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I am shocked — shocked— to find that kickbacks are going on in here.

3 minute read
“I’m shocked – shocked – to find that gambling is going on in here.” — Captain Renault, Casablanca

realestate.com.au has been accused of offering old-fashioned kickbacks to agents who sign long-term advertising contracts. The big question is whether the portal’s actions are illegal, or just disreputable.

Crikey! has done the best job of covering the scandal. Here’s an excerpt:

“The text of a so-called ‘premiere package’ offer from last month, marked ‘commercial in confidence’ and obtained by Crikey, shows how a leading agent was offered the cash to run ‘training’, co-branded marketing material and other ‘collaborate initiatives’ if it sealed an agreement with the market leader.

“The document shows REA’s offer of a ‘First Annual Incentive Trip!’ — or travel junket — if the agent agrees to ink the two-year tie-up. The text of the attached contract appears to permit Leader to directly contact vendors to bend their ear if they elect to book ads with a rival competitor.

“Last Monday night, a group of inner-suburban agents had met to discuss a deal offering a six-figure sum by REA Group to sign a two-year deal which not been offered to the other agents. The agents rejected the entreaty, fearful the non-participants’ rate would be jacked up.”

Kickbacks are unethical in the real estate business and –depending on how you define them– illegal. They are a throwback to the bad old days when the industry and media had lower standards of professionalism.

The current scandal erupted in Melbourne, where it is illegal for estate agents to accept cash that they don’t pass on to their clients.

I think the leadership at realestate.com.au is smart enough not to have offered agents a plan that breaks the letter of the law. They failed, however, to realise that their position makes them a lightning rod for criticism. Even tactics that other players commonly employ will be used by realestate.com.au’s critics to cause an uproar if they smell bad enough.

The company’s biggest critic in this episode is a competitor, Metro Media CEO Antony Catalano, who reports say has plenty of experience doing the exact same thing.

Again, from Crikey!:

“Catalano, in his previous role as Fairfax advertising director, had designed a ‘Real Estate Marketing Alliance’ — or a so-called ‘rebate in drag’ — to keep advertisers loyal.

“That arrangement involved a fee-for-service set-up in which agents were paid to promote The Age and Domain on ‘Sold’ signs, in-house publications, and Age clocks attached to shopfronts. At the time, it was suggested that Fairfax paid well over the odds for the ads and the difference may have been pocketed by agents. It was technically legal because the benefit did not relate directly to vendor spend.

“In 2010, Catalano defended the arrangement: ‘As far as I am concerned I developed a program which in the company’s opinion was legal and as far as I’m concerned, as the person responsible for it at the time, I went to great lengths to ensure it was managed within the strict guidelines that were set.'”

Change the name and the date, and that comment isn’t too different from those coming out of the mouth this week of realestate.com.au CEO Greg Ellis.

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16 Comments

  • Dave Platter
    Posted September 12, 2012 at 6:12 pm 0Likes

    I have been pointed to this rebuttal by Greg Ellis of the REA Group, published as a reader letter today:

    “RE: News Limited’s ‘premiere package’ for agents under attack” (yesterday, item 13). Let me be very clear in saying that all REA Group’s customer products and services are offered in strict compliance with applicable laws.

    “The Ultimate Online Advertising Package benefits agents and vendors by providing price certainty to selected enhanced products, including our top-ranking Premiere Product.

    “There is no cash incentive paid to any customer office or agent under the Ultimate Online Advertising Package. Neither is there any cash incentive paid to any customer office or agent as part of our Cooperative Marketing Arrangements. Those arrangements are offered at franchiser level to provide training and education to franchisee offices and agents.

    “Crikey has reproduced only part of the confidential letter of agreement outlining a co-operative funding arrangement. The letter goes on to require the contracting party to ensure compliance with all applicable laws in performance of co-operative marketing obligations, including the Estate Agents legislation to which the Crikey article refers.

    “Furthermore, we’re disappointed with the negative assertions being made about the conduct of real estate agents. We work very closely with real estate agents and know them to be a hard-working group of people who are motivated by delivering the best outcome for their customers. To suggest they are not complying with the relevant legislation or not acting in the best interest of their vendors, is entirely unfair.

    “We welcome a full and thorough review of the media industry’s current and historical business practices.”

    • Craig
      Posted September 13, 2012 at 9:07 am 0Likes

      So it depends really if you think the law defines ethics. Greg Ellis is certainly saying it does.

  • Glenn Rogers
    Posted September 12, 2012 at 7:47 pm 0Likes

    I’ve always found Crikey to be spot on.
    Some very smart people in there and behind them.

  • Roger Newcombe
    Posted September 12, 2012 at 8:21 pm 0Likes

    Excuse my ignorance, who is Crikey?

  • Robert Simeon
    Posted September 13, 2012 at 9:25 am 0Likes

    CRIKEY! Cash for Comment it appears may be alive and well!

    The next three years in the online real estate world will be absolutely fascinating given by that time print real estate advertisements will not survive as know it today.

    Agents will be dragged kicking and screaming into the online world of > http://www.watch.tv/whoson-tv/index.html where it can be also suggested that this will bring about the demise of the property portals. The move to .tv will be very expensive for agents given they will be driven into videos and more importantly launching high tech media platforms.

    .TV is a work in progress albeit very scary I am the first to admit.

  • Geoffrey Adam
    Posted September 13, 2012 at 8:30 pm 0Likes

    Rebates on advertising by print media have been around for decades. At one stage, one major newspaper offered up to 40%, depending on the total volume of the agent’s advertising for the year.
    The newspaper billed out, say, $10,000 in relation to a property which the agent required the vendor to pay. Then the newspaper subsequently gave a rebate to the agent which equated to up to $4,000 on that same advertising. The sales representative of course saw none of the rebate.

    I issued a subpoena on that newspaper on one occasion on behalf of a client who was being sued by the agent for advertising costs. We had offered to settle on the discounted advertising bill. Two days after the subpoena, the suing agent accepted the offer with minimal costs.

    Agents have a fiduciary duty to their clients – which means that they must not only act in their client’s best interests (putting such interests before their own) but also may be rquired to show that they have done so.

    My view is that the agent must at least disclose to the client any benefit that the agent receives. The agent is committing an offence if he/she fails to do so. In some circumstances, that benefit must be deducted from the agent’s fee for service.

    • Dave Platter
      Posted September 13, 2012 at 8:38 pm 0Likes

      That’s a great story, Geoffrey. Thanks for sharing. I think most agents would agree that their duty is with the seller.

  • Glenn Rogers
    Posted September 14, 2012 at 9:19 am 0Likes

    I don’t quite go with this.

    The agent should be persuing commission not kickbacks. use any advantage with ad providers to get the price down for your Vendors, that will get more loyalty, more business ands more $$$

    An agent is a salesman and should stick to it, instead of delving into grey areas.

  • Dave Platter
    Posted September 14, 2012 at 9:20 am 0Likes

    Well said, Glenn!

  • Dave Platter
    Posted September 15, 2012 at 9:20 pm 0Likes

    Folks, apparently this is an email that Anthony Catalano has sent out widely. It seems to clearly represent his views, so I am pasting it here to add to the record.

    From: Antony Catalano
    Date: 10 September 2012 16:41:32 AEST
    Subject: Message from Antony Catalano to all Melbourne real estate agents

    I write to inform you that MMP has decided to report to the authorities the rash of questionable business practices by other media companies that is doing so much to undermine the reputation of Melbourne’s real estate industry.

    We are aware of large cash offers being made in the market place to major real estate players in each area to sign long-term contracts with realestate.com.au and Leader Newspapers. It works like this: sign up the big players with cash and other incentives thereby locking them in; and then ramp the price for all other agents and their vendors. Make no mistake, if the money was intended to be passed on to vendors it would be in the form of a reduction in advertising costs. Quite clearly, this activity drives the price higher for vendors.

    To accept these cash inducements, lavish incentive trips, staff training and free ads without returning the benefit to vendors is to breach the law. We have already referred matters to Consumer Affairs Victoria and the Australian Competition and Consumer Commission, and we are in the process of referring other matters of which we have become aware – including in the past two weeks offers of six figure sign-on fees to several agents.

    We are doing this to protect all our agent partners, who we have always treated equally. This is in stark contrast to our competitors who believe in a divide and conquer approach, offering very large incentives to the number one and/or number two player in the market place with one objective only: to ramp up the price of its advertising and forcing the large number of vendors to pay more than they should.

    The Melbourne real estate industry supporting MMP should be very proud to have brought genuine competition to the market by creating new product offerings with greater value for buyers and sellers. MMP is a genuine industry-owned business that is making enormous headway in a market previously dominated by publishers whose only motivation has been and remains to extract maximum profits. We prefer to leave legally questionable activities to others while we focus on genuine sales solutions.

    We would urge you to resist the offers being made, report any potential illegal activity to Consumer Affairs Victoria and to let us know. We are prepared to take a long-term, systematic approach to dealing with a systemic problem the industry has turned a blind eye to for far too long. It is you and your vendors who are disadvantaged, as it is only the number one or two player who sees the benefit. Your vendor will pay more but you will have less say over your future. Say no as an industry and ensure you have control over your future.

    If you wish to discuss this note, or report to us your experiences, please call me on the number below. In the meantime, don’t bullied by media companies – remember you are the client.

    Kind regards

    Antony Catalano

    Metro Media Publishing
    113-115 York Street, South Melbourne VIC 3205
    reviewproperty.com.au
    theweeklyreview.com.au
    yourcommunityvoice.com.au

  • PaulD
    Posted September 17, 2012 at 11:33 am 0Likes

    On the NSW Agency agreement for the sale of a residential property, you have to declare any rebates, Discounts or Commissions in respect of expenses. You have to name the third party with an estimate of the discount. If you simply ignore that clause and it can be later proved that you did in fact get some benefit, the agency agreement can be declared invalid, and any commission earned could be forfeited. That’s how serious it is. The other thing I am wondering is how REA get away with an opt out contract. In other words if you don’t opt out at the time of renewal, they can hold you to a 12 month contract. I’d like to see that one tested in court. I was always told “if it’s not in writing – it didn’t happen”

  • Sal Espro
    Posted September 18, 2012 at 3:04 pm 0Likes

    I thought Anthony Calalano’s sold MMP to Fairfax for $34Million Or was that someone else? (And wasn’t it owned by him with a small group of agents?)

    RE: “MMP is a genuine industry-owned business that is making enormous headway in a market previously dominated by publishers whose only motivation has been and remains to extract maximum profits.

    …justsayin’

    This stuff makes me feel older every day.

  • Sal Espro
    Posted September 18, 2012 at 3:55 pm 0Likes

    OOPS! Only 50% was sold – For $35Million! And was it just 5 or 6… agencies that had equity?
    Sure, get your sellin’ shoes on Anthony and good luck to you if you offer our vendors value. But please don’t treat us as idiots.

    • Roger Newcombe
      Posted September 19, 2012 at 9:14 am 0Likes

      Sal he already is …

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