A loophole that has been exploited by real estate agents to skirt underquoting laws will be closed by the NSW government this week.
In changes to stronger underquoting laws introduced on January 1 this year, the government will amend the legislation designed to prevent real estate agents playing down the likely selling price of residential property.
"Underquoting is illegal, misleads prospective buyers and undermines the property market," said NSW Minister for Innovation and Better Regulation Victor Dominello.
"These changes will close a corporate loophole that has allowed agents to escape liability under the act, and will provide consumers with additional protection."
As of January, agents found guilty of under quoting have been liable to forfeiture of any commission or fees from a sale, in addition to an existing penalty of $22,000.
The changes follow an attempt by NSW Fair Trading last year to prosecute agency BresicWhitney for falsely understating the likely selling price of two residential properties, in Surry Hills and Double Bay.
Fair Trading argued that for both properties the sale price advertised to consumers was lower than the written estimate in the Agency Agreement with the vendor.
However BresicWhitney was successful in its defence, which rested on a legal technicality based on the interpretation of the term "employee".
It argued that while it was the real estate licence holder, in both cases the individual agents who made the alleged statements were in fact employed by a subsidiary company.The case acted as a catalyst to this week's legislative amendments, which will see the definition of "employee" changed to include anyone "engaged or otherwise appointed".
Other amendments to the legislation will make licensed agents responsible for contraventions or statements made by employees and representatives and agents, while any person acting as a contractor or employed by a subsidiary will now be considered an employee.
"BresicWhitney was a concerning situation, in which individuals had purported to work for the agency, with business cards and email signatures. But they were found not to be employees," said Fair Trading Commissioner Rod Stowe.
"Based on this they were able to avoid prosecution, that was frustrating. We want it to be clear that anybody dealing in this capacity is breaching the law."
Chief executive Shannan Whitney said BresicWhitney fully supported legislative changes that improved real estate standards, "particularly in relation to underquoting."
Since the new laws came into effect in January, Fair Trading has issued more than $53,000 in fines and 18 penalty notices for underquoting.
In a blitz on 178 real estate business in March, 44 businesses and four individuals were found to be non-compliant with underquoting, advertising, licensing and supervision laws.
St Marys had the highest rate of non-compliance, with five penalty infringements and six warning letters issued to agencies.
Penalties and warnings were also issued to agencies in Castle Hill, Penrith, Rockdale, Burwood and North Bondi.
Chief executive of the Real Estate Institute of NSW Tim McKibbin said the amendments would predominantly address issues of supervision in the industry.
"The catalyst may have been the BresicWhitney issue, but the reason it is required is because of tax structures that legally remove a direct relationship between an employer and their employee," he said.
"There is a need at common law and statute law that an employer maintains an obligation to supervise their employees and take responsibility for their actions."
Over 13 years in the industry, Mr McKibbin said he had experienced a variety of "hot market cycles," when allegations of underquoting often increased. So far in 2016 Fair Trading has received 240 complaints about underquoting, however, Mr Stowe said agency agreements offered "pretty clear evidence" if unfair practices had taken place.
"The real concern is that consumers can be enticed into participating in auctions when they don't have a chance. It's misleading," he said.
"The good news is, since January, we are no longer seeing frustrating terms like 'offers above' or 'offers over'."