Mortgage Brokers and Property Advice. Here's What You Need to Know

Getting your mortgage through a mortgage broker is probably one of the best things you can do, when you embark on your home and investment property buying journey. However, while you are getting your mortgage serviceability assessed, some mortgage broker might provide you with some Property Buying Advice. Whilst most are generic property buying information, some more "enterprising" mortgage brokers may go as far as telling you what to buy and what not to buy. We've seen this too many times. And we've seen too many property buyers being badly affected by such unqualified advice from mortgage brokers and mortgage clerks.

So, what happened here? What do you need to know? Are mortgage brokers supposed to provide property advice? How qualified are mortgage brokers to provide property advice? Should they be licenced in real estate before they can provide property advice as well? What are the hidden agenda that you need to know with property advice from mortgage brokers?

This article will explain what you need to know with property advice from mortgage brokers, expose what is not said to you, and how to protect yourself from the hidden agendas.

What is the role of Mortgage Brokers?

Mortgage brokers are lending specialists who help property buyers find the most suitable loan for their properties. They do this by helping and banks and lenders assess the property buyer's income, expenses, assets and liabilities, plus other criteria, to determine the most appropriate lender for the buyers. Most mortgage brokers are doing the right thing, and there are also no doubts that many are themselves property owners and property investors.

What's the Issue with Property Advice from Mortgage Brokers?

Unfortunately, however successful they claim to be, most mortgage brokers do not have the vast real estate experience and up to date property market knowledge needed to provide you with qualified property buying advice.

It’s essential to understand that mortgage brokers are not licensed to provide real estate advice. They do not have the comprehensive knowledge or real estate licensing required to give legally sound property recommendations. Furthermore, their insurance coverage typically only covers their financial advice—not property buying advice. If a mortgage broker’s guidance leads to poor property choices, clients often have limited legal recourse.

What's Required to Give Real Estate Advice in Australia?

In Australia, the law specifically mandates that anyone providing property advice must be appropriately licenced in real estate. So, in order for anyone, including mortgage brokers, to provide any property advice, they have to hold a legally recognised and valid real estate licence in your state in Australia. And this licensing is managed by the state real estate licensing authorities, such as the Consumer Affairs in Victoria and Department of Fair Trading in New South Wales. This purpose of licensing is to protect consumers, ensuring consumer receives educated, appropriate and well informed advice.

Can Mortgage Brokers Provide Property Advice?

Here's the million dollar question. Can a mortgage broker or mortgage clerk provide property advice? Legally, unless the mortgage brokers / mortgage clerks hold a valid real estate licence in your state, it is illegal for mortgage brokers to provide any property advice, and for them to tell you what to buy, where to buy.

Some brokers do give high level tips on how to buy your properties. And that is ok. But, it will be illegal for them to give you anything more than that. They are not licenced and skilled to provide advice on any specific property / location or recommend properties to you at all.

What could go wrong with a mortgage broker advice?

While most of the real estate advice from mortgage brokers are no more than simple, relatively harmless guidance, and checklists, there had been too many instances where information provided by mortgage brokers are incorrect, incomplete, misleading or had resulted in the property buyer's financial loss. The 2 most common problems we have seen with mortgage broker advice are:

1. Valuation of the property

2. Location and types of property

To explain why information provided by mortgage can be misleading, or incomplete, let us start with giving you an understanding of the skills, knowledge and information needed by a real estate buyers agents before they can provide property valuation / appraisal and location advice relevant to you.

How do Real Estate Professionals Appraise the Property Valuation?

Determining a property’s valuation goes well beyond entering an address into a software program. To give an accurate property valuation, real estate professionals need an in-depth knowledge of the local market, buyer preferences, and the property's unique characteristics. Here’s a simple run through of what’s involved in a reliable property valuation:

Key Aspects in Property Valuation

1. Market Knowledge: Understanding current market trends, recent comparable sales, and buyer demand in the specific area is essential. Experienced professionals have up-to-date knowledge of these trends, which free online tools can’t always capture accurately.

2. Property Characteristics: Real estate agents or buyer’s advocates need to evaluate factors like the property’s age, condition, size, layout, and unique features. This requires an on-site inspection to truly understand what sets the property apart or what detracts from its value.

3. Buyer Demographics: Different buyers look for different things, so knowing who is most likely to buy the property (e.g., families, investors, or young professionals) is crucial. This insight helps agents and advocates determine how the property’s features align with buyer demand, influencing its value.

Why an Accurate Appraisal Can’t Be Done Remotely

Unlike mortgage brokers who focus on lending, buyer’s advocates and real estate agents spend time inspecting properties on-site. These inspections lets them have a good assessment for the property to provide an accurate valuation based on both tangible and intangible property features. Without physically evaluating the property, it’s difficult to provide a thorough, accurate appraisal. Real estate agents and buyer’s advocates also possess the specialised knowledge and on-the-ground experience required to deliver accurate property valuations, something which mortgage brokers nor mortgage clerks have.

Our buyers advocates and buyers agents are out there inspecting properties regularly—not selling mortgage packages. This is why only licensed real estate professionals is the most qualified to assessing and appraising a property’s true value.

How do Buyers Advocates Find the Right Property for the Buyer?

At Concierge Buyers Advocates, our onboarding process is designed to deeply understand what buyers really need in a property. Here’s how we ensure that we’re aligned with your vision:

In-Depth Onboarding Consultation

Our onboarding workshop, which can last from 45 to 90 minutes, is a comprehensive, unscripted brainstorming discussion. This process helps us:

• Understand what you think you want

• Clarify what you may not have considered yet

• Explore additional options based on your needs and lifestyle goals

• Independently understand and qualify what you want so we can identify the most suitable property for you.

Comprehensive Property Search Across All Sources

Once we’ve uncovered the full scope of your preferences, we begin an extensive search using our unique advantage: full independence. We’re not affiliated with any real estate agencies, and that means we can source properties from any agency, off-market channels, and other proprietary sources to find the perfect fit for you.

Data-Driven Property Buying

Our team invest tens of thousands annually subscribing to quality and reliable data sources from industry data providers, and maintaining our in-house data and statistics. These give us detailed fact-based insights and trends that help us identify locations and properties with high potential for our clients.

Through our buying services, you get access to data and knowledge, worth over tens of thousands of dollars, which helps us identify the best location to meet your buying brief. We dig into this wealth of information to find the best location and suburbs for you, whether you are looking for high growth locations or good yield properties. It's not voodoo, hear-say, monkey-see-monkey-do investments. It is investment recommendations backed by data science.

No sales agent, unlicensed "buyers agent," or mortgage broker will invest two hours or more to thoroughly understand your preferences and needs before making purchase recommendations. Unless a mortgage broker holds a real estate buyer’s agent license, they are not equipped to spend the tens of thousands of dollars annually for the subscription-based resources we use. Furthermore, these professionals lack the real estate experience, in-depth local knowledge, and specialised insights essential for offering truly valuable property advice.

What had Gone Wrong with Mortgage Brokers Providing Property Advice?

Now, the above background information should give you an idea of the level of details, information and experience our buyers advocates have, in order to provide you with a qualified and relevant property advice. Does a mortgage broker or mortgage clerk have that level of experience and access to research data and sources? Does the mortgage broker or clerk have the intimate information about that specific property and the property market in the area? Has the mortgage broker even inspected the property?

Don't get us wrong. Most mortgage brokers and mortgage clerks and administrators are doing the right thing. They stick to providing mortgage advice and pointing borrowers to simple, generic property buying guidelines. However, there are enough instances of mortgage brokers providing wrong / misleading guidance to buyers, causing buyers to suffer significant damages. And these instances had prompted calls from a real estate professional body for mortgage brokers to stop providing property advice. The industry has recognised that unqualified advice from mortgage brokers are putting the buyers and their [mortgage brokers] own mortgage business at risk.

Before we look at two real-life examples of how buyers are harmed by such advice, let's read excerpt from Your Investment Property Magazine.

The call for Mortgage Brokers to step back from property advice.

The head of a Sydney based buyer’s agency and a representative of the Real Estate Buyers Agency Association of Australia (REBAA) has backed calls from the head a peak mortgage broking body reminding brokers not to provide unqualified advice.

Peter White, chief executive of the Finance Brokers Association of Australia (FBAA), reminded brokers not to provide advice in areas they aren’t qualified to do so, particularly investing in property.

“If you are only a qualified finance broker, act as a broker and do your best to meet your client’s needs,” White said in 2016.

“If you also want to assist a client in other areas like property purchasing, get the necessary qualifications and training otherwise you may be at risk of a life changing personal pay out,” he said.

White and the FBAA cited a recent case in which a broker was found to have breached his duty of care by the Credit Ombudsman Service and forced to pay more than $115,000. The Ombudsman claimed the broker had given incorrect and unqualified advice.

The Illegal Hidden Agenda

It is also a well known industry fact that second rate and small time property developers and property project marketeers incentivise mortgage brokers to sell their products. Mortgage brokers and mortgage clerks are often paid commissions by property developers to sell the developers' properties. Now, remember, anyone providing and selling real estate has to be appropriately licenced? Are these brokers licensed real estate agents? If not, they are putting you at risk, and they risk being called upon by the real estate industry watchdog. Licensing of real estate agents protects property buyers from dodgy and fraudulent real estate purchases, and, also prevents unqualified persons from providing unqualified property advice, which are putting consumers at risks. Now, who is protecting you, if you suffered any loss by following the advice of your mortgage broker?

Examples of Buyers Suffering Significant Damages Resulting From Mortgage Brokers Advice

Here are some real-life examples how some of our clients had been adversely affected by unqualified advice from the mortgage brokers. These are just a sample of examples that we are aware off. There are many other untold examples out there.

Case 1. Mortgage Broker provided misleading valuation, resulting in Home Buyer missing out on their Dream Home, and suffering about $10,000 financial loss.

Our first home buyer client was looking for a high-specs, high quality home in the eastern suburbs, around Glen Waverley. We found one which "ticked every box" (in the client's own words). They paid for a building and pest inspection, got the Contract of Sales and Section 32 reviewed by the solicitors. Our buyer's advocate assessed the property to be worth around $2.4-2.5 million, and it could sell for around the $2.5 million dollar mark, which is well within the client's budget. We agreed to proceed with preparing for the auction bid at around $2.5 million.

The evening before the auction, the mortgage clerk sent our client a "valuation" of $2.1 million, which is significantly lower that our appraised value of $2.4-2.5million. Now, because this opinion came from a person representing the lender, the client wrongly trusted the valuation and would not agree to bidding more than $2.15million. The property was eventually auctioned and sold for $2.52 million. Our property appraisal was spot on, and $2.52 million was a price which our client would be more than happy to pay for.

Because of this unqualified advice from the mortgage clerk, our client missed out on their dream home. Their intense preparation and their hopes were dashed by this uncalled-for disruption from the mortgage clerk. Our buyers were emotionally distraught, knowing they could have bought their dream home, if they had not listened to the poor and unqualified advice from the mortgage clerk.

It ticked all boxes, and it was their dream home. Their kids loved the house so much they had even chosen their rooms during the property inspection. They were full of hope and they had been discussing and planning how they could use the house. They had the capacity to pay for it, and they wanted that so much. But because of the unqualified advice from the mortgage broker, they missed out.

They realised that they had misplaced their trusts, and their heart sank when they knew what they had done. They could have walked away with the keys to their dream home, if they had not trusted their mortgage broker's poor property advice.

What went wrong with this mortgage broker's advice?

The last minute "valuation" from the mortgage administrator was where things started going wrong for our buyer. Firstly, it is highly unusual for a reputable lender to send the buyers a "valuation" for any property before they receive the Executed (signed) Contract of Sale for the property. What the mortgage clerk provided was not a formal valuation. The mortgage clerk is NOT licenced and unqualified to provide that.

Only fully licenced real estate agents and licenced property valuers can provide property appraisals or valuation, and lenders would only organise these formal valuations AFTER they receive the executed Contract of Sale, not before the buyers buy it.

Whatever this mortgage clerk / administrator had given, was just their personal opinion of what the property is worth. And it is no better than a 10 year old kid punching an address into a computer software that gives you the average price of the properties sold, without considering the quality of each individual property, and buyer profiles, etc. Our client was looking for a high-specification, high quality home, not an average suburban home...

The client's concern of overpaying is real and valid. The fear of overpaying also highlights the need for buyers to get a good assessment of the property value before they make an offer, or they are more likely than not, to overpay, putting their finances at risk.

Since this "personal opinion" came from a person representing the buyer's lender, it gave our client the impression that it was what the bank will lend. From our extensive experience working with mortgage brokers and the mortgage application process, we know this mortgage clerk is likely a new staff and had no idea what he was doing. He definitely wasn't aware that because of this action, he was about to lose his job.

Because this mortgage clerk sent our client his opinion in the last minute and this wasn't brought to our attention until minutes before the auction, there wasn't enough time for us to clarify with the lender, and to correct the client's misunderstanding. This very last minute disruption, resulted in our clients wrongly limiting their offer and they lost their dream home, when they could have won it.

Real Estate is clearly not this mortgage clerk expertise, and it backfired and got him fired when our client lodged a formal complaint.

Emotional Distress and Financial Loss from this Mortgage Broker's unqualified advice

As a result of this unqualified advice, our client missed out on their dream home, and that resulted in our client suffering emotional damage and distress. This is on top of the loss time, and monetary losses from the wasted building and pest inspections and legal contract review, plus 2 additional months of rents which the clients would now have to pay. It caused them about $10,000 worth of monetary loss.

This same mortgage clerk subsequently provided another misleading information to our client on a second property. But we managed to discover this second instance early, independently fact-checked the mortgage clerk's claim, challenged the mortgage clerk's opinion and corrected our client's misunderstanding.

Any other uneducated buyers or buyers without any professional support, would have once again believed the misinformation from this mortgage clerk. If we had not picked this up, our clients would once again be misled by this novice clerk and missed the property they wanted. It would have caused our clients even more financial damage this time, as it came much later in the buying process.

This is Why Savvy Property Buyers Buy with a Buyer's Advocates on Their Side

That's what property buyers pay our professional buyers advocacy services for. To protect their interests throughout the whole property buying process. We use our experience and independent professional network of agents and industry affiliates to support our clients, ensuring our clients receive the correct and most appropriate property buying advice.

Case 2. Investor Bought Sub Standard Properties from Mortgage Broker Friend

This property investor contacted our office one day, seeking a review of their investment properties. They were seeking to understand how they can improve the performance of their property portfolio. In one look, our property advocates casually asked how had they bought the properties. "Recommended by their mortgage broker (who happened to be their friend)" was the answer. This was the first red flag.

Of the 5 properties they owned, only one is an investor grade property which could have been cash-flow positive, if it wasn't their own home. The other 4 were apartments which were designed for unsuspecting investors. Such properties were all over Melbourne. Melbourne CBD, Box Hill, Sandringham, etc.

Now, for the uninitiated, there is a MAJOR difference between an investor-grade property and a property meant for investment. An Investor Grade Property is what our pro-buyers buyer's advocates would recommend, while a Property Meant for Investment is what developers-backed real estate salespersons would sell to the uneducated, unsuspecting foreign investors. Foreign investors almost never ever visit the property they buy, so they would not know how badly some of these properties were built. I will cover the difference in more detail in a later article.

Back to this client, while the 4 apartments seems to be bringing them income, they eventually realised that the rental income was insufficient to cover their expenses and outgoings. The total cost of their mortgage, repairs, expensive body corporate and council rates, etc are more than the rent they collected. This situation is called negative gearing.

This mortgage broker "friend" of theirs was receiving tens of thousands in commissions for each property he sold to my client. While negative gearing may be helpful to the rich, who are investing in these properties with their spare cash, it is dangerous in the long run for the majority of moms-and-dads property investors. When property prices crash, or when interest rates rise, they would have usually end up with trouble servicing the mortgage, and when they can no longer afford to hold their properties, they could end up with their properties being repossessed by the lenders.

This client was also surprised to realise that despite years of owning these properties, and making payments towards the properties, the value of their properties had not grown at all. In fast they still owe the lenders more than what the properties were worth. They are in a situation called negative equity. Where they owe more than what the assets are worth. It is dangerous. They could and did find themselves in financial distress for years.

With this client, if they had bought the right properties, instead of the dud investment properties recommended by the mortgage broker, they could very well be retired with a few properties fully paid off by now.

#rantover

There are many more other examples out there. Time and time again, we hear stories of property owners ending up in trouble or with the wrong properties, due to unqualified advice from unqualified people. And it is about time property buyers get educated on who they should trust to receive these advice.

What Do You Need to Know About Property Advice from Mortgage Brokers?

Mortgage brokers process a lot of property mortgages, developers know this. And they know this makes them a good channel to push their new properties to naive and unsuspecting home buyers and property investors. The developers are incentivising the mortgage brokers to sell. The mortgage brokers are paid commissions, or "introduction fees", for each property they sell to their unsuspecting clients.

Can You Trust a Mortgage Broker's Advice?

Yes. You should trust their mortgage advice. Their skills and experience are in assessing your serviceability, how much you can borrow from the lenders and finding out which lenders will suit your needs.

However, if it is property advice, take their advice with a pinch of salt. Most of their advice are just generic advice, and should not be taken as specific to your needs. It takes a lot of experience, industry and market knowledge to determine a property's value, where and what you should buy.

Also, remember, mortgage brokers' property recommendations can be biased. They are usually paid commissions by property developers and project marketeers to sell their products to you. So, unless you are 101% confident your mortgage broker holds a valid real estate licence, is a reliable practising real estate agent, and is independent and neutral in their recommendations, you are putting yourself at risk, when you trust their property advice.

What Should Home and Investment Property Buyers Do?

As property buyers, you should always do your own research and independent due diligence. While your mates' advice and mortgage brokers' inputs in some instances are good, they should never be relied upon as the gospel truths. They are all unqualified advice. They are either ill-informed, ignorant, or they could even have a hidden agenda.

Can You Trust Sales Agents Providing Buying Advice and Service for Free?

The law is simple and clear. Unless you pay for the real estate agents to work for you as buyers agents, the fact that they are providing you "free" services makes them a sales agent, and they are working against you. These sales agents are paid by the seller, either directly or via commission sharing with another agent or sales person. And real estate agents are legally required to protect the best interest of whoever pays them. For more information on this, this article will explain why it is important to find out how your real estate agent is paid.

Where can Property Buyers Go for Independent Property Buying Help?

Look for independent buyers agents or buyers advocates who charges a fee. The Australian law mandates that the real estate agent MUST look after the best interest of the person who pays for their services. As independent Melbourne buyers agents based in Glen Waverley, buyers engage our paid services to help them buy their properties confidently.

We protect the interests of property buyers throughout Melbourne, Victoria and Australia. Our 3-step process helps property buyers outsmart the market, and make confident buying decisions fast.

Get in touch to explore how we can help protect your property buying interests.