More agents putting their hands in the cookie jar as businesses struggle

The number of estate agencies the NSW Office of Fair Trading has investigated for misusing trust account money has doubled in the space of a year, according to research by Property Observer.

During the September 2011 quarter a summary of compliance and enforcement results show there were eight enforcements made against estate agencies for trust account misappropriation or trust account irregularities.

During the September 2010 quarter there were only four enforcements made against estate agencies.

Between these periods, enforcements have been steadily rising, with four issued in the December 2010 quarter, five in the March 2011 quarter and seven issued in the June 2011 quarter.

Figures have not yet been published for the December 2011 quarter.

The figures coincide with a tougher trading environment for real estate agencies.

The latest ABS business entry and exit figures show that survival rates of real estate business are declining.

Only 67.8% of “rental, hiring and real estate services” businesses survived until June 2011 (out of those that were operating at the start of the financial year) compared with a survival rate of 87.8% in 2007.

There also appears to be a rise in the number of Fair Trading investigations into estate agencies over trust account misuse.

In the past seven months Fair Trading has announced investigations into three prominent real estate businesses –Dougmal Harcourts (Warilla), LJ Hooker Surry Hills and Belle Property Byron Bay – all relating to allegations of trust account deficiencies.

The LJ Hooker Pymble office has also been the subject to an Office of Fair Trading investigation, the outcome of which is also unknown.

By comparison, Fair Trading did not announce any such investigations for the prior 18-month period dating back to January 2010.

A spokesperson for Fair Trading told Property Observer investigations into these three businesses are ongoing.

In the case of Dougmal Harcourts, more than $1 million is unaccounted for in the agency’s trust account; while $550,000 is missing from Belle Property Byron Bay. The exact amount missing at LJ Hooker Surry Hills has not been disclosed.

Among the monies held in estate agents trust accounts are deposits on sales, residential bonds paid in cash, rents and prepaid advertising.

Monies are lodged in trust accounts in order to be protected. Agents are not allowed to use money in trust accounts for their own purposes.

Interest accrued on trust account monies is used by Fair Trading to make compensation payments to wronged consumers.

“Trust account laws are there and agents need to be aware of them,” NSW Fair Trading Deputy Commissioner Steve Griffin warns in an education video put out by the watchdog.

“They must bank money the next day or if they have bonds they must lodge them with Fair Trading within seven day,” he says.

Agents risk a maximum penalty of 10 years’ imprisonment for breaching trust account laws. The maximum fine is $55,000 as well as the risk of losing their real estate licence and their livelihood.

For 2010-11 most agents must have lodged an audit of their trust account with the director-general by no later than September 30.

Failure to lodge an audit can result in a licensee being disqualified from holding a licence and possibly prevented from renewing their licence.

Under NSW property law, agents are required to hold clients’ funds in a trust account kept at an authorised deposit-taking institution and approved by the director general. They must also notify the lender that it is a trust account required under the Property, Stock and Business Agents Act 2002.

Fair Trading says it has not noticed any increasing trend or spike in real estate office investigations.