What Laws Apply to Real Estate Agents

Real estate agents must abide by certain laws when selling your home. The Real Estate Institute of Australia (REIA) enforces these laws, as do other organisations like the ATO and the Australian Securities and Investment Commission. In fact, the real estate industry is heavily regulated, but that doesn’t mean dodgy real estate agents aren’t out there, taking advantage of sellers. Knowing the law can help you find a reputable agent who works in your best interest.

When is an agent legally able to sell your property?

A real estate agent is legally appointed once you have both signed the agency agreement. This agreement must be in writing and must include:

• The agent’s services
• The agent’s fees, expenses and commission with payment due dates
• Any conditions or limitations
• The end date of the agreement.

Agency agreement types

The terms of the agreement will vary depending on which type of agreement you choose. Some agents will only offer an exclusive agency agreement, while others will offer a choice. Agreements on offer usually include:

• Exclusive 
• Auction
• Sole
• General listing/open
• Multiple

Check out our agency agreements guide to learn more about the differences between agreement types.

An agent must not start doing any work for you until the agency agreement is signed.

Unfair contract terms

Your agent must not include any unfair contract terms in the agency agreement. This means the contract must be fair for both you and your agent. 

Commission

Commission is one area to check for fairness because agents can charge any amount they like. Typically, agents charge between 2 and 3 per cent commission, with some offering a tiered solution. Be sure to check that your agent has included a fair commission in the agency agreement or you might find yourself paying more than you thought. 

If your agreement seems to favour your agent, it might be worth looking elsewhere for an agent to sell your home.

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Who is the agent really working for?

Your appointed agent has a fiduciary obligation to work in your best interests. Creating good relationships with potential buyers to encourage a sale while getting the best price for the seller is a fine art, but many agents do it well. 

Everything an agent does must be in your best interest.

How does an agent value my property?

A real estate agent must not make any misleading claims about a property, not to sellers nor to buyers. This includes when agents estimate the value of your property. 

If you ask your agent for an estimated value, they must base their estimate on a comparative market analysis. They can either:

1. compare 3 similar homes that sold recently
2. give you their estimate in writing with their reasoning included.

Comparable homes must be located near your home and sold not more than 6 months before the agent’s estimate.

Underquoting laws

Dodgy agents use underquoting as a marketing technique to encourage buyer interest. Sometimes, agents set the price as much as 30 per cent below what the seller is willing to accept. This practice is misleading and:

• creates a false sense of competition between buyers
• drives the price up as buyers put competing offers in
• results in properties selling for much higher than the listing price.

Underquoting is common in Australia but state governments recently passed new laws to deter dodgy agents using this strategy. Agents can face large fines and lose their commission if caught underquoting. 

Your agent must advertise your property at a price you are willing to accept and the price should be supported by evidence.

How much commission can an agent charge?

Australia does not have any laws that limit the commission an agent can charge. However, other laws exist to regulate commission in the industry.

When you appoint an agent, the agreement must include the:

• commission, inclusive of GST
• fees and charges for each service
• advertising and marketing expenses
• payment due dates
• conditions under which commission is payable (e.g., in the event of a no-sale).

Case study – commission

You should still be mindful of the tactics dodgy agents use when setting commission. This case highlights what can happen if you don’t negotiate a fair contract.

In 2018, Marika Sutherland signed an exclusive sales agreement with an agent who estimated her property to be worth more than $1.25 million. What she didn’t notice was that the agent had included a tiered commission arrangement in the agreement. The agreement was 2.2% commission up to $1,278,000 with anything above that to be split 50:50. Three weeks later, the agent sold the property for $1,385,000, earning the agency $81,000 in commission. By setting a low initial estimate, the agent secured a higher commission once the property sold at the real property value.

Remember, you are free to negotiate the terms of the agency agreement with your chosen agent. It’s a good idea to compare at least three agents to find one that offers the best terms and conditions, including on commission and fees. 

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Property imagery laws

Agents must not give misleading information about a property and this law extends to images of the property. Dodgy agents alter images in many ways to make a property more appealing. Legally, they must not:

1. use trick angles or edit photos to make spaces appear larger
2. retouch images to make homes appear newer or better. This includes ‘repainting’ the walls and adding garden beds where none exist
3. remove or change built-in items to create more space. An example would be removing nearby buildings or air conditioning units from the image.

Is property photo editing legal?

Despite those dodgy practices, there are times where retouching and editing is more than ok:

• Replacing bad weather skies with blue skies and brightening the image to match
• Removing items, like cars, that block the view of the property
• Editing in future renovations to ensure accurate photos are available by auction
• Removing property neglect, like long grass or murky pool water
• Filling rooms with on-trend furniture or removing clutter

This type of retouching only presents the property at its best and doesn’t misrepresent any aspect of the property.

What laws govern auctions?

Stringent laws govern an agent’s actions when they auction your home. 

Reserve price at auction

If you choose a reserve price for your property, you must put this in writing. This will be the minimum sale price you are willing to accept. Your agent must:

• ask you whether you have set a reserve price.
• inform you in writing that you must accept the highest bid on your property if you have not set a reserve.

Your agent risks a fine of more than $25,000 if they don’t fulfil this obligation.

Your agent may suggest a reserve price, but they must do this before you decide on a price and base it on a comparative market analysis.

Price guides at auction

Agents are obligated in various ways when it comes to the sale price at auction, but this varies by state. Queensland has some of the strictest laws:

1. Your agent must not give a price guide to potential bidders, nor must they publish one.
2. Despite this, agents can give a price to online property listing services, like realestate.com.au, to help them display properties by price. The online listing service must not display this price on their website.
3. Agents can give the comparative market analysis to potential bidders if you (the seller) agree to this in writing.

Other states

Agents should tell bidders once the reserve price has been reached but state laws determine whether agents advertise the estimated selling price at auction:

• NSW and VIC: Agents must advertise an evidence-based estimated selling price or a price range that spans 10 per cent or less.
• WA and NT: Agents must not reveal the reserve price before auction.
• SA: Agents can opt to give recent sales information instead of a price guide.
• TAS: Agents do not normally reveal the reserve price.

Your local agent should be aware of state regulations regarding price guides at auction.

Auction bidders

Agents are required to register bidders and keep their information private. Agent obligations include:

• Sighting identification before registering bidders
• Registering bidders before the auction starts
• Giving each registered bidder a unique marker for bidding purposes
• Announcing at auction start that only registered bidders may bid

Dummy bidders

A dummy bidder is someone working for the seller or agent who places false bids during the auction. Their aim is to increase competition and drive the price up by convincing real bidders that they need to compete. 

Anyone involved in dummy bidding, including agents, faces fines as high as $55,000. Your agent has a legal obligation to present your property accurately and not to collude with dummy bidders. Despite this practice no longer being widely used, online auctions present a higher risk of dummy bidding.

Vendor bidding is different and legal, providing it meets state vendor-bidding laws. Be sure to check the laws in your state.

Agents at auction

Your agent must disclose the conditions of sale of your property and must follow state regulations for setting and revealing the reserve price or estimated property value. 

For example, in Queensland, it is illegal for the agent to provide price guides to bidders. Whereas, in NSW, agents must list an estimated price or a price range that is not separated by more than 10 per cent.

How do I find a trustworthy agent?

Despite laws and regulations in the property industry, some agents do do the wrong thing. Other agents simply want your business but may not be able to adequately serve you. The best way to find a good agent and avoid dodgy ones is to do your research and arm yourself with knowledge. Here are eight tips to get you started.

8 tips to help you find a trustworthy agent 

These 8 tips can help you choose an agent who works to get you the best price:

1. Compare agents so you can begin to gauge superior qualifications and experience.
2. Make sure your chosen agent is licensed. 
3. Avoid agents who either agree with your estimated property value or offer an excessively high price without a comparative market analysis to support it.
4. Avoid agents who have a potential buyer before signing an agency agreement with you.
5. Beware agents who sound good but can’t provide evidence for their claims.
6. Ask for evidence of their recent listings and sales in your area. You may find that listings far outweighed their sales and opt for a different agent.
7. Look for honesty. Your agent should be honest about your property’s value and suggest ways you can improve your home. Rather than aiming to please you, your agent should aim to get you the highest price for your property.
8. Go out and see your agent in action before signing with them.

If your agency agreement is close to its end date, beware of agents who suddenly find the perfect buyer and ask you to resign to allow time for the buyer to organise inspections and finance. Once you resign, you may find that this buyer mysteriously disappears.

Testing a potential agent’s performance

One great way to test your agent before signing with them is to attend one of their open homes. Simply register with them to view a property for sale and attend as a potential buyer. This allows you to check whether they are:

• Punctual
• Well-dressed
• Friendly
• Helpful
• Knowledgeable
• Professional
• Invested in the sale of the property

Be sure to ask them questions to gauge their knowledge and note whether they follow up with you after the open home. 

The way a potential agent conducts themselves at another seller’s open home is how you can expect them to do so when selling your home.

Compare to find a reputable agent

The more knowledge you have about agents in your area, the best chance you have at finding a reputable one. Compare agents now to uncover those that stand out from the rest and can help you sell your property for the right price.