You know that something has to be going wrong with a business when its own staff advise you to take it to court.
But this is exactly what happened in a situation which involved a former supervisor of mine when the apartment which she and her husband were renting become unsuitable for living due to excess noise arising out of major structural renovations in a lower part of the building
Under Australian law, this gave them the right to break the rental contract prior to the agreed expiration date. The landlord, who acted in good faith throughout the process, agreed to this and instructed the real estate agent accordingly.
But from the perspective of the agent, this would have resulted in the forgoing of the commissions which would otherwise have been earned on the remainder of the contract, and as such, the owner of the agency flatly refused to act on the instructions of his client as he was legally obligated to do.
The individual representative who was responsible for dealing with the premises concerned agreed that the premises was not in a suitable state for habitation and was disgusted by the actions of his boss. He advised my supervisor and her husband to appeal his employer’s actions to the Victorian Civil and Administrative Tribunal, which they did successfully and the contract was subsequently terminated accordingly.
Why do these industries attract undesirables?
My supervisor’s case was probably at the fairly extreme end, but it does seem that real estate agents seem to attract a fair volume of complaints with respect to their business practices. The same can be said for used car industry, which also seems to attract its fair share of unscrupulous operators.
So why do these industries in particular appear to attract these types of people?
I think that there are at least three key factors at play:
• High value/once off transactions.
By their nature, real estate or used car sales generally involve transactions of a once off nature, and very rarely do operators in these industries derive any form of income from repeat sales to particular individual customers.
Accordingly, these operators have very little incentive to make any form of investment in terms of customer relationships or goodwill.
Combine this with the high value of commissions which participants in these industries make on individual transactions, and it is not difficult to understand the incentive for real estate agents or used car dealers to focus pre-dominantly upon milking every deal for what it’s worth, even if this means cutting corners from the viewpoint of ethical considerations.
• Fragmentation of industries.
In general, the structure of industries like real-estate or used car sales tends to be highly fragmented – characterized by a wide range of small operators as opposed to a smaller range of dominant competitors.
Whilst this may be wonderful from the point of view of consumer choice, it also makes the process of distinguishing reputable operators from disreputable ones an extremely difficult task.
In this environment, considerations relating to brand name or reputation become less important, and this reduces the degree to which operators in these industries have an incentive to adopt positive behavior from an ethical viewpoint.
• Consumer ignorance.
In the case of used cars, it can be difficult for consumers who are not mechanically inclined to determine whether or not there are any mechanical problems with the vehicle.
In addition, with respect to both used car and real estate sales, the process of determining fair market prices can be difficult, making it difficult for consumers to determine whether or not they are receiving fair value for their money.
This type of situation provides the ideal type of environment in which unscrupulous dealers like to operate.
Over to you
Are there any other industries that you think typically attract unscrupulous operators?
Do you know of any ‘horror stories’ which have happened in these industries?