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GUEST OBSERVATION
With underquoting a massive problem and with minimal enforcement of the regulations from Consumer Affairs Victoria, is now the right time to appoint a Real Estate Ombudsman?
The banking, financial services, insurance and the telecommunications sectors all have an ombudsman for good reason. So if it’s appropriate for those sectors, is it right to also protect consumers who are spending hundreds of thousands of dollars in the real estate sector in the same manner?
Underquoting should be a bi-partisan issue as it effects all consumers. Both side of politics need to work together to develop a solution to this problem. This includes making amendments to existing legislation to close loopholes which perpetuate underquoting and stricter enforcement of these regulations.
Given the lack of skilled staff however and the thousands of auctions held in Victoria each year, the onus of enforcement needs to be removed from CAV. Currently those rogue agents who breach regulations often do so because they have an exceptionally high chance of getting away with illegal activity, simply because CAV doesn’t have adequate staffing to police it or a satisfactory complaint handling process in place.
There is plenty of evidence to support <a href="/expert-insights/35449-sept-9-observer-can-we-really-trust-consumer-affairs-to-look-after-our-interests" target="_blank">why this function this should be removed from CAV</a>.
While industry representatives continue to deny that under quoting is a problem, rather than acknowledge the well evidenced fact that it exists (and actively develop solutions to protect consumers and support the majority of estate agents who don’t underquote), maybe the appointment of an ombudsman is the best way to resolve the problem of underquoting and other issues of concern to consumers.
A clear and accountable dispute handling process could be implemented to replace what is currently ineffective within CAV. It could also be partly or completely funded from the Victorian Property Fund, which is intended for use for compensation for claims against rogue estate agents anyway.
A positive side effect of the appointment of an ombudsman could be the lifting of barriers of entry to the industry and going back to what used to be a more stringent criteria to qualify to work in the industry as a licensed estate agent.
The majority of estate agents who are in fact ethical, professional and act with integrity, would have nothing to fear by the appointment of a Real Estate Ombudsman.
<a href="https://www.miriamsandkuhler.com.au/">Miriam Sandkuhler</a> is a licensed buyer’s agent and the founder of <a href="https://www.propertymavens.com.au/">Property Mavens</a> - a specialist property advisory firm based in Melbourne. 
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MiriamSandkuhler-brdvzrAYV2

It's time to appoint a Real Estate Ombudsman

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Guest observation
The sales results on The Block may be shocking to some, but not to those of us who understand renovating and development risk.
Developing and renovating property by nature is a high risk activity. Many an enthusiastic investor has been sucked into the idea of renovating or developing for profit, without fully understanding the ramifications let alone their own risk profile or that of property developing as a strategy.
The results on The Block are evidence of the reality of what can happen when renovating; the need to fully understand the importance of location, the target market, the competition of other stock in the marketplace and not overcapitalising within the development itself.
Risk is the extent to which you are willing to expose yourself to loss, in return for a particular level of gain. This applies to an individual's personal tolerance for risk as well as the risk associated with different types of wealth creation strategies including renovating or developing for profit.
In short, The Block is a television program that is built around the strategy of renovating for profit. In each instance, the production company determines the type and location of the properties purchased. They take the risk hoping they will recover their costs while enabling the competitors to potentially win a cash prize and earn any profit made, over and above the reserve that they set (assuming there are profits).
The risk that the competitors take on board is their willingness to sacrifice income, time and time with family in exchange for a possible prize of $100,000 plus profit share. In doing so they are totally dependent on the production company purchasing not only the right type of property that will appeal to buyers (apartments or houses), in the right location (suburb and position in suburb), but ensuring they don't overcapitalise on the renovation, so that the reserve is reasonable and allows the contestants to make a profit.
So why is it that one of the worst properties (Chris and Jenna's) earned so much profit and three superior properties earned almost nothing by comparison?
What I observed in Sunday night's auction were several things:
<ol>
<li>There were at least two buyers who were prepared to substantially overpay for the first two properties, given their location, size and type of property (i.e. average location in a reasonable but densely populated suburb on a busy main road). These first two buyers skewed the results for the rest of the properties.</li>
<li>The three other buyers weren't prepared to overpay and once the first two buyers dropped out, there was little demand (competition) to drive the prices up beyond the reserve on the remaining three properties.</li>
<li>The calibre of auctioneer i.e. where they start the auction and how high their increments are can make a difference to the result</li>
<li>Auctions only work to create outrageous results when the demand for a property is greater than the supply, especially if the property is unique or boutique. The results indicate that The Block brand wasn't enough to make up for Prahran being an inferior location to Albert Park and even South Melbourne.</li>
<li>While design is a factor and important, it's not everything. Buyers want to ensure that they are also buying a property that has the potential for strong capital growth, even if it is as an owner occupier.</li>
<li>These apartments weren't on single floors, like those on The Block Sky High, or in an attractive boutique property like Fans v Faves. Neither were they houses, like the Dorcas St properties. Attracting ridiculous prices was always going to be a struggle.</li>
</ol>
In addition, the concept of buying below 'replacement value' is irrelevant if the renovator over capitalises on the renovation in the first instance. That is often just poor decision making on behalf of the renovator and means nothing when it comes to actual 'market value'. This is where the importance of suburb, location in suburb, level of competing stock on the market, type of property and other factors come into play.
While devastating for three of the couples who walked away with almost nothing, the moral of the story is that not all property performs the same way. It is a highly complex beast and not for the faint hearted.
Renovating or developing for profit is always high risk and only those with a high risk profile and solid understand of how to reduce development or renovation risk should undertake it.
Understanding these issues will minimise the chances of making costly mistakes and ensure the greatest possible change of success and importantly profit.
Miriam Sandkuhler is the founder of <a href="https://propertymavens.com.au" target="_blank">Property Mavens</a> - a specialist property advisory firm based in Melbourne. She is an Accredited Property Investment Advisor (PIAA), Licensed Buyer Advocate and REIV member and award nominated Buyer Agent, with fourteen years of real estate experience in two states. She is also the author of the book Property Prosperity.
Main picture courtesy of Channel 9. 
 
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Let The Block Glasshouse results serve as a reality check for all would be renovators

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Consumer Affairs or the department of Fair Trading is the governing body in most states that is there to protect the consumer across a variety of industries and transactions.
In Victoria, Consumer Affairs Victoria (CAV) are the ‘leading’ consumer affairs protection agency and regulator. Their purpose is to help the public be responsible and informed businesses and consumers.
<ul>
<li>They review and advise the state government on consumer legislation and industry codes</li>
<li>They advise and educate consumers, tenants, businesses and landlords on their rights, responsibilities and changes to the law</li>
<li>They register and license businesses and occupations </li>
<li>They conciliate disputes between consumers and traders, and tenants and landlords </li>
<li>They enforce and ensure compliance with consumer laws</li>
</ul>
This is all wonderful for the consumer, however what is most disturbing is that like many government run organisations, they aren’t in any way accountable to the consumer.
Let’s look at the process of a consumer lodging a complaint against a real estate agent or agency and then compare it to what happens if that same consumer were to lodge a complaint against a financial planner with the financial ombudsman service (FOS).
The CAV website explains when to lodge a complaint, what conciliation is and the forms to use when lodging a complaint. There is nothing, however, that identifies the steps CAV will take or how your complaint will be handled or resolved.
In Victoria, most consumers make a phone call to CAV and the complaint is discussed. When personally testing the process and after discussing the matter, I have been required to hang up and lodge a written complaint, addressed to Consumer Affairs and to no one in particular. Having followed that process, nothing was ever sent to me to confirm that they had received my complaint, no complaint number was issued and no contact from CAV was ever made in relation to what was going to happen re the matter I reported. It actually so happened that I reported a financial planner who I knew had obtained his real estate licence fraudulently.  Apparently CAV didn’t deem that worthy of investigation as 18 months later, the financial planner still holds his real estate licence.
Recently, while testing the process again regarding a different matter, I was able to give the details of an unlicensed and active real estate agent and when I requested a case number or to be kept notified of the outcome, I was told no case number would be provided and that due to ‘privacy reasons’, the only way to check the progress of the matter, if in fact there was to be any investigation or action taken at all, was to check the public updates on the CAV website. In other words: "Thanks, but we will tell you nothing from here, we may not even pursue the matter if we deem it not worthwhile or sufficient enough of a breach to worry about."
Scary, isn’t it?  Even worse, CAV are quick to tell the consumer they are in the marketplace investigating and keeping an eye on things. For example, in the lead up to the Easter 2014 auction season, director of CAV Claire Noone announced they would be “watching for any misconduct during the buying and selling process - from the moment a property is advertised to when deposits are paid and held in trust accounts. Our staff will also attend auctions to make sure they are conducted according to auction rules.”  
Announcing this type of crackdown publicly is the equivalent of the police announcing they are about to raid active bikie gangs in the state in the coming weeks, thereby giving them plenty of notice to hide any illegal activity. Other than pre-warning agents to prepare for a raid, CAV accomplished nothing other than trying to highlight they are doing the job (poorly, it seems) that is expected of them.
Not surprisingly, as a result of this ‘early warning’ announcement to the industry, the crackdown on underquoting revealed a "close to 100%" pass rate for agents of what was a biased investigation ( only property with prices disclosed on advertising were investigate). This was despite a new poll suggesting more than half of agents admit the practice is a problem for the industry.
In the latest <a href="https://bit.ly/1hAWhQ7" target="_blank">Real Estate Business </a>straw poll, it appears the industry believes things are much worse than they are. Of the 368 respondents, 47.6% said underquoting was a major problem in the industry, while 17.9% said it was an issue but wasn’t too bad. A total of 19.6% said it was not a problem, but admitted it happens, while just 10.6% of agents believe there is no active underquoting in the industry. 
Victoria needs to follow the lead of South Australia and introduce regulations to stop underquoting. 
Back to Consumer Affairs accountability to the consumer.
My initial investigations with CAV and the media manager at the Department of Justice as to how many staff monitored compliance of section 18 of the ACL or section 131 of the CCA yielded the following statement:
“Australian Consumer Law is such a major part of Consumer Affairs work and has been integrated across the business - policy, inspection, legal, customer service and so on - a head count would not be … meaningful.”
My research since has gleaned that there are approximately 30 investigators working in CAV with approximately 6 dedicated to investigating the real estate industry.  For the year 2013, there were 82,981 Melbourne metro sales, with 30% (24,895) <a href="https://bit.ly/1r4KnSb" target="_blank">sold by auction</a> and only 6 possible dedicated investigators! 
The CAV 2012 – 2013 annual report shows 9609 calls were made regarding estate agents and the fifth highest number of complaints were about ‘misleading and deceptive conduct’. They did however “attend 15 property auctions in St Kilda and South Yarra in April. A similar compliance exercise was completed in December in the Bentleigh area.”  Disappointingly in this report, there is no reference to how many investigations were made further to these calls, but 309 estate agent disputes were ‘finalised’.
Now let’s compare the complaints process at FOS.
Firstly, when you go to their website, they have a dispute handling process clearly identified. They don’t just tell you how to lodge a complaint or when to, but the steps and process along the way.
"Step 1: Contact your financial services provider Step 2: Lodge a dispute with us (complainants will be issued with a case number and case manager to liaise with throughout the course of the complaint process. Timeframes to handle the dispute are identified upfront). Step 3: Our review of the dispute begins Step 4: How your dispute will be handled Step 5: How your dispute will be resolved" 
Source: <a href="https://bit.ly/1nxB0JX" target="_blank">FOS</a>
The process of protecting the consumer and regulating the industry cannot be left to CAV. They are patently understaffed and under skilled to be monitoring matters that involve consumers spending hundreds of thousands and even millions of dollars of their hard earned income.  
We shouldn’t trust that Consumer Affairs is looking after our interests in property matters.
It’s time to remove this sector of governance from CAV and to set up an independent board of consumer and real estate industry representatives that prides itself on objectivity, integrity and transparency in all aspects of its operations, like FOS.
<a href="https://www.miriamsandkuhler.com.au/">Miriam Sandkuhler</a> is the founder of <a href="https://www.propertymavens.com.au/">Property Mavens</a> - a specialist property advisory firm based in Melbourne. You can support the introduction of new legislation around underquoting by signing her Victorian petition <a href="https://chn.ge/1unh4yw" target="_blank">here</a>.
 
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Can we really trust Consumer Affairs to look after our interests?

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GUEST OBSERVATION
As little girls growing up, we have all seen the Disney animated fairy tales where the prince rescues the commoner and falls in love, or the Hollywood movie ‘happy ever after’ endings.
As women, we have been conditioned from a very young age by the media, the entertainment industry and even our families to assume we will meet our dream man (or woman), settle down and maybe even have children.  And of course, we will live happily ever after…
While there is always the chance of that coming to fruition, what they don’t tell you is how it can turn to muck very quickly and what the consequences of this can be if it happens!
For those of us who have been around the block a couple of times, we have all seen, heard of, or experienced the effects of a marriage or de facto coupling and an ensuing separation or divorce. For those who haven’t experienced it, you may well have grown up in a single parent family yourself and witnessed the emotional and financial devastation that can be wreaked upon a family when this happens.
Did you know, 40 years after equal pay, women still earn on average 21% less than men? Which means they have less income to meet their everyday expenses - and less to contribute to their superannuation.
And that’s before we factor in the need for many of us to leave workforce to have children. Taking time out from our careers to raise kids results in less contributions to our super and study after study shows that once women return to work they find less opportunities for career advancement.
What this all adds up to is that women, by definition, have a harder time achieving their financial independence.
That can leave women socially and economically vulnerable to the three deadly financial Ds if they are reliant on their partners: divorce, death and desertion.
If these strike, a woman approaching middle age can find herself without her financial independence or worse facing retirement with what some have coined ‘Middle class homelessness’; facing old age with precious little income and the indignity of having to share accommodation.
At the end of the day, the most important way women can empower themselves is by being financially independent. This allows a woman to have choices - be it to leave an abusive or controlling relationship or simply take time out between jobs if so desired.
As a child in the 1970s, I got to live first hand with all of the consequences of the divorce when my parents parted ways. What was most evident to me in this situation as a female, was the importance of a solid education (beyond the limited education my mother had as a result of growing up in Europe during WW2). And especially the importance of having your own money and savings. This in itself would have provided so many more options for my mother once divorced. We were luckier than many as Dad paid his maintenance and were always fed, clothed and had a roof over our head, but I dread to think of the consequences if this wasn’t the case.
Fast forward a few decades, and looking back after my own divorce, I can see how my emotions and the consequences of social conditioning got in my way and ultimately cost me money.
For example, when I divorced, my ex benefited financially from my investment activity (I should have stayed firm about us signing a pre-nup but I allowed emotions to get in the way).
Even though I came out of it still being able to buy my own home and with some investments still intact, the biggest lessons for me were;
<ol>
<li>Don’t wait for others to get the ball rolling when it comes to creating your own financial independence because time is of the essence. This thing called compound growth has a massive impact on your financial outcome and for every 10 years you wait, your wealth decreases by half!</li>
<li>Always keep your emotions out of it when making financial decisions. This is what leads to bad decisions being made time and time again. Deal in facts and move forward on that basis.</li>
<li>While the fairy tale may happen, hope for the best but always plan for the worst. Seek professional advice around investment structuring and how to protect your assets that you bring into a relationship, especially if you plan to have children. Think pre-nup, even if your assets are equal going into the defacto or marriage arrangement.</li>
<li>If you have or plan to have children, you must factor in the time you will have away from the workforce and how this will affect your income and your ability to fund your retirement via superannuation contributions.</li>
<li>Consider the ‘sandwich’ generation of women and plan accordingly. These are women with older kids still living at home who may also need to take time out of work to care for ageing parents.</li>
<li>
As nurturers, many women tend to put others ahead of themselves, sacrificing their own needs and financial security in the process. It is not selfish to create your own financial security ahead of helping your children. In fact it’s important to teach your daughters in particular to look after themselves first. I see plenty of 50 year old female clients who are torn trying to decide if they should buy their children a home to give them a helping hand, or buy themselves a home or create income for retirement. To be blunt - stop it! If women don’t look after themselves first, they can’t help their children and never assume your kids will look after you in return. They simply may not be able to, or could have a spouse who could prevent it from happening. This is a contributing factor to the increase of ‘middle class homelessness’ among women aged 50 plus.
</li>
<li>Don’t assume gold digging is a female only trait. As I have gotten older I see plenty of men seeking to hook up with women who are financially secure. They may be toy boys looking for a sugar mummy or older men who have themselves hit hard times or divorced, so protect your assets and learn what situations, such as living with a partner, can make you financially vulnerable. Then put agreements in place to protect yourself.</li>
</ol>
While it may appear that I am painting a picture of doom and gloom, it’s a sad reality for many and will only get worse over time if women don’t start taking action to empower themselves financially.
In the meantime, go forth and prosper!
<a href="https://www.miriamsandkuhler.com.au/">Miriam Sandkuhler</a> is the founder of <a href="https://www.propertymavens.com.au/" target="_blank">Property Mavens</a> - a specialist property advisory firm based in Melbourne.
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Miriam Sandkuhler

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