Don’t Be That Agent: How Misrepresentation & Bad Advice Cost This Agent $7 Million

O*NO! Agents are often seen as trusted guides, helping buyers navigate complex transactions and make sound investments. But what happens when an agent crosses the line between helpful and harmful? A recent case in NSW (Chen v Chu [2024] NSWSC 1139) involving a property developer and a real estate agent demonstrates just how quickly things can spiral out of control when an agent fails to act responsibly, and just how heavy the consequences can be.

In this article we break down what happened, where the agent went wrong, the fallout, and—most importantly—how you can avoid this scenario.

Summary of The Case

The plaintiffs, members of one family, were on the hunt for a home. With enough cash in hand to buy outright, they were introduced by the defendant (the real estate agent) to a partly constructed development. The agent was working on behalf of the developer as a consultant.

After convincing the plaintiffs to pay a substantial deposit for one of the apartments, the agent took things a step further. They convinced the plaintiffs to release their deposit as an unsecured loan to the developer, promising high-interest returns. Unfortunately, the developer was already insolvent and running what turned out to be a Ponzi scheme.

Over the course of time, the agent induced the plaintiffs to purchase a whopping 28 off-the-plan units for which they paid over $7 million in deposits. The agent earned a commission on each sale, but when the developer collapsed, the plaintiffs were left empty-handed, losing everything they’d invested.

Where the Agent Went Wrong

This is a clear-cut case of misleading and deceptive conduct. Here’s a breakdown of the agent’s key missteps:

Encouraging risky financial decisions: Convincing the plaintiffs to release their deposit as an unsecured loan to the developer was both unethical and dangerous. It left the plaintiffs completely exposed when the developer collapsed.

Misrepresenting the developer’s financial health: The agent made baseless claims about the developer's stability and financial prospects, despite knowing—or at least suspecting—that the developer was on shaky ground.

Discouraging legal advice: The plaintiffs asked if they should have a lawyer review the contracts. The agent advised them against it, saying it would be a waste of money and unnecessary for “standardised agreements.” This not only removed an essential layer of protection but also showed a blatant disregard for the plaintiffs’ best interests.

Fostering trust for personal gain: Throughout the process, the agent induced the plaintiffs to purchase more properties, earning a commission on each sale without considering the long-term implications for the buyers.

The Consequences

The plaintiffs took the agent to court, and the judgment was in their favour. The agent now has to pay the plaintiffs $7,438,548 in damages, as the court found the agent’s conduct misleading and deceptive.

This case not only cost the agent financially but likely destroyed their reputation and career. It’s a harsh reminder that while chasing commissions may be tempting, the risks of cutting corners or failing to act ethically are far too high.

How Can You Avoid this

Always act in your clients’ best interests: Your duty as an agent isn’t just to facilitate transactions—it’s to ensure your clients are making informed, safe decisions. This means being transparent about risks, especially in off-the-plan purchases, where financial stability of the developer is key.

Encourage legal advice: When in doubt, always recommend clients seek independent legal counsel. Contractual terms, particularly in high-value transactions, can be complex, and suggesting otherwise puts you at serious risk.

Don’t misrepresent financial prospects: If you aren’t certain about a developer’s financial health, don’t make representations about it. Even if you stand to gain a commission, misleading clients will come back to bite you. It’s better to lose a sale than to end up in court.

Steer clear of unsecured financial arrangements: Encouraging clients to release deposits as unsecured loans is reckless. Off-the-plan transactions are already high-risk; exposing clients to even more financial risk is a breach of your fiduciary duty.

Key Takeaways

• As agents, it’s critical to remember that your responsibility to your clients is more than just closing deals—it’s about guiding them through transactions with their best interests at heart. Avoiding cases like this one starts with honesty, transparency, and a firm commitment to ethical practices.

• Don't let the promise of commission overshadow your duty to your clients.

• Never dissuade clients from seeking independent legal counsel—contracts can be complex, and professional review is essential.

• Don’t speculate on a developer’s financial stability or future if you lack concrete facts. Misleading clients can lead to serious legal consequences.

YOUR NEXT STEPS

Don’t let risky transactions or unclear contracts sink your career or your agency. At O*NO Legal, we’re here to ensure you’re always on the right side of the law. Whether you need advice on compliance, navigating complex deals, or safeguarding your agency from potential pitfalls, our team of expert lawyers is ready to help.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.