The new Property and Stock Act represents the biggest shake-up of the sector in 70 years, and has huge implications for brokers, writes Craig Swan
The golden age of mortgage brokers, financial planners, accountants and solicitors moonlighting in the property sales sector is coming to an end.
On 21 March, the NSW government passed the new Property and Stock Act. It is slated to come into force later this year or in early 2019.
Over the past decade, with minimal compliance requirements in place, brokers, financial planners, accountants and solicitors (allied property professionals) have found it surprisingly easy and inexpensive to obtain a real estate licence.
Not without good reason then, many allied property professionals, who understood the commercial benefit, availed themselves of a licence under the current Act – with one of the most common being a buyer’s agent licence – and some went further, obtaining a full real estate agent’s licence.
But there are also those who have ignored the need for a licence, or been mistakenly advised that they didn’t need one.
Under the new legislation, those who thought they could make a quick buck by dabbling in property sales without meeting the legal requirements will be weeded out.
The new Act will require significantly more training, including a mandatory 12 or 24 months of experience, before a licence can be issued. It has also given the NSW Office of Fair Trading enhanced powers to target misconduct and breaches of the Act.
To be clear, brokers who hold a real estate agent’s licence can receive a commission from a vendor, such as a developer or research house, as long as they disclose it to their client and are not also receiving a fee or commission from them (ie the buyer/client). Brokers need to disclose how they are remunerated so as to clarify with their client that they are not acting in a fiduciary capacity regarding the sale of the property (ie they are merely a referrer). By doing so, they satisfy their compliance obligations.
Alternatively, a broker has the option to act in the capacity of a buyer’s agent (licensed buyer’s agent or licensed real estate agent) and can charge the client a fee/commission, thereby acting in the capacity of a fiduciary. In this case, they cannot accept payment from the vendor as well.
Brokers need to be careful that they don’t earn commission “from both sides” and fall foul of the law. Earning a fee/commission from both the vendor and the purchaser on the same transaction is illegal.
Part of the reformed legislation also includes the abolition of the buyer’s agent licence (along with two other licences) and the revision of the requirements for issuing real estate licences. Note that existing licensed buyers’ agents will be accommodated under the new laws by way of a limited/restricted real estate licence.
The most critical aspect of the changes, for allied property professionals, is the reintroduction of a mandatory period of practical experience before they can apply for a licence.
Gone are the days when a broker, planner or other professional could take several days o work to complete their Certificate IV in Real Estate. How will candidates meet the mandatory experience requirement of 12 to 24 months under the new Act without quitting their current job?
And it goes well beyond reintroducing mandatory experience and abolishing the buyer’s agent licence. The new Act will also introduce a new class of licence, to be known as ‘Class 1 – Licensee in Change’.
This new level of authority will be required by anyone who manages an agency operation under the Act or gets paid a commission as an independent contractor. This (ie invoicing under an ABN) is how most mortgage brokers, financial planners, accountants and solicitors who currently refer their clients to property developers, project marketers and aggregated property sales platforms are rewarded when a property sale is settled.
Obtaining this new Class 1 licence will require a diploma in real estate, or evidence of a mandated level of prior experience and expertise.
In summary, the new Property and Stock Act, due to come into force soon, represents the biggest shake-up of the property sector in over 70 years.
It will change the world of real estate in NSW, such that those directly involved, including brokers, will either need to upskill, leave the sector, or face the consequences, including heftier fines for non-compliance under the auspices of an increasingly vigilant Office of Fair Trading, keen on doing justice to the new Act.
Craig Swan is a senior solicitor at Leverage Group. He has more than 25 years’ experience in the funance, property and legal sectors