Proposed real estate licensing reforms put consumers at risk: Amanda Lynch

Whenever large sums of money change hands, the prospect of fraud increases. Real estate and rural agents handle very large sums of money in the form of deposits on properties for sale. Up to $2 billion is held by agents as deposits in trust at any one time.

And yes, some of it goes astray. It is usually ordinary people’s money. Or money from small businesses.

Over the past year NSW Fair Trading has been cracking down on unlicensed and unprofessional agents and found some major fraud cases, resulting in fines and imprisonment. Rent, deposits and purchase proceeds were spirited away. The bulk of agents, of course, behave properly. But with the amount of money being handled you would think regulatory authorities would want to keep the reins tight.

Not so. The National Occupational Licensing Authority is pushing ahead with its aims to introduce uniform occupational and professional licensing in the property occupations as well as the electrical, plumbing and gas fitting and refrigeration and air-conditioning occupations.

It is part of an agenda being pushed by the Council of Australian Governments for more deregulation and uniform national standards. NOLA put out regulatory impact statements on the occupations in July and August last year calling for submissions.

They flowed in – more than 3500 of them. Of those, more than 800 were from the property occupations.

The vast majority from the property industry expressed concern verging on alarm. Earlier this month the NSW Greens also expressed concerns. A Greens MLC John Kaye has a notice of motion before the NSW Upper House for a committee inquiry as to whether consumers will be adequately protected.

Essentially, very few people have any difficulty with a national licensing system for real estate agents, but not at the cost of consumer protection. Many of the submissions, including that of the Real Estate Institute of Australia, are worried that in pursuit of a national system NOLA will adopt the lowest educational and training standard applicable in the states and territories now, and apply that nationally. Worse, it proposes to abolish requirements for continuing professional development and to abolish the requirement for a person to be qualified in any way to act as an agent in a commercial property transaction.

One of the NSW Fair Trading prosecutions was about $265,000 in commercial rent taken by an agent.

The trouble is that if you lower standards, cowboys come in and consumers suffer.

We saw this very clearly in the financial services industry after deregulation. After debacles in the 1990s, government had to revisit regulation to straighten things out and even then did not get it right and consumers suffered again in the mid-2000s. It has become all too obvious that the market alone is not safeguard enough.

Deregulation and national standards should not be introduced for their own sake, but only when both economic benefits and social safeguards are present.

Over the past couple of decades, a lot of needless regulation and duplication has been removed by getting state and territory governments to agree to national standards.

Much of this has been applauded by industry and has generated substantial economic benefits by increasing competition and reducing compliance costs.

But experience has shown that this has to be tempered with a need to protect consumers.

NOLA has quite rightly engaged in a consultation process over the past six months. The important thing now is for NOLA and COAG to take notice of what the property industry is saying.

Too often theoretical economists pay too much attention to the economic gains of deregulation (often calculated in a very simplistic way) and not enough attention to the risks and social costs.

They dismiss industry opposition to deregulation as a self-serving desire to restrict entry disguised as concern for consumers. But even the most radical neo-liberal economist would agree that many occupations require certification of skills before practitioners are let loose on consumers. There is a balance here, and the Real Estate Institute of Australia says the proposals in the NOLA regulatory impact statement have not got the balance right. They pose great financial danger to consumers which is not outweighed by the economic benefits.

The occupation of real estate agent, on one hand, is qualitatively different from those in the electrical, plumbing and refrigeration trades, on the other. In the latter occupations, public protection is secured purely by ensuring technical competency.

The real-estate occupations go beyond that. Agents are required to hold large amounts of clients’ money in trust and they deal in property worth substantial amounts. There is not only a high level of technical skill required, but also a high level of trust.

Moreover, consumers are often entrusting agents to deal with their most valuable asset. Most consumers buying or selling property do so very infrequently and therefore need to turn to people who they can trust and who have the requisite level of skill.

The regulatory impact statement should not be recommending the lowest state and territory standard as the new national standard (with automatic mutual recognition), but rather adopt the Diploma of Property Services and a personal probity test as the minimum requirements.

Further, the law and practice of property sales changes from time to time. This means that NOLA’s proposal to abolish Continuing Practice Development requirements would put consumers to further risk. It is far better to educate real estate agents at the start about the right way to do things rather than to track down and deal with agents who have hurt consumers after the event.

NOLA’s other proposal to abolish the requirement for qualified agents in the case of commercial property is utterly misguided and displays a lack of understanding of the nature of the commercial property market.

The vast majority of commercial property deals in Australia (70%) involve less than $1 million and usually involve small business people. The idea that all commercial property deals are in a business environment among big, fairly equal entities not requiring consumer protection is wrong.

The economic rationalists have exaggerated the gains and ignored the costs. One of the gains – mobility of agents between states – is not pressing. Geography determines that the vast bulk of agents work in one jurisdiction.

REIA agrees with the aim of national occupational standards for the real-estate industry, but not this model. It would be better to wait and get it right, than crash ahead, cause untold consumer grief, only to have to revisit regulation down the track.

Amanda Lynch is CEO of Real Estate Institute of Australia.

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