However, by assigning S&P contracts prior to settlement and receiving a fee for doing this (in other words being a property finder) you are acting as a Real Estate agent. Being a Real Estate agent is not a crime, but if you are an agent you have to do it legally, which the majority of property finders are not doing. They are therefore breaking the law. This fact in itself may be of no less significance to you than whether or not property finders are classed as property traders and whether or not their buy-and-hold properties are being tainted.
Three people have now contacted me regarding this statement. They have added weight to my own nagging feeling of unease, that perhaps I am not being as fair as I should be.
I appreciate that it is very easy for me to say that people are breaking the law knowing that in so doing it causes a lot of worry and annoyance, whether it is true or not. This is particularly the case if I do not explain more fully what I mean. (This is the thrust of those three different messages.) I felt that I had explained reasonably well what I meant, but obviously not. Perhaps this is due in part to the somewhat clumsy way in which I first broached the subject:
http://www.propertytalk.com/forum/showthread.php?t=5379
The last thing I want is to be accused of being a muck-raking, mud-slinging nuisance, or simply an annoying, irresponsible heckler from the sidelines.
For these reasons, as well as the fact that it is a matter of importance to all investors, especially property traders, I feel I do have a responsibility to stop beating about the bush, make it crystal clear what my point is, and then perhaps leave it be.
To do this I have chosen to write almost as if making a case in a courtroom. I would like to invite those who disagree with me to respond with a little more detail than simply saying: “I don’t agree”, which is both unhelpful to other readers and does their case no good at all. Members and readers of this site can then make up their own minds and perhaps make comments and observations of their own. Unless asked to on this site I will not make further comment on, or bring this subject up, again, because if nothing else, it could well be true what FatBelly says, that we may need to agree to disagree.
Before beginning, some general points follow:
1/ This is my opinion only.
2/ This is not personal against anyone.
3/ Some people will not understand what I am talking about because a/ English is not their mother tongue (fair enough); or b/ They are not very bright (I cannot help that); or c/ They do not want to think about it because the consequences of so doing are too unpleasant (That is human nature, but again one I cannot do much about).
4/ As in an earlier thread I would like to look at Dean’s post below because it neatly summarises the opposing position, namely that as a finder, you are acting as an intermediary between a buyer and seller for the sale of a contract, not land or a building and cannot therefore be classed a Real Estate agent (REA). I want now to show why this position is wrong.
Dean: This is not correct. By assigning contracts prior to settlement and receiving a fee you are charging a fee in exchange for a contract. You are NOT introducing a buyer and a seller and therefore am in no way operating as an agent. You are selling a CONTRACT, not a property.
http://www.propertytalk.com/forum/showthread.php?t=6236
**************
We first need to be clear what finders actually are. They as the buyer sign a S&P Agreement (SPA) with a vendor conditional on certain points, one of which is likely to be a due diligence clause or some other ‘get out’ clause. The finder will also put down on the SPA as the buyer his own name, or nominee (or something similar). This practice is not uncommon and is often used by people who may, prior to settlement, want to put the property into a family trust or joint ownership with the spouse, or some other ownership structure. But in the case of a finder the intention is quite different. The finder will be looking to find another, possibly unknown, buyer whom he will be able to use as his ‘nominee’. In other words, the contract will be assigned to a third party. When this happens, the new buyer will pay the first buyer (the finder) a fee for his trouble. The new buyer wins because he can now buy (settle on) a property at a supposedly good price and without having to go through all the hassle of looking and negotiating himself. The first buyer (finder) wins because he walks away with his finder’s fee and has none of the hassle, and expense, of having to settle on (buy) the property himself. The vendor wins because he gets a sale. That is the theory: the reality is often different, but that is another matter. I say these finders are acting as REA while others say no, they are merely selling a contract or option to buy a property, not the property itself.
We now need to look at the Real Estate Agents Act 1976, in particular section 3. This section is entitled ‘Meaning of real estate agent’ and it is here, obviously, where we can find what a REA is in the eyes of the law. I will not quote the whole section because I cannot type that fast and because my computer ability is not great enough to upload it from somewhere else. (Maybe someone can help out here. I do not think copyright is an issue.) I will however type in the relevant words.
S 3(1) says
…every person shall be deemed to be a REA who acts, or holds himself out to the public as ready to act, for reward as an agent in respect of the sale or other disposal of land…whether or not that person carries on any other business.
Pretty general and vague, isn’t it. Or is it? Let’s look at it more closely bearing in mind Dean’s comments.
Dean: You are NOT introducing a buyer and a seller and therefore am in no way operating as an agent
The word introduce is common REA talk and relates to the commission due from the client and the split of that commission between agents. It also relates to whether or not a buyer is physically taken onto the vendor’s property. It is not mentioned in S 3(1) because it does not need to be: it is not relevant. The second part of the sentence does not therefore necessarily follow from the first.
Dean: You are selling a CONTRACT, not a property.
However, look at S 3 again. It could be argued that you are most definitely introducing a buyer (of land) and a seller (of land), even if it is only on paper. The final sale (of land) will, after all, be between the vendor and the purchaser, a deal brought about by the finder. Has not the finder therefore introduced the buyer (of land) to the vendor (of land), even if the vendor does not know about it? As such, the finder is acting as an agent (being an intermediary between two parties in the sale of land).
At one level though it could be argued, as the finders and Dean argue, that they are merely selling the contract, the piece of paper, and not the land it entitles the buyer to purchase. However, I believe that S 3 is intentionally vague in order to cover all possible variations of ways in which a person can act as an agent in the sale of land. As the two examples here show.
It avoids using just the word sale, choosing rather the phrase sale or other disposal of land, (presumably to cover people who try to get out of the Act by swapping land or paying for it in kind).
It avoids using the words fee or monetary payment, choosing instead the far more all-encompassing word reward.
So, I believe the intention of S 3(1) is quite clear on closer examination, even if at first sight it is open to different interpretations. Similarly, I believe that to say that finders are selling contracts and not land takes a rather narrow and simplistic view of S 3(1), even if it is one that many people, including inferior lawyers, may take. Remember: the law abhors pedants.
How more clearly can the Act be putting across the intention of S 3(1)? Quite easily. Let us look at S 3(2).
Here we have a list of people and entities that are exempt from S 3(1). They include solicitors doing conveyancing and auctioneers. But why bother to put these people down as exemptions? Surely it is obvious that an auctioneer is not a REA when he is standing there hammer in hand saying going, going, gone? Well no, it is not at all obvious, because in so doing he is acting as an intermediary between a buyer and a seller in the disposal of land, as defined in S 3(1). The same would apply to a solicitor quietly sitting at his desk drawing up the transfer deeds. There would be absolutely no need for S 3(2)(a/b) unless my interpretation of S 3(1) were correct.
But S 3(2)(a/b) is there because my interpretation of S 3(1) is correct and the interpretation of Dean and many finders out there is incorrect.
*******************************
And here a quick note about and to Kieran Trass. Between them, Kieran, his wallet and his QC appear to have drawn a similar conclusion to mine, although no doubt by using considerably more convincing and compelling legal logic. (I earlier in another post said that I still thought you, Kieran were in breach of the Act. That was before you mentioned that you traded with contemporaneous sales. Thank you for telling us that, which you did not need to do, even if it was not clear from your website. Now that I know that, and for what it is worth, I think you probably are not caught by
S 3(1). So good on you, you have proved once again that if you want good advice you usually have to pay for it.
***********************
To conclude, I am not unaware of the implications of this. Let us assume that I am correct. What follows?
Finders are deemed to be Real Estate agents.
They are in breach of the REA Act because they are not licensed as agents.
Notwithstanding that, they are almost certainly also in breach of a whole host of rules and regulations to which REAs have to conform, far too many to name here, but most of them covered elsewhere in the REA Act 1976.
And let us also not forget the many other Acts which affect the REA’s business: Fair Trading Act; Consumer Guarantees Act; and so on. Goodness, the list goes on and on.
Somewhere at sometime this Act will be tested on some poor property trader who is likely to be given a severe thumping. Many of you who are doing this are doing it almost as a hobby, a sideline to your normal job. You may feel that you will not be singled out and that the penalties will not be that harsh anyway. For you others who make your living from doing this, with businesses, employees and reputations to protect, you may need to think a little more carefully about what you are doing, especially if you have a high public profile.
To those who say, what are you bringing this up for? What harm is it doing anyone anyway, even if it is against the law? Why put people down for trying to get ahead? I would say the following:
Despite what many of you think, the REA Act is there to protect the public, not the RE industry. When you have unregulated amateurs playing games like ‘finding’ with people’s property (often the roof over their head) hurt will be caused somewhere. (We could look at what actually often happens during one of these ‘deals’ finders are so happy to brag about: a topic for another thread perhaps?) Because we do not live in a Stalinist state we fortunately cannot regulate against people choosing to sell or buy privately. There are numerous examples I know of where people who choose to do this (as is their right), end up losing money. They have nobody to blame but themselves. For me, when I am looking for a steal, the first place I look is the private sale columns.
After I first brought this subject up I was a little surprised to see that so many otherwise intelligent and honest members were carrying on offering ‘deals’ and giving advice on ‘finding’ as if there was no real problem with it. I could only conclude that they were taking poor advice from lawyers or others senior traders, or that the reality of what they were/are doing and the corresponding consequences were too unpleasant to think about: they buried their heads in the sand.
Although this post may cause disharmony, I trust, cube, it will not become shy like the earlier thread. Surely it is for every investor’s and trader’s benefit to read it?
As I said earlier, I will not bring this subject up again elsewhere although I shall continue to comment on it in this thread if anybody chooses to ask questions or wants to enter into a discussion.
I look forward to reading follow-up comments, but please, keep it clean!
xris
Three people have now contacted me regarding this statement. They have added weight to my own nagging feeling of unease, that perhaps I am not being as fair as I should be.
I appreciate that it is very easy for me to say that people are breaking the law knowing that in so doing it causes a lot of worry and annoyance, whether it is true or not. This is particularly the case if I do not explain more fully what I mean. (This is the thrust of those three different messages.) I felt that I had explained reasonably well what I meant, but obviously not. Perhaps this is due in part to the somewhat clumsy way in which I first broached the subject:
http://www.propertytalk.com/forum/showthread.php?t=5379
The last thing I want is to be accused of being a muck-raking, mud-slinging nuisance, or simply an annoying, irresponsible heckler from the sidelines.
For these reasons, as well as the fact that it is a matter of importance to all investors, especially property traders, I feel I do have a responsibility to stop beating about the bush, make it crystal clear what my point is, and then perhaps leave it be.
To do this I have chosen to write almost as if making a case in a courtroom. I would like to invite those who disagree with me to respond with a little more detail than simply saying: “I don’t agree”, which is both unhelpful to other readers and does their case no good at all. Members and readers of this site can then make up their own minds and perhaps make comments and observations of their own. Unless asked to on this site I will not make further comment on, or bring this subject up, again, because if nothing else, it could well be true what FatBelly says, that we may need to agree to disagree.
Before beginning, some general points follow:
1/ This is my opinion only.
2/ This is not personal against anyone.
3/ Some people will not understand what I am talking about because a/ English is not their mother tongue (fair enough); or b/ They are not very bright (I cannot help that); or c/ They do not want to think about it because the consequences of so doing are too unpleasant (That is human nature, but again one I cannot do much about).
4/ As in an earlier thread I would like to look at Dean’s post below because it neatly summarises the opposing position, namely that as a finder, you are acting as an intermediary between a buyer and seller for the sale of a contract, not land or a building and cannot therefore be classed a Real Estate agent (REA). I want now to show why this position is wrong.
Dean: This is not correct. By assigning contracts prior to settlement and receiving a fee you are charging a fee in exchange for a contract. You are NOT introducing a buyer and a seller and therefore am in no way operating as an agent. You are selling a CONTRACT, not a property.
http://www.propertytalk.com/forum/showthread.php?t=6236
**************
We first need to be clear what finders actually are. They as the buyer sign a S&P Agreement (SPA) with a vendor conditional on certain points, one of which is likely to be a due diligence clause or some other ‘get out’ clause. The finder will also put down on the SPA as the buyer his own name, or nominee (or something similar). This practice is not uncommon and is often used by people who may, prior to settlement, want to put the property into a family trust or joint ownership with the spouse, or some other ownership structure. But in the case of a finder the intention is quite different. The finder will be looking to find another, possibly unknown, buyer whom he will be able to use as his ‘nominee’. In other words, the contract will be assigned to a third party. When this happens, the new buyer will pay the first buyer (the finder) a fee for his trouble. The new buyer wins because he can now buy (settle on) a property at a supposedly good price and without having to go through all the hassle of looking and negotiating himself. The first buyer (finder) wins because he walks away with his finder’s fee and has none of the hassle, and expense, of having to settle on (buy) the property himself. The vendor wins because he gets a sale. That is the theory: the reality is often different, but that is another matter. I say these finders are acting as REA while others say no, they are merely selling a contract or option to buy a property, not the property itself.
We now need to look at the Real Estate Agents Act 1976, in particular section 3. This section is entitled ‘Meaning of real estate agent’ and it is here, obviously, where we can find what a REA is in the eyes of the law. I will not quote the whole section because I cannot type that fast and because my computer ability is not great enough to upload it from somewhere else. (Maybe someone can help out here. I do not think copyright is an issue.) I will however type in the relevant words.
S 3(1) says
…every person shall be deemed to be a REA who acts, or holds himself out to the public as ready to act, for reward as an agent in respect of the sale or other disposal of land…whether or not that person carries on any other business.
Pretty general and vague, isn’t it. Or is it? Let’s look at it more closely bearing in mind Dean’s comments.
Dean: You are NOT introducing a buyer and a seller and therefore am in no way operating as an agent
The word introduce is common REA talk and relates to the commission due from the client and the split of that commission between agents. It also relates to whether or not a buyer is physically taken onto the vendor’s property. It is not mentioned in S 3(1) because it does not need to be: it is not relevant. The second part of the sentence does not therefore necessarily follow from the first.
Dean: You are selling a CONTRACT, not a property.
However, look at S 3 again. It could be argued that you are most definitely introducing a buyer (of land) and a seller (of land), even if it is only on paper. The final sale (of land) will, after all, be between the vendor and the purchaser, a deal brought about by the finder. Has not the finder therefore introduced the buyer (of land) to the vendor (of land), even if the vendor does not know about it? As such, the finder is acting as an agent (being an intermediary between two parties in the sale of land).
At one level though it could be argued, as the finders and Dean argue, that they are merely selling the contract, the piece of paper, and not the land it entitles the buyer to purchase. However, I believe that S 3 is intentionally vague in order to cover all possible variations of ways in which a person can act as an agent in the sale of land. As the two examples here show.
It avoids using just the word sale, choosing rather the phrase sale or other disposal of land, (presumably to cover people who try to get out of the Act by swapping land or paying for it in kind).
It avoids using the words fee or monetary payment, choosing instead the far more all-encompassing word reward.
So, I believe the intention of S 3(1) is quite clear on closer examination, even if at first sight it is open to different interpretations. Similarly, I believe that to say that finders are selling contracts and not land takes a rather narrow and simplistic view of S 3(1), even if it is one that many people, including inferior lawyers, may take. Remember: the law abhors pedants.
How more clearly can the Act be putting across the intention of S 3(1)? Quite easily. Let us look at S 3(2).
Here we have a list of people and entities that are exempt from S 3(1). They include solicitors doing conveyancing and auctioneers. But why bother to put these people down as exemptions? Surely it is obvious that an auctioneer is not a REA when he is standing there hammer in hand saying going, going, gone? Well no, it is not at all obvious, because in so doing he is acting as an intermediary between a buyer and a seller in the disposal of land, as defined in S 3(1). The same would apply to a solicitor quietly sitting at his desk drawing up the transfer deeds. There would be absolutely no need for S 3(2)(a/b) unless my interpretation of S 3(1) were correct.
But S 3(2)(a/b) is there because my interpretation of S 3(1) is correct and the interpretation of Dean and many finders out there is incorrect.
*******************************
And here a quick note about and to Kieran Trass. Between them, Kieran, his wallet and his QC appear to have drawn a similar conclusion to mine, although no doubt by using considerably more convincing and compelling legal logic. (I earlier in another post said that I still thought you, Kieran were in breach of the Act. That was before you mentioned that you traded with contemporaneous sales. Thank you for telling us that, which you did not need to do, even if it was not clear from your website. Now that I know that, and for what it is worth, I think you probably are not caught by
S 3(1). So good on you, you have proved once again that if you want good advice you usually have to pay for it.
***********************
To conclude, I am not unaware of the implications of this. Let us assume that I am correct. What follows?
Finders are deemed to be Real Estate agents.
They are in breach of the REA Act because they are not licensed as agents.
Notwithstanding that, they are almost certainly also in breach of a whole host of rules and regulations to which REAs have to conform, far too many to name here, but most of them covered elsewhere in the REA Act 1976.
And let us also not forget the many other Acts which affect the REA’s business: Fair Trading Act; Consumer Guarantees Act; and so on. Goodness, the list goes on and on.
Somewhere at sometime this Act will be tested on some poor property trader who is likely to be given a severe thumping. Many of you who are doing this are doing it almost as a hobby, a sideline to your normal job. You may feel that you will not be singled out and that the penalties will not be that harsh anyway. For you others who make your living from doing this, with businesses, employees and reputations to protect, you may need to think a little more carefully about what you are doing, especially if you have a high public profile.
To those who say, what are you bringing this up for? What harm is it doing anyone anyway, even if it is against the law? Why put people down for trying to get ahead? I would say the following:
Despite what many of you think, the REA Act is there to protect the public, not the RE industry. When you have unregulated amateurs playing games like ‘finding’ with people’s property (often the roof over their head) hurt will be caused somewhere. (We could look at what actually often happens during one of these ‘deals’ finders are so happy to brag about: a topic for another thread perhaps?) Because we do not live in a Stalinist state we fortunately cannot regulate against people choosing to sell or buy privately. There are numerous examples I know of where people who choose to do this (as is their right), end up losing money. They have nobody to blame but themselves. For me, when I am looking for a steal, the first place I look is the private sale columns.
After I first brought this subject up I was a little surprised to see that so many otherwise intelligent and honest members were carrying on offering ‘deals’ and giving advice on ‘finding’ as if there was no real problem with it. I could only conclude that they were taking poor advice from lawyers or others senior traders, or that the reality of what they were/are doing and the corresponding consequences were too unpleasant to think about: they buried their heads in the sand.
Although this post may cause disharmony, I trust, cube, it will not become shy like the earlier thread. Surely it is for every investor’s and trader’s benefit to read it?
As I said earlier, I will not bring this subject up again elsewhere although I shall continue to comment on it in this thread if anybody chooses to ask questions or wants to enter into a discussion.
I look forward to reading follow-up comments, but please, keep it clean!
xris
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