How a property agent fell afoul of the Estate Agents Authority’s code of ethics by offering loan to a client

• Guidelines issued by the Estate Agents Authority say that property brokers must not offer loans to clients in order to make a sale

• EAA’s disciplinary committee finds estate agency and its employee in breach of its code of ethics and imposes a heavy fine on both of them

It is common for prospective buyers to submit more than one registration of intent to stand a better chance of purchasing first-hand residential properties through balloting. Sometimes, they might not have sufficient down payment for multiple submissions. Notwithstanding, property agents are not allowed to offer loans to prospective purchasers to help them submit any registration of intent under any circumstances.

According to the Practice Circular (No. 13-04 (CR)) issued by the Estate Agents Authority (EAA), property brokers must not offer or make loans to a prospective purchaser to persuade them to sign a provisional agreement for sale and purchase, or for any other purpose, even if they are requested to do so.

When agents accept credit card payments by prospective buyers, they should make sure that the credit cards are debited on the same day. Moreover, in case brokers accept cheques in exchange for cashier orders issued by the estate agency company, the prospective buyers’ cheques must be deposited for payment on the same day or the next banking day.

Property agencies are responsible for establishing proper procedures and systems to ensure that their employees or persons under their control comply with the above requirements. For example, there should be measures in place to monitor and govern the release of cashier orders to frontline staff to ensure that no loan is made to prospective buyers of first-hand residential properties. In addition, estate agencies should implement appropriate measures to detect non-compliance by employee and to discipline them.

I would like to share a non-compliant case of an agent making a loan to a prospective property buyer.

A property agent arranged for the individual to view a show flat of a new residential development. After the inspection, the client was persuaded to buy the flat and she finally signed a provisional agreement for sale and purchase.

However, after paying HK$100,000 (US$12,900) with her credit card as part of the deposit, the buyer realised that the handling charges of her credit card company was too high and she decided to pay the remaining deposit of HK$600,000 by cheque.

As the buyer did not have a chequebook with her, the agent offered a cheque, issued by his company, to pay for the remaining deposit to the developer, and in return asked the individual to repay them with her own cheque the next morning.

Overnight, she changed her mind and decided to cancel the deal because of the heavy stamp duty, forfeiting her deposit of HK$100,000. She blamed the property agent for pushing her into making the wrong decision and lodged a complaint with the EAA.

The EAA’s disciplinary committee found that the agent and the agency he worked for failed to comply with the guidelines set out in the circular, which states that licensees must not offer or make loans to a prospective buyer. They had breached the code of ethics, which states that “estate agents and salespersons should be fully conversant with the Estate Agents Ordinance, its subsidiary legislation, and other guidelines issued by the EAA from time to time and shall observe and comply with them in the course of their practice”.

In addition, the estate agency also violated section 15 of the Estate Agents Practice (general duties and Hong Kong residential properties) regulation, as it failed to establish proper procedures and systems to ensure that employees or persons under its control comply with the Estate Agents Ordinance.

Having considered the circumstances of the case, the committee decided to reprimand the estate agency and impose a fine of HK$150,000. The agent, too, was reprimanded and fined HK$30,000. His licence was suspended for six weeks and a condition was attached to his licence requiring him to obtain 12 points under the EAA’s continuing professional development scheme in 12 months.

(18 February 2020)