NSW to outlaw referral commissions from property firms

Brokers will no longer get paid on both sides of the fence starting later this year

NSW to outlaw referral commissions from property firms

The practice of property investment firms handing out undisclosed kickbacks to those involved in development sales will be reformed when the Property Industry Reform Bill 2017 comes into effect, according to Suburbanite, a team of property advisors and investment experts.  

Suburbanite founder Anna Porter welcomes the reform. She said that “conflict of interest frequently arises when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller”. Brokers are being paid on both sides of the fence, and until now the practice has been a murky grey area.

Some property investment firms have been recommending off-the-plan properties to investors, and give a cut of their commission to brokers, accountants, or financial planners for their referrals.

“This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Porter said.

Under the new industry reform
Porter explained that "under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a Corporation’s license under the ACT”.

“Subsequently, every transaction that they receive a referral fee from they will be putting their license up against the transaction and taking full liability for the conduct, practises and outcome of that transaction, ever if they have little to do with the transaction, they are a party to it financially and therefore take as much risk as everyone else in the transaction,” Porter added.

According to Porter, there are some well-known mortgage broking firms that openly admit to pocketing $5,000 to $10,000 per referral. That is considered a conflict of interest because the buyer is a client of the broker, but the fee that came from the property firm is from the seller or developer. 

Even if the broker holds a real estate licence, under the legislation, this raises ethical issues. “So, if a referrer does hold a real estate license, and does receive a part of the sale commission, they may find themselves in breach of the ethical requirements under the act," Porter said.