State consumer watchdogs are cracking down on the real estate sector by chasing penalties for agents who have misused trust money or failed to obey regulations, and fraud and legal experts say it’s not surprising the industry is in the spotlight.
Over the past two months, consumer affairs regulators in Victoria, New South Wales and Queensland have confirmed a number of successful litigations against individuals working in the property sector who have breached requirements around the use of client’s funds.
The Office of Fair Trading in Queensland said last week it had secured $20,000 in penalties against an agency which traded as City Waters Luxury Apartments, which admitted to 145 counts of moving client’s money from a trust account to another account without the client’s knowledge, in order to pay for business and personal expenses within the business.
Fair Trading New South Wales secured penalties against an individual agent this month for removing more than $9000 from the company’s trust account for her own personal use. The agent received a seven-month suspended jail term and a good behaviour bond for breaching the state’s Property, Stock and Business Agents Act.
Meanwhile, Consumer Affairs Victoria successfully brought action to secure a five-year prison term for the operator of six LJ Hooker franchise operations after he was found to have breached Victoria’s Estate Agents’ Act by moving trust monies into other accounts without the consent of property buyers. The agent was also found to have instructed company employees to complete sale transactions without the vendor’s consent.
Another Victorian agent copped $25,000 in fines and a two-year community corrections order after his company converted $245,000 of client funds to another account for the company’s own use. The agent was also ordered to pay $69,000 in compensation to victims through the Victorian Property Fund.
In taking these court actions, regulators have said they are looking to enforce the strict rules around how agents protect their clients’ money during the property purchase process.
“Trust money does not belong to agents and agents are not free to use it as a business account,” Craig Routledge, Queensland’s acting executive director of Fair Trading, said in a statement last week.
Forensic accounting expert and chief executive of Warfield and Associates, Brett Warfield, says it’s not surprising different state regulators are scrutinising businesses in the real estate sector now.
“When we’re doing research into fraud, we tend to come across a number of real estate agents who have abused trust funds. It’s certainly something that we’ve been noticing as a consistency,” Warfield tells SmartCompany.
He believes there should be a review of how those in the property space are trained about their obligations.
“How these funds are treated, is that they are effectively treated like a lawyer’s trust fund, but real estate agents don’t go through the same qualifications, uni degrees, training on ethics as lawyers do,” he says.
He believes the recent property boom has not helped the situation, because “when you get an uptick, and you get effectively a boom, you introduce people into the sector that have not been in it with experience over many years”.
Warfield recommends all clients of real estate agents do their research on providers before signing up, and ask for regular updates on the whereabouts of any funds that are being held in a trust account by an agent.
“Do your background checks and ensure you’re getting appropriate information and documentation about where your funds are, on a regular basis,” he says.
Scrutiny of “self-regulated” sectors could be coming
Sectors that have traditionally taken a “self-regulation” approach, including real estate and property, could face more scrutiny in future, says commercial law expert and director of Viridian Lawyers, Richard Prangell.
“In the real estate industry, it has become more and more profitable and there has been an increase of new practitioners all over the place. They don’t have a connection with the traditional elements of their industry, and in short, we are seeing more of this kind of thing,” he says.
Prangell says across a range of sectors, the “gigification” of work is also raising questions about how businesses are complying with the regulations for their specific sectors. Regulators are looking into sectors like real estate and making sure all providers in this space adhere to their duties to clients, or face the consequences, he says.
“It is a sort of time where people are being made an example of,” Prangell says.
Property has been an area where agents have been expected to self-regulate their behaviour in line with the regulations in their state, but given recent scrutiny on agents, any businesses working in the property space must make sure they are up to date with all legal requirements.
“The most important thing if you are a business owner is to understand responsibilities to your customers,” Prangell says.
SmartCompany was unable to contact City Waters Luxury Apartments or the agents in the above cases prior to publication.
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