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Queensland Conveyancing
Real estate agents
Broadly speaking, the following are the three different categories of agencies in the industry:
- Independent agencies: these are ones that have no connection with any larger organization. They usually have the lowest level of technological support.
- Co-ops: These are like independents that trade under a group name and benefit from group advertising eg The Professionals, First National, LJ Hooker.
- Franchise agencies: These are comprised of independently owned "branches" in which the organization provides significant support eg Ray White. Depending on the particular group, the extent and sophistication of company supplied support will vary. Where a single person owns multiple franchises, contract support is usually done at one office only.
The business models of each different franchise type differ. For example in most Remax businesses, each salesperson in the agency usually operates as an independent business and pays the office for support. In organizations like Ray White, the principal owns the business, employs salespeople with whom commission on each transaction is shared and pays a percentage of turnover to the organization.
Each agency is generally owned by a "Principal" who also employs or contracts salespeople.
Real estate agents earn commission income based on the sale price of the property being sold. The standard rate of commission is 5% on the first $18,000 and 2.5% on the balance. The commission rates have not changed for 50 years so as homes have quadrupled in price over the last 15 years – so have agent's incomes. The commission on the sale of a $500,000 home is around $13,000.
The commission on each transaction is divided between the Principal and the salesperson. The proportion in which it is divided depends on the particular agency.
The proportion which the agency allows the salesperson to keep is a major factor in salespeople deciding for whom they are prepared to work.
Agencies also employ administrative staff to prepare contracts, to track the progress of sales, reception staff and accounts staff etc.
They also usually have a rental division that is responsible for letting rental accommodation.
Most real estate agents, but not all, are members of the Real Estate Institute of Queensland (REIQ).
Property Agents and Motor Dealers Act (PAMDA)
The Property Agents and Motor Dealers Act (PAMDA) is the primary law that governs real estate agents.
It came into force in 2000 and replaced the Auctioneers and Agents Act. It contains provisions that require agents to be licensed. It also regulates appropriate standards of conduct.
In response to the "property marketeering" activities of the 1990s where "marketeers" received large undisclosed marketing fees, PAMDA also contains many consumer protection features.
The most important consumer protection features of PAMDA are:
- It gives buyers a "cooling off" period of 5 business days after signing a real estate contract;
- It requires contract documents to be put in a specific order when presented to a buyer for signing;
- It requires real estate agents to disclose all commissions and benefits they receive ("form 27c"); and
- It requires agents to give a section 30c "warning statement" to buyers about obtaining a valuation of the property they are a buying and to specifically draw buyer's their attention to the cooling off period.
It is the responsibility of the Agency and the principal to ensure all salespeople and admin staff strictly conforms to PAMDA.
PAMDA forms are updated from time to time, the current version of a form 30c for example, being version 4 which became mandatory from 1 April 2008. It is important that agents always used the latest versions of prescribed forms.
What solicitors do in real estate transactions
Solicitors involved in "conveyancing":
- Negotiate contract terms if they contain any provisions that are out of the ordinary;
- Handle the legal aspects of the transfer or "conveyance" of ownership of property. This is called the transfer of "title";
- Make sure disputes between buyers and sellers (and third parties) as to who is obliged to do what, are avoided and/or resolved;
- Monitor finance approval for the buyer;
- when acting for the buyer - make sure the buyer's financier performs its obligations;
- when acting for the buyer - make sure that the "title" is unencumbered eg by an easement etc;
- when acting for the buyer - make sure that one of up to 30 government departments have no adverse interest in the land;
- Make sure "outgoings" in respect of the land eg council rates etc are properly apportioned between the buyer and the seller as at the settlement date;
- Make sure the "title" conveyed by the seller to the buyer is promptly registered by the Registrar of Titles according to the Registrar's strict requirements.
The whole process takes about one month from contract signing to "settlement" (also called "completion"). Any period shorter than one month is considered a rush job. Frequently a buyer will negotiate a much longer settlement period for a contract eg if the Buyer needs to first sell their existing home.
The conveyancing process goes through several stages that are all timetabled in the contract that the buyer and seller sign. The main contract stages are: contract negotiation, contract signing & payment of deposit, finance approval, building and pest inspections, searches and investigation, transfer documentation, arranging settlement, settlement and title registration. The contract specifies a timetable according to which each step is to be taken.
Often "extensions" of the timetable (usually the finance or settlement dates) are required to be negotiated among the solicitors acting for the buyer and the seller during the course of the transaction.
If the buyer's finance application is declined, the buyer can terminate the contract and receive a refund of the deposit.
If an adverse interest over the property is discovered through the solicitor's investigations, the Buyer is often entitled to terminate the contract and obtain a refund of the deposit.
The role of a solicitor involved when acting for a buyer is far more extensive than when acting for a seller. That is why solicitors charge lower fees to sellers than to buyers.
Solicitors should not act for a Buyer and Seller in the same transaction because it gives rise to a conflict of interest.
The two most frustrating aspects of conveyancing for solicitors, agents and clients alike are finance approval and settlement. That is because the timing of these to a very large extent, is controlled by banks and financiers. Banks and financiers do not share the urgency of buyers and sellers in ensuring steps are performed in accordance with the timetable laid down in the contract. They very commonly delay the required steps even when this is against the interest of their own buyer/seller customer. It is usually for this reason that solicitors are often required to negotiate "extensions" of either or both the finance date or the settlement date.
Solicitor's fees and costs
Most solicitors will give quotes on conveyancing fees and expenses. For buyers there are 3 components:
- Solicitors fees (what we charge for the work done): This will vary from solicitor to solicitor and the level of service, attention to detail and the promptness of responses usually decrease with price charged.
- Outlays: This includes "searches" (what government agencies charge us for information about the property) title dealings etc. Because of the QLS Protocol, this cost will usually be the same regardless of which solicitor does the job. It is important that searches are done properly otherwise a hidden defect relating to the property might be missed. The only way a solicitor can reduce expenses of "searches" is to omit a particular search.
Typically the standard "outlays" when acting for a buyer of the house are around $300 or $500 if the property consists of an apartment.
When acting for a seller, the "outlays" are around $30 because a seller's solicitor does not have to perform the above investigations.
- Stamp Duty: This is state government tax on land sales that is payable by the buyer. Stamp duty depends on the price. Concessions apply for owner occupied "principal place of residences" and even greater concessions apply to "first home principal places of residence".
Qld Law Society (QLS) conveyancing protocol
Also in response to the "property marketeering" activities of the 1990s, the Queensland Law Society (QLS) introduced a "protocol" that specifies the extent of enquiries, investigations and other work that solicitors must perform when conducting conveyancing on behalf of buyers and sellers.
The Protocol that commenced in 2006 also specifies the matters about which solicitors must advise their clients.
The effect of the Protocol has been to:-
- increase the extent of work solicitors must perform in each transaction (and hence the "fees" charged);
- specify mandatory standard "searches" to be performed in respect of a purchase, regardless of which solicitor is conducting the transaction;
- require solicitors to inform buyers of some optional "searches" and leave it to the buyer as to whether or not to instruct the solicitor to perform them;
- make the "outlays" component of the legal costs associated with a transaction (which is mainly comprised of "searches") much the same for all solicitors.
The Protocol is updated from time to time. Despite the Protocol being in force for nearly 2 years, many law firms and solicitors still do not comply and in so doing put their clients' transactions at risk.
The QLS has estimated that the proper legal fees of doing the conveyancing legal work for a Buyer, and strictly following the Protocol, are about $1,700 plus outlays plus stamp duty.
Preparation of contracts
Queensland real estate contracts are usually prepared using a standard Real Estate Institute of Queensland (REIQ) form. There are different REIQ contract forms depending on the type of property being sold - residential house; apartment; commercial premises etc. Each REIQ contract has several pages of "standard conditions".
Because the contracts used are standard forms that merely require to be "filled in", contract preparation is usually done by the real estate agency.
When preparing real estate contracts, Agents often need to insert "special conditions" relating to things that aren't covered by the "standard conditions".
Under the Legal Profession Act 2007, agents are prohibited from engaging in "legal practice" except to the extent of "filling in" preprinted contract forms. Agencies and salespeople are also prohibited from giving legal advice about a sale contract or any of the details that are "filled in".
If using a standard REIQ contract, the common practice is for the Buyer to sign the contract without having consulted a solicitor. After the Seller has signed, the agent then sends copies of the contract to the solicitors for both the seller and the buyer. The original is sent to the buyer's solicitors and a copy is sent to the seller's solicitors. These days, the documents are often dispatched by fax or e-mail.
When each solicitor receives their copy of the contract, they contact the buyer or seller and start work. Often the solicitors won't know anything about the transaction until after the contract arrives from the agent by fax or post.
The REIQ (in consultation with the Queensland Law Society) frequently updates its contract forms. The current version for use in residential house contracts is version 6.
Settlement
Settlement (or "completion") is the last stage of a conveyance where the money is paid over on behalf of the buyer to the seller in exchange for a signed registerable "transfer" in favour of the buyer. It occurs at a mutually convenient location decided upon by the seller's (outgoing) bank/financier.
The money received on behalf of the seller is usually paid partly to the seller's bank (to discharge the seller's mortgage), an amount to the seller's solicitors for their fees and the balance in a bank cheque to the seller himself. This amount is collected by the seller's solicitor at settlement and sent to the seller.
The seller's solicitor then notifies everyone that settlement has occurred including the real estate agent.
After settlement has occurred the real estate agent sends a cheque to the seller for the deposit, less the commission to which the Seller is entitled.
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