing campaign to entice potential purchasers and then suddenly increased just before an auction.

Other provisions of the bill include: requiring agents to provide details of sales of comparable land, or other information on which the agent will rely, in support of the estimated selling price which must be included in the sales agency agreement; allowing agents to extend a sales agency agreement for a further period of 90 days provided that the vendor agrees to an extension within 14 days of the expiration of the original agreement; providing agents with more flexible time frames for delivering copies of the verification of vendors statement certificate and sales agency agreements; limiting what auctioneers are required to audibly announce at an auction; permitting auctioneers to use a unique identifier when taking bids from purchasers; amending the definition of small business to include businesses to the value of $300,000, excluding GST; allowing cooling-off notices to be delivered by email; providing bodies corporate with access to cooling-off periods when purchasing residential land; enhancing disciplinary action against agents who are found guilty of offences, including breaches of marketing requirements; and increasing associated penalties and expanding payments from the indemnity fund to include the cost of compliance and prosecutions.

I agree with the government's objectives in terms of strengthening the rights of consumers and increasing the level of transparency of real estate transactions, but I am concerned about the approach being taken to achieve these goals.

Firstly, the proposed legislation provides no protection for the vendor. The only way they can protect their interest is to provide a highly inflated figure, which is equally misleading. Worse still, you could end up with agents convincing vendors that the property is worth a lot more than it actually is worth by marketing the property at an inflated price. What is more, a purchaser could unwittingly pay that figure when it was never anticipated that the property would sell for that much in the first place.

Secondly, providing a single figure in sales agency agreements as opposed to a price range does not achieve what is intended by the government. As a former valuer-general, I can tell you, valuation is not a precise science. In fact, I would defy any valuer, anywhere, at any time, to be able to determine an absolutely precise figure on a given property on a given day. It is virtually impossible. There are a number of variables which affect valuations, including rising markets, falling markets and static markets. In addition, you can never be sure who the prospective purchasers are and what their reasons are for wanting to buy. These are all factors that play a role in determining the value of a property.

In terms of advertising, you will inevitably end up with agents trying to overcome these provisions by refusing to provide any sort of price guide whatsoever during the marketing stage, something which is becoming more and more common, even today. In terms of auctions, you will inevitably end up with vendors providing an over-inflated figure to ensure that they are not locked in to a decision they are not comfortable with.

Furthermore, I am advised that once a reserve is set, there is actually no legal requirement on the auctioneer to pause and consult with the vendor. It may be good practice, but it is not a requirement. After speaking to the auctioneers, I understand that the usual protocol is that, once a person has indicated they are willing to accept a given price, the auction will continue until that price is reached or exceeded. Given that under the bill the vendor's only ability to withdraw from the sale once it passes the reserve is by withdrawing the property from the market, you would think that auctioneers would be required to consult with the vendor before the hammer actually falls, irrespective of whether or not the reserve has been exceeded.

There are many instances where a property will spark a lot more interest than first anticipated. If this occurs, vendors better hope and pray that the buyers are registered at auction, because if they are not, sales agency agreements will not be able to be adjusted upwards to reflect the mood of the prospective purchasers. In terms of comparable sales, there are also a number of variables that need to be considered when assessing them. Factors such as the contract date of sale, the date of settlement, the details of the purchaser and vendor, and any conditions of sale are highly relevant to the comparability of sale prices.

To my knowledge, the commissioner's staff are, with respect, not qualified valuers and do not possess the requisite knowledge to be able to adequately interpret comparable sales and make valuations of properties. It would make much more sense for the commissioner to refer any disputes to the Valuer-General's office for consideration, because for one the Valuer-General has much more information available to them than the commissioner and indeed real estate agents, including the names and addresses of purchasers and vendors.

Secondly, the Valuer-General has the requisite knowledge required in undertaking these sorts of assessments. They do it every day. For this reason, I foreshadow that I will be moving an amendment that would require any complaints made to the commissioner regarding bait advertising to be referred to the Valuer-General for consideration. The Valuer-General will be able to make a determination based on all the circumstances, including taking into account comparable sales and market conditions.

As with other matters that the Valuer-General currently considers, this would include implementing a policy for dealing with such referrals. I would go so far as to say that the Valuer-General's involvement in this process also eliminates the need for a single figure in sales agency agreements. To that end, I foreshadow that I will be moving amendments with regard to both the single price and the 110 per cent concept.

As with many of the bills we debate in this place, much of what the government is trying to achieve through this bill comes down to adequate policing. The feedback I have is that at present policing is being limited to very minor breaches, such as not wearing an identity badge or not quoting registration numbers on marketing and advertisements. There is not, as I understand it, a lot being done to police those who are knowingly and rather unashamedly luring prospective purchasers in, sometimes at considerable expense, under false pretences.

Like the Hon. Terry Stephens, I too was curious to know how many agents have been prosecuted, or how many attempts have been made to prosecute agents, for bait advertising over the last few years, particularly since the implementation of the last raft of legislative reforms in 2008. To that end, I asked the minister's office to provide me with details regarding the number of agents who have been prosecuted, or the number of attempts made to prosecute agents, for bait advertising over the last few years, particularly since the implementation of the last raft of legislative forms in 2008.

The information provided by the minister's office provides as follows. In the last five years, the following actions were taken by Consumer and Business Services specifically on the issue of underquoting: one verbal warning; 13 written warnings; two assurances. The difficulties in taking action for underquoting are due to the constraints of the current legislation, in particular the enormous difficulties in proving that an agent's estimate is genuine; the ease with which an agent can cite external factors and selectively manipulate RP Data to justify their estimate; the likelihood of collusion between the agent and the vendor and the vendor's pleasure at the eventual price received; and the right of the vendor to change their reserve price at any time during the auction process.

During the last five years, CBS has received a total of 572 complaints relating to real estate agents and salespersons and the Land and Business Sale and Conveyancing Act 1994. During the last five years, CBS has received 43 written complaints in relation to allegations of under quoting by agents. A list of those complaints has also been provided.

It includes instances of properties being passed in at prices higher than the advertised price, alleged breaches of advertising provisions regarding underquoting, allegations of unfair and misleading bait advertising, allegations of misrepresentation of price, and allegations of collusion between the vendor and agent, amongst others.

The information goes on to provide that CBS does not track verbal complaints: it asks the complainants to put their concerns in writing. In addition, CBS officers, who conduct regular inspections and monitoring of auctions, also advise that during this period they have received approximately 100 verbal and written—predominantly verbal—inquiries and complaints from agents, auctioneers and members of the public concerning alleged underquoting practices.

The information goes on to provide that it is vital to note that members of the public typically do not complain about underquoting because they are aware that the vendor has the right to change the reserve at any time. So, if a property is advertised at $500,000 and then passed in at $550,000, the frustrated purchaser knows this is legal, albeit misleading to their expectations.

As I understand it, the actual number of agents said to deliberately and regularly adopt the practice of underquoting is no more than a handful. Based on the information provided—and I stand to be corrected—there have been no prosecutions over the last five years. I would question whether the situation will be any different under the provisions of the new bill insofar as they relate to the use of a single price.

As I said at the outset, I agree that something needs to be done to better protect consumers from practices such as bait advertising. It is unacceptable that some purchasers are being put to considerable expense only to find that they have nowhere near the sufficient funds to secure the property. As it currently stands, however, the bill focuses primarily on purchasers and ignores any possibility of disadvantaging vendors.

It is also unfortunate that the majority of agents are being tarred with the brush of suspicion due to the actions of a handful of agents who flagrantly disregard the law. In my view, however, this is reliant more so on better policing than restricting agents in terms of their ability to appropriately price a property. Using the indemnity fund to subsidise more appropriate levels of compliance and prosecutions and actually prosecuting those agents who do the wrong thing is definitely a step in the right direction.

In closing, buying or selling a home is probably the single biggest financial decision that most people will make in their lifetime. As such, it is also a very emotional time for many people. It is extremely important that all parties to such a transaction are equally protected. Having spoken at length to the chief executives of both the REI and the Society of Auctioneers and Appraisers, it is clear that they are divided over the core amendments relating to the single price and the reserve price. I think it is equally important that the bill have unanimous support from within the industry, rather than they agree to measures they do not like in exchange for having other measures in the bill passed. With that, I support the second reading of the bill.

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