Laws that shape the real estate

Laws that shape the real estate landscape in SA

DINI SOULIO, COMMISSIONER FOR CONSUMER AND BUSINESS SERVICES

The process of buying or selling real estate is complex and as such there are four key pieces of legislation administered by Consumer and Business Services (CBS) to help ensure that the real estate sales process is open and transparent.

CBS is keeping a sharp eye on the real estate industry this year to ensure compliance with legislation. Real estate has been identified by CBS as one of six key compliance priority areas for 2022/23 due to: • the high volume of real estate transactions in South Australia • the significant amount spent by purchasers of real estate and the potential risk to buyers and vendors if real estate agents operate outside the law • intelligence gathered by CBS through compliance monitoring programs and complaints received from the public.

Legal requirements regardless of whether a real estate professional has been engaged

The Land and Business (Sale and Conveyancing) Act 1994 sets out certain requirements for all land and property sales, including sales managed by real estate professionals and sales managed by vendors themselves. This includes disclosure requirements.

A Form 1 (vendor’s statement) must be available to interested buyers, providing information about things such as the property’s title, mortgages on the property, easements, zoning, tenancy lease details (where applicable) and the buyer’s cooling off rights. A buyer may be able to take legal action if information in the Form 1 is incorrect or insufficient.

A Form R3 (buyer’s information notice) must also be available. This is a checklist of things that could affect the buyer’s enjoyment, safety or value of the property – e.g. asbestos, energy efficiency, rainwater connections, possible illegal additions and proximity to a live music venue.

Together the Form 1 and Form R3 assist prospective buyers to make an informed decision about whether to purchase a particular property.

Requirements for real estate professionals

The Land Agents Act 1994 sets out registration requirements for people working in real estate. • Anyone who carries on business, or holds themself out, as a land agent must be registered as a land agent. • Anyone who acts as a real estate sales representative must hold registration either as a land agent or as a real estate sales representative. • Real estate auctioneers must be registered as a land agent or sales representative with the auctioneer condition added to their registration.

Applicants must meet certain criteria in order to be granted registration – e.g. qualification requirements, police clearance and financial probity (for land agents).

The Land Agents Act also outlines a number of requirements for receiving and dealing with trust money.

The Land and Business (Sale and Conveyancing) Act stipulates that before an agent can act for a vendor, there must be a written contract (sales agency agreement) between the agent and the vendor. Before such an agreement can be made, the agent must provide the vendor with: • a written guide explaining the vendor’s rights and obligations under such an agreement, and • the agent’s estimated selling price of the property and information to support how the agent arrived at the estimate – e.g. recent sales data of similar properties.

Land valuation

A formal valuation may be required in certain circumstances, such as where an agent has made unsolicited contact with a vendor and subsequently entered into an agreement to sell the property without public advertising, or where an agent or associate wants to buy the property they are commissioned to sell (this is also known as beneficial interest or 24G). A formal valuation must be completed by a land valuer who has been approved by CBS. The approved valuer must ensure that the valuation is not biased in any way.

Land valuers are regulated under the Land Valuers Act 1994.

Auctions

The Land and Business (Sale and Conveyancing) Act sets out the rules for auctions, such as:

All bidders must be registered, and proof of identity is required as part of the registration process

Dummy bidding is prohibited. A vendor or a person acting on their behalf must not place a bid. However, up to three “vendor bids” can be made by the auctioneer provided they are less than the reserve price and clearly announced as a vendor bid.

Australian Consumer Law (ACL)

The Australian Consumer Law applies nationally in all States and Territories and to all Australian businesses. The ACL is administered in SA by CBS and forms part of SA’s Fair Trading Act 1987. Under the ACL it is unlawful for real estate agents to: • give a false impression or lead buyers to a wrong conclusion or impression • omit important information – e.g. in fine print disclaimers • make false or inaccurate claims – e.g. about the price of a property, its location, characteristics or how the land can be used.

Enforcing the legislation

CBS has a proactive monitoring and compliance program for the real estate sector which includes unannounced visits to open inspections and auctions. CBS also conducts desktop monitoring and acts on reports from members of the public or industry participants by assessing and/or investigating potential breaches.

During 2021/22 there were 63 enforcement outcomes related to real estate conduct including: • registration issues – e.g. persons working unregistered or outside the scope of their registration, not being fit and proper to hold registration, or agents employing a person who did not hold appropriate registration • trust account and auditing breaches • misrepresenting the price of a property, misleading or deceptive conduct • acting improperly, negligently or unfairly • business not being properly managed • contract issues – e.g. failure to have a written contract, failure to sign an agreement, or failure to provide a signed agreement to a vendor • non-compliant advertising – e.g. providing incorrect or misleading information, or failing to provide the agent’s registration number in advertisements • failure to disclose a beneficial interest in the purchase of property.

Where there is a potential breach, the action CBS takes depends on many factors including the nature and extent of the activity, and potential or actual detriment suffered by vendors or purchasers.

Action taken in relation to the potential breaches during 2021/22 includes: • 42 written warnings and 1 verbal warning • 17 reminder letters • 1 registration being cancelled, where

the person had committed an indictable offence • 1 registration being downgraded, where the person was bankrupt and therefore unfit to hold registration to run a real estate business • 1 written assurance received from a land agent who sold a property to a relative of an employee of the agency without obtaining approval from the Commissioner for Consumer

Affairs. The agency provided a written assurance to CBS that it will comply with all its obligations under section 24G of the Land and Business (Sale and

Conveyancing) Act (i.e. the beneficial interest provisions).

Assurances received are publicly available on the assurances register on the CBS website, along with the names of other traders who have provided written assurances that they will not engage in certain unlawful conduct. Failing to comply with an assurance is an offence (under section 81 of the Fair Trading Act) and the trader may be prosecuted.

Other enforcement tools are available to CBS and have been used previously, including public naming, expiation, disciplinary action or prosecution.

Past areas of concern to CBS were largely dealt with by major reforms to the Land and Business (Sale and Conveyancing) Act in 2008. This addressed practices such as dummy bidding at auctions and overquoting by agents to secure property listings with vendors. At the time a major education campaign was run for the real estate industry and a high level of compliance followed. Since then, CBS has run industry education campaigns around specific issues such as beneficial interest, underquoting and registration requirements.

The two strategic priorities for CBS compliance in relation to the real estate industry this year concern misrepresentations about the price of properties and trust account issues. CBS wants to ensure that anyone engaging in unlawful real estate behaviour is identified and CBS welcomes reports from vendors, buyers or members of the public with information about a potential breach. Please report online at cbs.sa.gov.au/ contact-us or call CBS on 131 882.

CBS is committed to ensuring that all consumers have fair and honest dealings with those working in SA’s real estate industry.

Form 1 Review

Over the years the amount of information disclosed to purchasers via the Form 1 has increased significantly, making it long and complex. Vendors and purchasers struggle to understand it and many forms contain errors.

CBS engaged the University of South Australia to conduct a wholesale review of the form. The review sought to explore fresh approaches to ensuring purchasers receive all the information needed to make an informed decision within a reasonable time, while avoiding unnecessary burdens on vendors, real estate professionals and others who prepare the forms.

The final review report is currently under consideration by the Government and further information will be provided on the CBS website in due course.

More information

More information about the requirements for people who work in real estate is available at https://www.sa.gov. au/topics/business-and-trade/licensing/ real-estate.

For more information about CBS’ compliance and enforcement priority areas please visit www.cbs.sa.gov.au/ compliance-priorities. B October 2022 THE BULLETIN 9