THE STUFFED ENVELOPE SCAM
Warning. Is your agent on the take?
by Neil Jenman.
Although it happened 25 years ago, I remember it as if it happened yesterday.
It was 1984 and I had not long opened my real estate office. The age-old business equation had to be confronted daily. Money in minus money out equals profit.
And, do everything you can to bring money in.
Well, not quite everything.
A man at the reception wanted to see me. He was a tradesman to whom we had been giving maintenance work on our rental properties. As he sat at my desk, he dropped an envelope in front of me.
“What’s this?” I asked.
“It’s for you,” he smiled.
The envelope felt padded. I didn’t know what to expect; but when I opened it, I saw that it was stuffed with twenty dollar notes. I didn’t count them, I just said, “What’s this for?”
“It’s a thank you,” he replied
“For the business you give me.”
“I don’t want any money for that,” I said, “I just want you to charge the best price to the owners.”
“Yes, but we always add something on for you,” he replied.
“Who’s we and who’s you?” I asked.
“We, being the blokes doing the work and you being the agents.”
“So, what, this is pretty common?” I asked.
.”Yes, sure, all the agents who give me work get a cut,” he said.
“Well, I don’t want to be one of those agents, mate,” I told him. “I want my owners to get the best possible return on their properties. They are already paying me seven per cent commission and I think that’s enough. This money here,” I said, pointing to the envelope, “is a bribe. It’s corruption.”
“Don’t be stupid,” he said, “Everyone does it.”
“No, mate, I don’t believe that. Not everyone is corrupt.”
He left my office (with his stuffed envelope) and we found an honest tradesman who charged a fair rate to our owners.
I wanted no part in “loading up” the costs of any service that I arranged or recommended for my clients.
But, as I was to be told often (and am still told today), “Jenman, you are commercially naïve.”
That’s right, according to my critics, I don’t fully understand how business works. I don’t understand that the business world – especially the real estate industry – is full of ‘loaded’ charges.
Tens of thousands of property consumers are collectively paying millions of dollars in extra (and unnecessary) expenses because service providers are loading invoices so that agents can get envelopes stuffed with cash.
Oh sure, these days things are not as crass as with that tacky tradesman back in ’84. But the principle is the same.
Indeed, the corruption – for that’s what it is – has become much worse in the past 25 years.
Today, agents receive ‘stuffed envelopes’ in return for recommending many types of services.
Indeed, in some cases with some agents, you can almost guarantee that no matter what the agent recommends to you, the agent is getting a ‘stuffed envelope’ in return.
If the agent recommends a conveyancing company, the agent could be getting a kickback.
For years, agents have been pocketing millions of dollars in kickbacks on advertising.
These days, they also get kickbacks (okay, they call them fees or commissions but it doesn’t change the fact they are, in effect, bribes) for recommending certain lending companies. Often, they get what’s called a ‘trailer commission’ which means that, for years, every time you make a payment on your home loan, money goes straight into the agent’s pocket.
The real estate industry – and especially the agents involved in these corrupt practices – are quick to defend themselves. They will trot out a series of glib lines such as, “We are being paid a fee for arranging a service just like any business.”
Well, no, it’s not just like any business.
In real estate, agents are paid what can often be described as hefty commissions for selling or leasing real estate. Now, to be fair, in many cases, many agents deserve a generous commission when they sell or lease a property.
But that’s all they deserve.
Agents are paid to look after the interests of their clients. Okay, so, again, I am being “commercially naïve”.
These days many agents are much more concerned about looking after their own interests than the interests of their clients.
Their greed has increased enormously in the past few years. And service providers – from tradesmen to lenders – know it. They know that all they have to do to get the agents to send them more business is to offer the agents a bigger and better bribe than the next service provider.
Forget doing a good deal for the consumer. Stuff the envelope with extra cash and wave it under the agents’ noses. Presto, business booms.
The real estate industry will deny that these payments are bribes. One thing they can never do, however, is explain how giving agents envelopes stuffed with cash is in the best financial interests of consumers.
No, the agents will resort to that old legal standby – “We are not doing anything illegal.”
You see, if you look closely enough (as about one in a hundred people do) you’ll notice that, in the agreement you sign with your agent, there will be a clause which states that the agent “may receive payment from certain suppliers” in return for recommending those suppliers.
Legally, this is known as “disclosure”. Morally, it means that it’s okay to rob someone as long as you make sure you tell them about it in advance. Sort of like a bank robber announcing, “This is a stick-up.”
So what can you do to protect yourself from inadvertently being a victim of an, at best, morally corrupt agent or, at worst, an agent who is receiving an illegal bribe?
Well, two things.
First, read any document that an agent asks you to sign. Better still, get it checked out by an independent lawyer (not one recommended by the agent because that lawyer may be bribing the agent!).
Cross out any clause that authorises the agent to receive a “rebate”, “discount”, “fee”, “commission” or payment of any sort in excess of the commission on the sale or leasing of your property.
Second, ask the agent if they are getting a bribe. Say these words, “Are you getting any other payment as a result of me doing business with your agency other than the commission for the sale/purchase/lease of this property?”
If the answer, is “yes”, insist (and get it in writing) that such payments are passed on to you. If the answer is “no”, get an assurance in writing.
Remember this golden rule of real estate. As a seller or a buyer of property, you have a lot more control than you realise. You, not the agent, should set the terms and conditions under which you buy or sell property.
So, whatever you do, don’t fall victim to the ‘stuffed envelope’ scam.
Footnote: If you need some free help or assistance when buying or selling property, please contact Jenman – 24/7.