REA's conflict in providing finance

Seems everyone these days wants in on being a broker.

I am curious if it is even legal for a practicing agent to be trying to provide finance for properties they are selling.

Would seem a conflict to me, what do you say ?

 

I believe it is legal as I know some REAs, Accountants and Financial Planners who hold dual licences.

The way I see it is its the equivalent of getting a back yard mechanic to fix your car. He COULD be really good but if he was he should have a legitimate business.

Im biased but its more than a full time effort to really keep abreast of what the heck is going on and their are niches within niches in this business. I personally would not let a part timer near my finances.

Ask him what is his background to give finance advice, how many loans he has settled this financial year and why are you both and not one or the other?

 

You mean like agent referring you to a broker?

 

I was not looking at the finance side, was disinterested in us when I said we have a broker and not interested in changing, cutting a long story short, I believe they favor the buyer whom will use the finance they provide, not hard to influence vendor and obstruct those who may mean less total $$$

I would not use an agent who also provides finance.

No, they are the selling agent and also trying to secure supplying the finance to the buyer.

 

Yes, I believe it's a conflict, but it's not illegal as long as you have the appropriate licensing for both professions.

It's extremely rare to find the same individual selling properties and financing them, it's usually done by separate people in separate business entities but providing integrated services.

These days most franchise real estate agencies have their own in house brokers. Ray White is closely affiliated with Loan Market. LJ Hooker have a fairly substantial finance arm to their business model. Some of the larger buyers agencies do it as well.

I'd suggest most of the conflicts occur when there's a higher element of advice and reliance on that advice. Usually not a big deal in most purchases of established houses via a real estate agent. If you've paid a fair price, have a decent income and a deposit, it's not hard for a broker to act in everyone's interests. A bit different where there's a developer setting the prices and valuations can be hit or miss.

I'd never rely on a conveyancer recommended by the selling agent. If there's something wrong with the title, can you really rely on them to tell you to pull out of the deal?

Where one profession is reliant on another for lead generation there's always potential for conflict. Where there's higher risk of things going wrong or higher requirements for advice, this is where a conflict is more likely to occur.

It's also worth noting that if a broker is paying someone for a referral, they're required to inform you of that arrangement.

 

I have never heard of that. Usually the agent has a in house broker or will refer it on to a broker.
If the agent is doing your finance they will know your borrowing capacity plus other things they could use in negotiations. Why would you divulge anything like that to an agent that works for the other party?

 

Is is just as conflicting having an accountant with FP & Broking in-house?

 

Raises an excellent point...

You go to a REA to inquire about purchasing a property. They ask casually how organised as part of their sales process. They can very easily refer you to their inhouse finance guy who gets all your details and lets you know what you can afford.

The broker's privacy policy might state that they don't share your data with anyone other than when you apply for a loan, but that's really easy to break the minute you walk out the door when the agent comes back and asks how much they can push the price up to. Incredibly hard for you to know or prove that they did this. Incredibly tempting to do it because their mate who just referred business asked a casual question.

If you're talking finance after the contract has been signed, there's probably not much risk, but if you're talking to their finance person before you've negotiated the price, you've probably just shown your entire hand to the selling agent.

 

The potential for conflict is there.This is mainly because of the knowledge of the client's financial situation that the broker has.

What if
- subject to finance clause wants to be exercised
- the agent is encouraged to massage the numbers to get the loan through and the property sold - greater incentive than normal
- client wants to try to negotiate the price down because they can't afford that high

etc

 

If it is the same person - the knowledge is in their head!

 

It is like a car dealer providing finance as well which is perfectly legal. Happens all the time and also what you are worrying about.

There was an article in the news a few weeks where BMW provided capital to bad borrowers because dealer got a commission per sale.

 

This is why I thought it would be interesting to discuss, I may have dealt with agents before who also do finance, but I may not have known or noticed, this was not able to be missed & I feel it is an issue for the vendor, anyway, as you say, very hard to know what they all do behind closed doors.

Of course I baulked straight away, sorry, never giving that sort of info to an agent, may as well hand them a blank cheque

I was also thinking about buyer better word any finance clause right.

Also, if they have started on a finance application and know they have everyone sewn up, they are not going to throw that all out even with better offers, assuming they even pass it on.

I can't see how that is the same, but it may be a concern for some.

I am not worried so much, but I think it is not ideal & probably especially for the vendor. But as pointed out, not great if your a buyer whether using or not using the service, it all depends on how the people involve conduct themselves.