The 5 most common unethical real estate practices

Providing Australian buyers with property investment advice is a lucrative business. Anecdotally, a property investment consultant is able to earn anywhere between $10,000 to $50,000 commission on a single property deal, selling a $1,000,000 house or $500,000 unit, for example.

And while countless companies and property experts act professionally for the most part, unfortunately where there are big bucks to be made, there are even bigger sharks. From greedy commission-driven companies to smooth-talking salespeople charging inexperienced buyers ‘idiot tax’, the shady practices of property advisers is ruining the lives of everyday property investors.

Unfortunately for buyers, this is an industry that remains largely unregulated and many investors are losing money thanks to property spruikers serving their own best interests.

Corrupt practices and unethical sales tactics occur across Australia every day. Sometimes buyers are losing a few hundred dollars here or there, and other times they’re losing a few hundred thousand dollars.

Australian’s are finding themselves in very difficult financial positions that take years to come back from, all thanks to a bit of bad advice.

Since founding Dream Design Property, which helps Australians gain financial freedom utilising professional methods to guide them throughout their property investing journey, I have heard countless horror stories from clients who had been previously burned.

Here are the five most common occurrences of property investment misconduct and how you can avoid them:

1. Beware of buyers' agents earning double commission

Some dodgy agents make money from both the buyers and the developers, and this is not only entirely unethical, but is actually an illegal practice. Why? It means they aren’t actually helping you (the buyer) because it’s in their best financial interest to drive the sale price up so they make a higher profit. Yes, this is illegal, but it still happens. 

2. Don’t buy at auction

Most property professionals won’t tell you this, but buying at an auction is extremely risky in comparison to other purchase options, as it essentially means you miss out on a “cooling off” period entirely. In other words, properties bought at auction immediately become the responsibility of the buyer, and if anything goes wrong during the finance approval stage, the buyer will find themselves in some serious hot water. So don’t let any expert push you to wait until auction.

3. Do not succumb to the pressures of renovating

Once a buyer has purchased an investment property they are more often than not advised by the expert to renovate in order to increase the property value. National spend on home renovations in 2014 was $29.66 billion, but in today’s volatile market there is actually a significant chance the buyer will lose out. Unbeknownst to many buyers, if a market is decreasing in overall capital and property prices are beginning to decline, there is absolutely no way to improve or renovate your way out. Be incredibly wary of any advice given to you to renovate, when you’re in fact much better off pocketing the money instead.

4. Take ‘off-the-plan’ properties off your list of options

Buying off-the-plan means purchasing a property that has not yet been built. As tempting as it may be to own a brand new home at the end of the process, developers often over-value the land during the initial stages, meaning there is a huge risk that the final property value ends up being significantly less than the purchase price.

5. Make sure the company or ‘expert’ you are working with discloses all money and rebate fees they are receiving

Unfortunately for buyers, many companies pocket significant amounts of money for themselves on behalf of the sale, without disclosing the details in a way that is easy for the average personal investor to understand. Look for professionals or companies who pass all additional fees they receive (from the developer and so on) back onto the buyer.