Exclusive: How to spot a dodgy operator - tips from the experts
With misleading rent to buy schemes gaining momentum and property spruikers increasingly targeting the elderly and the ill, the dodgy practices of a few are threatening to tarnish the reputation of the property industry. Properties, once considered safe and reliable investments, are increasingly being used by unethical operators to victimise those looking for a stable source of income.
A predator in the property sphere may cost someone their retirement savings, their biggest asset or their home. Jonathan Chancellor, editor at large of Property Observer, says there are a number of ways to spot an investment trap.
"Dodgy operators try to get you into something without allowing you a second opinion from your accountant or solicitor, and sometimes not even your partner or spouse, given the intensity of their “act now” imperative.
"But no deal being pushed by a spruiker is going to simply disappear overnight. If it did, they would be out of business.
"So you are entitled to sleep on it - without signing anything - cooling off promise notwithstanding.
"And then overnight, take the time to just do some simple research. The internet makes it easy. Research the sales person, their team and their potentially dodgy practices in online chat rooms, which have plenty of feedback on the worst of cases. Then research the property, its neighbourhood and the promised returns.
"If it still looks good, then getting an independent legal and financial review of any transaction could save you your hard earn income in the long term.
"Remember, property investment falls largely outside the jurisdiction of major regulators, so you are on your own.
"You ought to sign only once you are completely comfortable with the clarity of the offering. Quite simply, if you lack investment knowledge - and who doesn't - then you need an independent advisor. They could be your savvy estate agent or mortgage broker acting as an honorary sounding board, or a non-commissioned professional who preferably doesn't charge over the top, but who knows their stuff."
While strict regulations exist for financial advisors and real estate agents, property advisors, or “spruikers” operate in much more nebulous territory. They could be a regular on the investment seminar circuit, the face of an investment scheme or your own accountant. With such unclear waters, property investors are left largely to take care of themselves. Property Observer approached some leading advocates of ethical operations in property field to ask them about how to spot a dodgy operator.
Ben Kingsley, chair of the Property Investment Professionals of Australia (PIPA) and chief executive of Empower Wealth Advisory
Unfortunately our property investment industry remains unregulated. Given that property is such a high value transaction, which can attract large commissions and incentivised sales campaigns from builders and developers, it naturally attracts some operators who are more interested in their own self-gain than the investment returns of their clients.
For me the two main warning signs of a dodgy operator are:
A reluctance, or even worse, a total refusal to talk about or disclose how much they are being paid for recommending a property.
A hard sell in terms of what property they are pushing. Usually the classic line about acting now, as ‘this opportunity won’t last’.
In any field of work there is always a chance that a ‘bad egg’ or two will find their way into a professional environment, even if their profession is licensed or regulated in some way.
Having said that, PIPA is steadfast in its belief that regulation is necessary in order to limit these kinds of operators.
When it comes to steering clear of dodgy operators, PIPA’s advice is to be very cautious, do your due diligence, ask plenty of questions and don’t be rushed into anything.
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Jacque Parker, director of House Search Australia, president of the Real Estate Buyer's Agents Association of Australia (REBAA)
When seeking a property advisor, including a buyer's agent:
- Ensure they are appropriately licensed with their relevant state or territory licensing body, for example, the Office of Fair Trading. This entails a simple check online via the Department of Fair Trading and also provides consumers with information on how long the operator has been in business for.
- Ensure they are members of a professional industry body, like their state Real Estate Institute or preferably REBAA, for buyer's agents.
- Confirm they are appropriately insured with personal indemnity cover, as this affords consumer protection.
- An important question to ask a buyer’s agent is whether they are truly “exclusive” or “independent”. If they accept sales commission from vendors or developers then they cannot be classified as “independent” as they are acting in the interests of the seller.
- Ask for references of recent clients and speak to them if possible. If a buyer’s agent can’t provide you with recent buyers, then there’s something wrong.
Neil Jenman, property commentator, consumer advocate and investigative writer
Honest people, straight people have always got something wrong with them. They make a mistakes, they muck up. Dodgy spruikers have nothing wrong with them. Their websites are perfect, their pitches are perfect – there won’t be anything wrong with them whatsoever, because they’ve gone to great lengths to whitewash their image completely.
They’ll quote statistics to scare people, most of which are made up. They’ll say things like “most people are going to be poor in their old age”.
Another one is the claim that they’ve “carefully researched properties for prime growth areas” – this is just doublespeak for “the developer is telling me to get people to invest here”.
The way that apartment buildings and developments used to be sold was with a full page ad in the Sunday newspapers. Now, there aren’t any ads in the paper, because property spruikers are getting commissions ranging up to $50,000 per property.
The developer will go to an accountant and say, “Listen, all your clients need to invest in something, they need tax deductions” – which means a loss. “If you get them to invest in one of our projects, we’ll give you $50,000 per property.”
They’ll often call themselves a club – this is a big warning sign. And they might not say it, but they’ll give the impression that they’re doing this out of love and helping the community. The word “club” is one of the worst things. There are right now about 15 or 20 dodgy spruiking outfits that refer to themselves as “clubs”. It’s not just in the property industry either; it’s also spread to the finance industry.
There is so much money to be made, because people are afraid of being poor; especially the elderly. I went through a copy of the Financial Review seven years back and cut out all the ads where people were offering high interest rates. There were about 11 of them, all targeting older people, with photos of elderly people walking on the beach, that sort of thing. I waited five years to see what had happened to those companies – every single one had gone into receivership.
[Of those who aren’t familiar with property investing and want to protect themselves] They should go to an ordinary real estate agent in an ordinary suburb. And buy an ordinary house, in ordinary times.
Years ago – when you wanted to buy a property, you went to the local real estate agent. Now, real estate agents are like angels compared to some of these property spruikers.
jrichardson@propertyobserver.com.au
