Estate agents warned over accepting kickbacks

Estate Agents have been warned about taking what the Real Estate
Institute calls "secret commissions" from banks, lawyers and
conveyancers.

Agents who suggest a buyer talk to a particular bank, for example, are often rewarded when the buyer takes out a loan.

The reward can be in cash or in other forms such as FlyBuys points.

But
house buyers are not always told about the commissions, sparking the
institute's warning to its 16,000 members to declare the deals.

Although
the institute has stopped short of banning the practice, executive
director Boud Hammelburg has demanded swift action and its compliance
and operations manager, Christine Le Cren, has been asked to deliver a
paper on the issue.

The rewards have drawn the scorn of
consumer advocates, who ask exactly whose interests agents are serving
- the vendor's, the buyer's, the bank's or their own.

Banking
Ombudsman Liz Brown called for such payments to be revealed. "Real
estate agents in a certain sense are providing people with financial
advice," she said.

So people should be told if they were receiving commissions.

Consumers' Institute chief executive David Russell called the payments ethically reprehensible.

"People
have every reason to be astonished. We take a very dim view of this,"
he said. Buyers were being deceived if they thought an agent's advice
was independent and objective without realising that that agent could
be paid to recommend one particular bank.

Real estate
barrister John Waymouth said earning the fees was not illegal but
keeping them secret breached the little-known Secret Commissions Act,
which banned covert kickbacks.

The act makes it illegal to
offer or take favours when conducting business, failing to declare a
financial interest when involved in the awarding of contracts, or
misleading about payments received while awarding contracts.

Mr
Waymouth estimated commissions were paid in at least 20 per cent of
property deals, particularly those involving first-time buyers,
investment property buyers and migrants.

More than 100,000 houses are sold annually.

Many
major franchised agencies disclosed the potential commissions in the
fine print on their listing contracts, said Mr Waymouth.

Conveyancing firms were also rewarding agents for bringing them business.

Lester
Dempster, president of the Institute of Conveyancers and a director of
Conveyancers NZ, confirmed that some conveyancers paid agents, as did
some lawyers.

"It's got to stop," he said. "This is wrong
because the agent is meant to be working for the vendor, not the bank
or the lawyer or the conveyancer."

Mr Dempster estimated
agents got a minimum $50 to $100 for each deal, more in some cases. Any
covert payments to agents was a conflict of interest because people
trusted them and few would know they were actually being paid to
recommend banks, lawyers or conveyancers, he said.

Some firms
which might charge house buyers less were being punished for not being
in on the secret deals, which disadvantaged buyers.

Bryan
Thomson, chief executive of New Zealand's largest real estate firm,
Harcourts, said there was nothing wrong with the agents getting fees
from banks, as long as everyone knew.

"This is a payback for
referring business, so if a mortgage is written a referral fee is paid,
which has been happening for a long time, as long as I can remember."

Harcourts' documents told people about the payments, he said.

David
Nightingale, manager of Harcourts at Browns Bay, said he got fees from
banks in about half the house sales he had made since 1998. Having a
close relationship with a mobile lending manager helped speed up and
conclude sales.

Real Estate Institute president Howard Morley called on agents to declare the commissions.

"I
think if everyone knows what is going on, there's no problem. We have
warned licensees that they should be upfront and people should be told.
But there have been no complaints. We've just been told we should be
watching this."

The ANZ makes cash payments or gives holiday rewards to agents for successful mortgage referrals.

Spokesman
Craig Howie said that fact had to be disclosed to borrowers. The bank
would not say how much was paid because it was commercially sensitive,
he said.

Bank of New Zealand spokesman Owen Gill said agents
were given FlyBuys points for a successful mortgage referral as long as
certain conditions were met, a practice that started two years ago.
Those conditions included the buyer being told about the incentive.

Mr Gill would not say how many FlyBuys were given for a loan referral.

Westpac
spokesman Ian Bonner said the bank gave loyalty bonus rewards from its
hotpoints programmes to agents or developers bringing in a minimum $1
million of mortgages a month. Westpac gave $200 worth of hotpoints for
a new mortgage, he said.

ASB Bank's Jonathan Symons, general
manager of marketing, said agents who brought mortgage business to its
mobile lending managers were paid in vouchers.

Russell Malcolm of Colonial Realty at Albany said he abhorred "secret commissions" from lenders and did not receive them.

Barfoot
& Thompson director Peter Thompson said his agents were banned from
receiving financial or travel kickbacks. But gifts of food, wine or
flowers were acceptable.