In sweeping reforms to the real estate sector, the practice of sharing undisclosed “kickbacks” between developers, sellers and professional service providers will be prohibited in NSW from later this year.

Under the legislation, real estate licensees and registered agents will be prohibited from either requesting or accepting a gift, or other benefit, in circumstances which may give rise to a conflict of interest. The restriction is intended to limit benefits which would induce an agent not to act in their client’s best interests.

Such conflicts of interests generally arise in circumstances where, for example, real estate firms receive commissions from other professional service providers including financial advisers, mortgage brokers or accountants, in exchange for referral of business. Failure to comply with the rules may attract a penalty of up to $2,200 for the licensee personally.

Notably, the reforms do not capture benefits provided by employers to employees, or gifts given to agents from clients.

These reforms largely expand on current restrictions within the Property, Stock and Business Agents Act 2002 (NSW) which prohibit real estate licensees from sharing commissions with non-licensed persons, such as brokers and accountants, involved in the transaction[1]. Under this provision, brokers are only entitled to a referral fee if they are a licensed real estate agent under the Act.

At present, real estate agents acting on the sale or purchase of land are required to disclose to their client[2]:

  • any relationship, and the nature of that relationship, that the agent has with anyone to whom they are referring the client to for professional services;
  • whether the agent will receive any consideration, and the value of the consideration, for the referral of services; and
  • the nature of any benefit of which the agent is aware that the professional service provider will receive in connection with the sale of the land.

In addition to the existing disclosure requirements, the reforms prohibit real estate agents from accepting referral fees, where doing so may amount to a conflict of interest.

So, from late 2018, any person who holds a licence or certificate of registration as a real estate agent, stock and station agent or business agent must be mindful when accepting gifts during the course of their work, so as to ensure that their actions do not give rise to a conflict of interest.