It is common for property marketing firms to offer attractive commissions to mortgage brokers in exchange for referring their clients to buy often-overpriced properties. But brokers say it is not a widespread practice among them to work with these firms.
ABC reported yesterday (1 February) that real estate sales companies are using hefty commissions to tempt mortgage brokers, financial planners and accountants to sell properties for above-market prices to unsuspecting clients. Developers are said to often turn to these tactics through real estate sales firms when they have difficulty selling their properties.
The report said that these firms are racking up as much as 10% to 15% in commissions, a big part of which is often passed on to mortgage brokers, accountants or financial planners for referring clients.
ABC identified a large mortgage brokerage firm as working with a property sales firm.
Brokers told Australian Broker
that they have been approached by these companies to refer clients in exchange for commissions but they turned down the offers.
“We've been offered numerous times to refer and receive a commission payment, but to date, we have never referred a client,” said Atelier Wealth’s managing director Aaron Christie-David.
Christie-David said that from his company’s experience, the commissions these firms offer range from $8,000 to $25,000.
principal Sam Ghoreyshi also said his company had been approached by these marketing firms on a few occasions and that it declined such offers.
He said the practice of brokers working with property sales firms is neither widespread nor a growing trend.
“It is not fair to paint all brokers, accountants and financial planners with the same brush,” he said. “Largely, brokers add value and do the right thing by the clients.”
Christie-David said that based on industry diversification insights, he feels that only selected brokers actually offer this service to their clients.
“I've seen some broker groups provide this service well, and that can lead to a great client outcome.”
However, he said his “ethics questions if it's acceptable for a broker to receive such a large commission, especially if the valuation comes in short, as I've seen in some examples”.
“I would have a hard time looking my clients in the eye taking a kickback of $20,000 and have their valuation come in low,” said Christie-David.
Ghoreyshi said that for some brokerage firms involved in this kind of activity, their in-house finance teams can contain such a practice.
Declaring any conflict of interest upfront is also important, to make sure that a client is making an informed decision, he said.