Brokers not tempted by property sales firms

by Manuelita Contreras02 Feb 2018
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.

Smartline 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.
 

COMMENTS

  • by Buster 2/02/2018 9:45:25 AM

    Have seen 3 of these firms and their property portals and listings. Whilst not all their properties are great a lot of them are, well planned investment grade properties. It's how the broker introduces the deal and discloses their commission that is the issue.

  • by Steve McClure 2/02/2018 10:36:19 AM

    Even if properly disclosed Buster, there's still potential conflict of interest. Has the broker warned the borrower that from a bargaining position, the agent they are being introduced to has a duty to get the vendor the highest price? Does the information exchanged, before and after the introduction weaken the negotiating position of the buyer, if the agent has "inside information", e.g. willingness to buy, not being encouraged by the broker to look around at other sources, even borrowing power? Does the exchange of information contravene the privacy act and does the broker's signed privacy form allow such exchange? If it was entirely to the benefit of the borrower (which is what we have to ensure as brokers & agents for our client), why wouldn't banks & lenders refer the same way? There'd be an outrage - so why is it good enough for a broker to do it?

    Don't tell me a borrower can't find a good source for property in the market, or even use a buyer's agent that acts for them (not the vendor), for much less than these excessive commissions. I'd like to know Mortgage Choice's rationale, if what's reported is the case.

  • by Ian Zuman 2/02/2018 12:26:06 PM

    The reason is that most of them are shonky and don't disclose their commissions to the buyers. Do you ever wonder why valuations are $25-$30,000 short when an interstate buyer buys from one of these companies? It's because the Valuers know that $30,000 commission on average is built in to the sale price to pay all the players. You only need to Google Ron Cross and Park Trent Properties Group to see for yourself.

    There are some decent properties amongst these, but usually you will hear all the hype about infrastructure, employment, population growth etc, and never any negatives. Why did so many people get stung buying in mining towns through these property marketers? Where are the property marketers now? They ran off with hundreds of thousands in commissions, whilst the buyer was left with a property that is now worth less than the mortgage, and a quarter of the rent they once received. Some of these properties were unashamedly targeted at Self Managed Super Funds. Don't get me wrong, some people have done well out of their property purchases, in the right area, but as I say to all, do your own research. Chances are you could have found these properties yourself and maybe saved yourself some money.

    There are some honest property marketers, but on the whole, the majority are in it for themselves to make big bucks in commission with no care about the buyer after the sale. As the Broker, you can be drawn into this web, because the loan will be there long after the marketer has disappeared, and you will be the bunny if things don't turn out the way they were told. If you took commissions, you also run the risk of having ASIC knocking on your door. Conflict of interest? It's a mine field. Beware.