Mandatory CPD 2012
Ethics
Real Estate Agents
and Business Brokers
Distance Learning
Participant Manual
IMPORTANT
This workbook and the accompanying questions have been prepared by REIWA for
educational purposes only, as part of the Department of Commerce Compulsory
Professional Development Program.
It is not, and should not be construed as, legal advice.
Any person in doubt as to their legal rights and obligations should seek the advice of a
suitably qualified and competent legal practitioner.
Copyright
© 2012. Department of Commerce WA
All rights reserved. This training resource manual has been developed and produced
through a collaborative approach with key stakeholders within the Real Estate
Industry. This work is copyright, and as such no part of this publication may be
reproduced, transmitted or stored in a retrieval system, in any form or by any means,
without prior written permission of the copyright holder.
Published by:
Department of Commerce
Developed by:
REIWA Learning
Reviewed by:
Department of Commerce and REIWA Learning
First Published:
May 2012
Version Number:
1
Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
Contents - Ethics:
1. Welcome to Mandatory CPD for 2012
2. Introduction
3. Ethics
4. Conflict of interest
5. Disclosure requirements
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Ethical conduct of agents
Ethics are the principles that guide our behaviour in business
and in our personal lives.
Ethical standards are an important part of the real estate
industry and play a substantial role in consumer protection for
the principal and the buyer or tenant.
While working through this material we ask you to reflect on
how ethical conduct adds to the value of your reputation and
helps build ongoing personal and business success. We also
ask you to reflect on what you believe ethical conduct is.
Some people believe that ethical conduct is the willingness to go beyond what is
mandated by law. This includes not taking advantage of vulnerable people, loopholes
in the law, or the opportunity to fulfil the letter of the law while perhaps ignoring its
spirit.
Certainly you are bound by law in many ways, but is every situation covered by the law
and are legal consequences the main reason you choose a certain approach in
business?
You may make ethical choices because it makes good business sense. For some
people it is about what they believe is right or wrong and taking pride in what they do.
Let’s look at some examples of ethical dilemmas that we may be faced with from time
to time.
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Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
Activity 1
In this activity you are being asked to make a judgement based on
your personal ethics.
Read the following scenarios and rate how ethical you would
consider the actions on a scale from 1 to 10.
Mark your response on the number-line.
After answering check the Activity Answers on page 21
Scenario 1
You attend a garage sale and see an item that has a price way below the value you
know that it has. You purchase the item at the price displayed without mentioning its
real value to the owner.
1
2
3
4
5
6
7
8
Highly unethical
9
10
Highly ethical
Scenario 2
A charity sends you a pack of Christmas cards and invites you to make a contribution.
You use the cards but do not make the contribution.
1
2
3
4
5
6
7
8
Highly unethical
9
10
Highly ethical
Scenario 3
You attend a concert and notice that there are some better seats that have not yet
been taken. You move to the better and more expensive seat.
1
2
Highly unethical
3
4
5
6
7
8
9
10
Highly ethical
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
The role of legislation
The Real Estate and Business Agents Act 1978 (the Act) and its accompanying
Regulations and Code of Conduct (the Code) regulate real estate practice in Western
Australia. The Act and Code dictate the way in which the business of the estate agency
must be conducted. The Department of Commerce administers the Act and Code and
is the Regulator.
Often the wording of the Act or Code requires interpretation, and ethics can be a
valuable tool to help you to ensure that your judgements and actions are beyond
reproach. The following sections of the Code of Conduct reflect the ethics expected by
the Regulator and demanded by consumers.
4.
General duty to principal
An agent must act in the best interests of his or her principal except where it
would be unreasonable or improper to do so.
5.
Certain inducements prohibited
(1) An agent must not knowingly induce or attempt to induce a person to breach a
contract of sale, letting or agency.
(2) An agent must not knowingly induce or attempt to induce a person to enter into
an agency contract which would make that person liable to pay commission to
more than one agent in relation to a sale or a lease of any real estate or business.
7.
Duty to behave fairly
(1) An agent must act fairly and honestly.
(2) An agent must not knowingly mislead or deceive any parties in negotiations or a
transaction.
(3) An agent must not engage in harsh or unconscionable conduct.
9.
Standard of service
An agent must exercise due skill, care and diligence.
10. Duties as to details of the transaction
(1) Prior to the execution by the agent’s principal of any contract relating to the sale
or lease of any real estate or business the agent must make all reasonable efforts
to ascertain or verify the facts which are material to that transaction which a
prudent agent would have ascertained.
(2) If an agent ascertains a fact which is material to a transaction in which the agent’s
principal is involved the agent must promptly communicate that fact to any person
who may be affected by it unless it is clear that person was already aware of that
fact.
Code of Conduct for Agents and Sales Representatives 2011
The maximum penalty for failure to comply has increased to $50,000.
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Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
New consumer laws
While discussions around ethics normally address the grey
areas outside the law where personal judgements are made,
we must also be aware of changes to the law, as they
sometimes dictate that what was once accepted as ethical
conduct has changed.
For example there was a time when it was considered ethical
to ‘let the buyer beware’. That has changed under modern
consumer law.
The Commonwealth Competition and Consumer Act 2010 (replacing the Trade
Practices Act 1974 for transactions occurring after 1 January 2011) and the WA Fair
Trading Act 2010 (FTA) together introduced the Australian Consumer Law (ACL) into
WA on 1 January 2011. The ACL applies throughout Australia as the nationally uniform
general consumer law.
Some key issues these laws raise for agency ethics include:
•
documents are required to be ‘transparent’, legible and clearly expressed;
•
'one-sided' terms in contracts that are unfair to the consumer are to be avoided
and will be void in some cases;
•
false or misleading representations (testimonials, advertising, statements);
•
conduct likely to mislead or deceive / full disclosure of material facts;
•
opinions such as appraisals to be well founded / with proof of basis retained;
•
consumers not to be bullied, harassed or coerced;
•
vulnerable consumers to be protected from unconscionable conduct;
•
sales people to comply with rules for unsolicited consumer agreements i.e.
o set hours for cold calling
o compliant documents with explanations e.g. if cooling off periods apply
o consumers given copies of documents.
Maximum penalties have increased under the ACL to $1.1 million for bodies corporate
and $220,000 for individuals.
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Conflict of interest
Section 64 of the Act, along with Articles 12 and 18 of the Code of Conduct cover the
legal requirements regarding conflict of interest.
12. Conflict of interest
(1) An agent must not accept an engagement to act, or continue to act, where
to do so would place his or her interest in conflict with that of the principal.
(2) An agent shall not without the prior written consent of the principal, directly
or indirectly, purchase or take on lease or be in any way concerned or
interested, legally or beneficially, in the purchase or taking on lease of any
real estate or business which the agent is engaged to sell or lease.
(3) An agent who directly or indirectly purchases or takes on lease or is in any
way concerned or interested, legally or beneficially, in the purchase or
taking on lease of any real estate or business which the agent is engaged
to sell or lease shall not demand, retain or receive a commission unless
the principal has agreed in writing to pay the commission at the same time
as or following the signing of the consent referred to in section 10(2).
18. Disclosure required when recommending
(1 ) An agent who recommends to a party to a transaction, a settlement agent,
finance broker or any other supplier of goods or services, must make a
written disclosure to the party of any significant relationship, connection or
affinity between the agent and the supplier.
(2) Where the relationship, connection or affinity between the agent and the
supplier is capable of producing a conflict between the interests of the
party to the transaction and the agent, the agent shall include in such
written disclosure an explanation of the nature of the potential conflict.
Code of Conduct for Agents and Sales Representatives 2011
What is an interest?
The word ‘interest’ when pertaining to real estate, can be defined as;
“Any and all rights to use or benefit from a property”
This could be anything from rights under an easement, mining rights, and an option to
buy / lease the property, to renting or purchasing the property.
A ‘conflict of interest’ could relate directly or indirectly to this definition of interest.
What is a conflict of interest?
A conflict of interest can be defined as: “a situation where a person has a personal
interest in a matter which is the subject of a duty or decision of that person.”’
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Mandatory CPD 2012
Who is 'an agent'?
Article 3 of the Code of Conduct clearly states that when the term ‘an agent’ is used in
the Code, it includes both agents and sales representatives.
The main types of conflict of interest for agents
•
A situation in which a real estate agent has a private or personal interest in a
property which is the subject of their real estate duties.
•
A situation in which an agent's employee, family, friend or business associate
has an interest in a property which is the subject of the agent's real estate
duties.
•
When recommending a supplier to a client, with whom the agency or an agency
employee has an affiliation.
Section 64 of the Act stipulates that a full written disclosure is made to the affected
party explaining the nature of the potential conflict.
The difference between a direct and indirect conflict of interest
A conflict of interest arises when there are competing interests or loyalties that are at
odds with each other, or potentially can be. It is vital that you are able to recognise
when you have a conflict of interest, even if it is an indirect conflict.
Direct interest
This involves taking direct possession or receiving a direct benefit, whether it is
financial or otherwise. For example, if an agent personally buys, leases or takes an
option on a property that they hold an agency for, they have a direct interest in it.
An agent also has a direct conflict of interest if they recommended a service provider to
a client and then receive a payment for this.
This also applies if there is a non-financial benefit, (e.g. a discount on future search
services in return for recommending a settlement agent).
Indirect interest
If an agent has an interest in an entity (e.g. is an investor in a business) and that entity
then takes an interest in a property that is the subject of the agent's real estate duties,
then the agent has an indirect conflict of interest.
An agent also has an indirect conflict of interest when they (or anyone employed in the
agency) assists an employee, close associate, friend or family member to take some
form of interest in a property that is the subject of the agency's real estate duties.
This is the case even if no benefit is accrued by the agent except the normal fees paid
by the owner.
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Types of interest
A conflict of interest can come through one of the following:
•
Financial interest
The situation has potential for the agent to make a financial gain, either direct or
indirect (for instance buying a property they have listed).
•
Personal interest
The agent furthers a personal interest but gets no financial benefit e.g. they
help a supplier who is a friend to get business, or recommend a tenant who is a
personal acquaintance.
•
Business interest
There is a potential benefit to the agent's business e.g. they discourage an
owner from leasing a neighbouring property to a competitor.
•
Shareholder or officer of a company
The interests of a company the agent is associated with compete with a client's
interests.
•
Beneficiary of a Trust
The interests of a Trust of which the agent is a beneficiary compete with the
interests of the client.
Activity 2
Consider the following scenarios in terms of conflict of interest. For
each of the situations there is an actual or potential conflict of interest.
a) Decide what type(s) of conflict of interest exist(s) in each
transaction?
b) How would you act in each case?
Make a note of your answers in the space provided.
After answering check the Activity Answers on page 22
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Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
Scenario 1
Your property manager brings in a new management authority for a townhouse and
advises that he/she would like to lease this property.
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Scenario 2
One of your sales representatives comes to you after a home open and advises that his
ex-spouse came to the home open and has submitted an offer to purchase.
. . . . . . . . . . . . . . .. . .. .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . .. .. . . . . . . . . . .
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Scenario 3
You are appointed to act for a large developer who has a commercial building for lease.
Your spouse is a director of a company interested in leasing one of the office spaces.
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Scenario 4
Your neighbour asks you to act for him in the sale of his newsagency. Your uncle is
looking for a small local business to invest in and asks you to talk to the neighbour
about selling to him. He plans to buy the business through his family trust, of which you
are a beneficiary.
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Disclosure of interest
The requirement for an agent to disclose any conflict of interest is a principle of common
law and is reinforced by Section 64 of the Act and by Articles 12 and 18 of the Code of
Conduct, previously noted.
Section 64 (1) and (2) of the Real Estate and Business Agents Act 1978
(1) An agent shall not have, directly or indirectly, any interest, other than in his
capacity as an agent, in any transaction in which he acts as an agent, unless
his principal has given prior written consent thereto.
(2) A sales representative or other person in the employment of an agent shall
not have, directly or indirectly, any interest, other than an interest that exists
by virtue only of his employment, in any transaction in which the agent acts or
purports to act unless the agent’s principal has given prior written consent
thereto.
One of the most serious breaches of an agent’s duty is to allow a conflict of interest
with the principal without making disclosure.
The obligation of disclosure applies when the agency has listed a property or business
for sale or lease and:
•
the agent or an employee of the agency wishes to buy, rent or otherwise take
an interest in that property
•
the spouse, relative, friend or close associate of the agent or of an agency
employee wishes to buy or rent that property
•
the buyer or tenant was acting on behalf of a company, trust, or any other
entity with which the agent or their employees had a close association.
Conjunction
The obligation to disclose also applies where an employee or associate buys a
property listed with another agent if their agency has a conjunctional arrangement with
the selling agent.
Sale or lease of your own property
Even though the Act does not specifically require disclosure to the buyer that a
representative or agent is selling their own property, the Regulator has indicated that
an agent may be seen as knowingly misleading or deceiving parties in a negotiation if
they do not disclose such a matter, which could also be a breach of Article 7 (2) of the
Code of Conduct.
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Form of disclosure
The Regulator has indicated that some types of disclosure do not constitute 'informed
consent' and that in some cases the relevant facts may be obscured by unclear
language, too much information or options not being openly offered. For example,
blanket disclosures are not considered acceptable.
‘Blanket disclosure’ refers to a real estate agent disclosing an affinity or relationship
with a large number of parties in a contract, without these parties necessarily being
relevant to the transaction. Because the relationships that are relevant to the
transaction could be obscured by the irrelevant references, consumers are not well
served by this type of disclosure.
The consumer must understand the particular disclosure and its impact on them, and
be able to make an informed decision based on that information e.g. to choose not to
pay commission if they are not compelled to.
The agent must be able to show that the owner was able to make an informed
judgement before providing consent to continue with the transaction once aware of the
conflict. If an agent does not make full disclosure and the client proceeds without fully
understanding the possible impact on them, they may have grounds to make a claim at
a later date.
It is difficult to ensure this when an agent or agency staff member buys or leases a
property from a client, because the agency employee will almost certainly have access
to market information that is not available to the owner/seller. Some agencies do not
allow staff to buy or lease from current clients for that reason.
Agents should develop a best practice process for occasions when employees wish to
lease or purchase a property managed by the agency. This process may include the
need to retain:
•
a current market appraisal (CMA) for the property with disclosure of all facts
that might affect the sale value of the property or its rental potential;
•
a detailed report on the sales/leasing campaign, including all offers /
expressions of interest;
•
evidence that information was provided to the owners/sellers that they should
seek independent advice before signing the disclosure or O & A.
These steps can help to ensure the agency minimises risk and protects its reputation.
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Ethics - Real Estate Agents and Business Brokers
Activity 3
Consider the following scenario and list the steps you
would take to enable the client to make an informed
decision and to protect the agency.
Make a note of your answer in the space provided.
After answering check the Activity Answers on page 23
Scenario 1
A property listed with your agency for several months remains unsold.
Your receptionist lets her brother-in-law know about it. He views the property, knowing
how long the owners have been trying to sell. He indicates willingness to make an offer
that is below the asking price.
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Obtaining consent when making disclosure
In a situation where there is a conflict or potential conflict of interest the Act is very clear.
It requires the agent to make disclosure in writing to the owner before commencing
negotiations and that they gain the principal's written consent before proceeding.
When making disclosure and obtaining consent from an owner, agents must ensure:
•
the consent is separate from the contract or lease;
•
consent must be obtained from the owner in writing before the offer is
accepted;
•
that the owner acknowledges awareness of the relevant details e.g.
acknowledge the buyer/tenant's relationship to their agent;
•
the owner agrees to proceed with the sale/lease notwithstanding the conflict;
•
that the seller is advised if the agency is not entitled to charge commission
and understand that they can either consent to pay or not. A seller simply
agreeing in writing to pay commission is not giving informed consent if they
have not been made aware that the agent is not entitled to commission.
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Mandatory CPD 2012
Using a disclosure form
Full disclosure of interest and consent when dealing with properties to be sold or
leased can be achieved using a suitable agency form. Appendix 1 is an example of a
Disclosure of Interest and Consent form. This has been included with the permission of
REIWA and is available for the use of REIWA members.
The sample form comprises:
Part A Disclosure of the conflict of interest
Details of the parties; the property details and the nature of the conflict
or interest are identified. This includes identifying the buyer/tenant and
their position i.e. an agent, sales representative, spouse, company,
trust etc.
Part B Consent
Parties acknowledge that they understand the conflict and consent to
proceed.
Part C Sellers agree / disagree to pay a fee
Where applicable, sellers give written consent to the payment of
commission despite the conflict of interest. If the seller is not willing to
pay commission, then they do not sign this.
Note: The form shows that the option not to pay commission only
exists when the buyer/tenant is the agent or conjunctional agent or a
sales representative or property manager employed by the agent or
conjunctional agent.
Part C is not completed if the buyer is an unregistered employee,
relative or an associate.
Activity 4
In the following scenarios consider which of the following two options are
required for disclosure prior to Offer and Acceptance.
Option 1
a) Nature of the conflict of interest.
b) Acknowledgement and consent.
c) Seller’s written consent to the payment of commission.
Option 2
a) Nature of the conflict of interest.
b) Acknowledgement and consent.
Note your answer in the blank space provided on or below the flow-charts.
After answering check the Activity Answers on page 24
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Ethics - Real Estate Agents and Business Brokers
Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
The flowcharts used in this activity, were originally published in REBA News Winter
1999, and are still relevant today. They clarify the Regulator's position on when and
how disclosure is made and when commission is a matter of consent.
The completed flowcharts are attached as Appendix 2.
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Real Estate Agents and Business Brokers - Ethics
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Does the disclosure make the conflict go away?
A signed disclosure brings a conflict of interest out into the open. Legislative
requirements are met when the owner/seller understands the significance of the conflict
and gives informed and written consent.
Agents are still required to ensure that the conflict of interest does not impact
negatively on the owner/seller in any way. If an owner/seller signs a release but later
believes that they have been disadvantaged by the way their transaction was handled for example, by being misled by a low appraisal - the disclosure would not necessarily
prevent them from making a claim through legal channels.
Storing consent records
The agent has the responsibility to retain evidence of the consent and any supporting
documentation. Documentation should be securely stored for future reference with the
transaction documents. The Regulator has indicated that best practice is to retain these
records for six years.
The consequences of non disclosure
Failure to adequately disclose any potential conflict can result in penalties and
disciplinary action being taken by the Regulator.
Penalties for Breaches of the Real Estate and Business Agents Act 1978
The Regulator has the power to commence disciplinary proceedings in the State
Administrative Tribunal against an agent for breaches of the Act or Code (Section
102) and the State Administrative Tribunal can discipline an agent or sales
representative for breach as prescribed in the penalty clause (Section 103) by
way of:
•
fine of up to $50,000
•
caution
•
suspension, or
•
cancellation of licence, certificate of registration
Penalties for Breaches of the ACL
The introduction of the ACL in January 2011 has made it possible for courts to
impose heavier penalties where a business or individual makes false or misleading
representations about goods or services, including property.
The maximum penalty for a breach of Section 53 is $220,000 for an individual and
$1.1 million for a corporation.
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Activity 5
Consider the following case study.
a) What are the risks to the agency?
Note your answers in the space provided.
After answering check the Activity Answers on page 25
Case Study – the Goodmans
From May 2002 until 4 November 2007, Mr and Mrs Goodman were the registered
proprietors of a vacant property in Dianella.
In April 2007, Mr and Mrs Goodman entered into a selling agency agreement with the
agent to sell their property. The agreement made provision for the payment of
commission.
On 23 April 2007, the agent negotiated an offer to purchase the property, subject to
finance. Mr and Mrs Goodman accepted this offer.
The agent told Mr and Mrs Goodman that the buyers were investors who intended to
rent out the property. The agent then suggested to the parties to the transaction that
his parents and grandmother (relatives) would be suitable tenants to occupy the
property prior to settlement and thereafter.
On 4 May 2007, the agent wrote out a lease agreement for a periodic lease of the
property to his relatives commencing 21 May 2007 at a rental of $230 per week.
The lease agreement provided that the tenants would pay a bond of $920 and two
week's rent in advance.
Mr and Mrs Goodman signed the lease on 4 May 2007.
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Finally, a recent example of the consequences of misconduct:
Agent suspended over misconduct
Summarised from an article by Abby Gillies for the NZ Herald Tuesday Feb 14, 2012
A multimillion-dollar-selling real estate agent has had her licence
suspended and been ordered to pay $15,000 after pleading guilty to a
charge of misconduct.
Margaret 'Marnie' Adams... appeared before the Real Estate Disciplinary
Tribunal and through her lawyer, admitted breaching regulations over the
sale of a property in Auckland's Mission Bay.
The tribunal suspended her licence for six months ....and ordered her to
pay a fine of $10,000 and costs of $5000.
Ms Adams was the listing and selling agent for the property, and accused
of planning to help buy and renovate it so it could be resold "for a quick
profit''. Bank records show she lent the buyer $187,250 to ensure the
$1.7m sale went through. They were subsequently listed as registered
owners along with a trust, JMAR. The property was renovated and sold by
the Trust for $2.1m.
Ms Adams acknowledged she was guilty of breaching her obligations, by
not telling the owner she had lent money to Mr Harriman or asking for
Morton's consent to do so.
Prosecutors described the breach as "serious'' and said evidence from
Adams' banker showed her actions were planned.
"It’s not just negligence, not just a lack of care, but a marked departure from
acceptable standards.”
The REAA welcomed Adams' guilty plea in relation to the charge of misconduct.
"This decision sends a clear message to the industry that they need to
disclose any potential conflict of interest,'' said acting chief executive Dean
Winter in a statement.
For the full article go to: http://www.nzherald.co.nz/property-investment/news
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Activity Answers
Activity 1
In this activity you are being asked to make a judgement based on
your personal ethics.
Read the following scenarios and rate how ethical you would
consider the actions on a scale from 1 to 10.
There are no right or wrong answers as you are being asked to make a personal
ethical choice.
Scenario 1
You attend a garage sale and see an item that has a price way below the value
you know that it has. You purchase the item at the price displayed without
mentioning its real value to the owner.
Legally you are under no obligation to advise the garage sale owner that an item is
underpriced. You may choose to take the item at the offered price, or offer a higher
price, or negotiate with the owner if you see fit to do so. You may also negotiate a
lower price. Garage sales are what they are – an opportunity to pick up bargains or
second-hand goods for the buyer, and an opportunity to dispose of unwanted goods for
the seller.
Some people might feel bound to say something to satisfy their own personal ethics, or
to offer a higher price.
Scenario 2
A charity sends you a pack of Christmas cards and invites you to make a
contribution. You use the cards but do not make the contribution.
The cards are unsolicited and you are under no obligation to make a contribution or to
return them. If it is a charity that you support, you may consider making the
contribution. You can use the cards if you wish, otherwise they may well end up in the
bin, and you may consider it a waste.
Some people's personal ethics may require them to at least send a donation if they use
the cards.
Scenario 3
You attend a concert and notice that there are some better seats that have not
yet been taken. You move to the better and more expensive seat.
There’s no harm in wanting to move to a better viewing position, but you would need to
check the ticket or conditions to see if there is a policy against it. You may also need to
be prepared to move back to your own seat if a steward requires you to do so, without
argument!
Again personal ethics may dictate that you would not be comfortable doing this.
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Activity 2
Consider the following scenarios in terms of conflict of interest. For each of
the situations there is an actual or potential conflict of interest.
Decide what type(s) of conflict of interest exists in each transaction?
a) How would you act in each case?
Scenario 1
Your property manager brings in a new management authority for a townhouse and
advises that he/she would like to lease this property.
Type(s) of conflict of interest – personal.
Actions: If agency policy allows this to happen then discuss with the owner. Make a written
disclosure to the owner of the conflict prior to signing a lease. Get their acknowledgement
and informed consent to proceed. Advise them that they are not obliged to pay the usual
letting fee and seek their signed agreement to pay fees.
Scenario 2
One of your sales representatives comes to you after a home open and advises that
his ex-spouse came to the home open and has submitted an offer to purchase.
Type(s) of conflict of interest – personal.
Action: Make a written disclosure to the owner of the conflict prior to signing an offer. Get
their acknowledgement and informed consent to proceed.
Scenario 3
You are appointed to act for a large developer who has a commercial building for
lease. Your spouse is a co-director of a company that is interested in leasing one of
the office spaces.
Type(s) of conflict of interest – personal / financial
Action: If it gets to the point where your wife's company wishes to negotiate leasing space,
then make a written disclosure to the owner of the conflict prior to signing anything. Get
their acknowledgement and informed consent to proceed.
Scenario 4
Your neighbour asks you to act for him in the sale of his newsagency. Your uncle is
looking for a small local business to invest in and asks you to talk to the neighbour
about selling to him. He plans to buy the business through his company trust, of
which you are a beneficiary.
Type(s) of conflict of interest - financial interest and beneficiary of a trust.
Actions: If agency policy allows this to happen then discuss with the seller. Make a written
disclosure to the seller of the conflict prior to signing an offer. Get their acknowledgement
and informed consent to proceed. Advise them that they are not obliged to pay the usual
commission. Seek their signed agreement to pay commission.
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Activity 3
Consider the following scenario and list the steps you would take
to enable the client to make an informed decision and to protect
the agency.
A property listed with your agency for several months remains unsold.
Your receptionist lets her brother-in-law know about it. He views the property,
knowing how long the owners have been trying to sell.
He indicates willingness to make an offer that is below the asking price.
Steps:
Speak to the seller and discuss with them the nature of the conflict, the history of the
campaign, the state of the market.
Give them all the information you have at your disposal to assist them in deciding
whether they wish to entertain the offer.
If they indicate interest make written disclosure to the seller of the conflict.
Suggest that they may take other advice if they wish to do so.
Get acknowledgement and informed consent to proceed with the transaction if that is
the seller's wish, prior to signing an offer from the receptionist's brother-in-law.
Assist the seller in negotiations to secure the best offer possible from the buyer.
Ensure the receptionist and her relative are not privy to any discussions with the seller
e.g. during negotiations.
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Real Estate Agents and Business Brokers - Ethics
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Activity 4
In the following scenarios consider which of the following two options
are required for disclosure prior to Offer and Acceptance.
Option 1
a) Nature of the conflict of interest.
b) Acknowledgement and consent.
c) Seller’s written consent to the payment of commission.
Option 2
a) Nature of the conflict of interest.
b) Acknowledgement and consent.
Scenario 1a
Scenario 1b
Scenario 2b
Scenario 2c
Complete flowcharts attached as Appendix 2.
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Mandatory CPD 2012
Ethics - Real Estate Agents and Business Brokers
Activity 5
Consider the following case study.
a)
What are the risks to the agency?
Case Study – the Goodmans
From May 2002 until 4 November 2007, Mr and Mrs Goodman were the registered
proprietors of a vacant property in Dianella.
In April 2007, Mr and Mrs Goodman entered into a selling agency agreement with
the agent to sell their property. The agreement made provision for the payment
of commission.
On 23 April 2007, the agent negotiated an offer to purchase the property, subject
to finance. Mr and Mrs Goodman accepted this offer.
The agent told Mr and Mrs Goodman that the buyers were investors who
intended to rent out the property. The agent then suggested to the parties to the
transaction that his parents and grandmother (relatives) would be suitable
tenants to occupy the property prior to settlement and thereafter.
On 4 May 2007, the agent wrote out a lease agreement for a periodic lease of the
property to his relatives commencing 21 May 2007 at a rental of $230 per week.
The lease agreement provided that the tenants would pay a bond of $920 and two
week's rent in advance. Mr and Mrs Goodman signed the lease on 4 May 2007.
Risks to the agency include:
•
the risk of the contract falling over, and the seller being left with a tenanted
property that is harder to sell than an untenanted property
•
the risk of disciplinary action, fines and even prosecution if they have not made
written disclosure of the conflict and have charged commission without informed
consent.
This case is loosely based on a real case that was the subject of a complaint to the
regulator, resulting in prosecution, because the agent:
•
Had an interest, otherwise than in his capacity as an agent, in the transaction in
which he acted as an agent without the prior written consent of his principal,
•
Demanded valuable consideration in relation to a transaction in respect of which
he had an interest, namely, the negotiation of the sale of the premises,
•
Failed to act in the best interests of his principal in his negotiation of renting the
subject property
In the actual case a complaint was made. The agent was charged and received six
fines.
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Appendix 1: Acknowledgement of disclosure form
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Mandatory CPD 2012
Appendix 2: Flowcharts
REBA News Winter 1999
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Ethics - Real Estate Agents and Business Brokers
Real Estate Agents and Business Brokers - Ethics
Mandatory CPD 2012
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