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Counting the cost of trust account abuse

By Phillip Tarrant
28 September 2021 | 1 minute read

Is it any wonder the new ‘disruptive’ tech platforms for DIY property management are gaining traction when landlords are perpetually warned that real estate agents can, and do, dip into the trust account at will?

Reading the Sydney Morning Herald over the weekend I once again had my head in my hands after learning that 20 agents had been fined or lost their licence due to a failure to lodge trust account audits. It’s a story that has also dominated headlines on REB over the last few days.

This is the last thing the real estate industry needs, and yet it is an all too constant theme.

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For the fraction of agents that don't do the right thing, the vast bulk of the industry offers huge value to the whole rental ecosystem – serving landlords and tenants to ensure that both sides of the property equation are happy.

I know this and you know this, but there are a growing number of investors who are becoming increasingly edgy when they read about the handful of bad apples that taint the barrel.

The danger is that we will see more landlords needlessly turn away from using a professional property manager, and that’s bad for all concerned. 

Landlords and tenants both get the best outcomes when a rental property is managed by a property management professional.

The landlord can be sure of properly screened tenants, true market rental rates and the minimum vacancy rates, while the tenant can be sure that their needs and rights are catered for through an independent entity.

Property management is a people business, and it is dependent on the human touch to get many of the difficult daily tasks done with patience, composure, and resilience. Indeed, property management is a tough job, and for many agencies, it’s getting tougher every year. 

With falling unemployment, the drive by the government to move to a digital economy and pressure on margins, it is becoming more challenging to run an efficient and profitable property management business.

It's also getting harder to attract and retain good calibre people. There are sadly too few advocates of the work our property management industry does, however there's no shortage of bad press about trust account thieves and the misappropriation of funds.

So where does the problem lie and what’s the solution?

The trust account is central to financial transactions in most property management businesses and has served the industry well for decades. Used the right way a trust account is a watertight repository for rental income to sit until it is distributed to its respective landlords.

There is clearly no problem with a trust account, just with the handful of agents that abuse the trust that goes with it.

But an alternative has emerged.

A growing number of agencies have moved to a new breed of platform that offers a payment gateway as an alternative to a trust account, meaning that no payments are administered by the agency.

This technology is not new, however the application to a real estate business has only emerged over the last two years. There are several benefits to using a payments-based platform rather than a trust-accounting platform: significantly less administration, no reconciliation and zero human accounting error to name but a few.

It’s an enabler to building better outcomes for all connected parities: investors, tenants, property managers and tradies.

Direct and instant payments can assure nervous landlords that rental payments are made directly to them, much the same as on some DIY platforms. This can be a big differentiator when it comes to growing a rent roll.

But as well as a payment system that’s insulated from the agency, these types of property management platforms have one other major drawcard with landlords.

Because rental payments are direct, they are paid instantly and there is no reconciliation. The landlord therefore receives rent as soon as it’s paid. A digital wallet takes care of incidentals and expenses, so there’s never a need to make deductions.

Several platforms now offer payments as a central proposition and there is no doubt that we'll see more emerging over the coming years as a groundswell of agencies are now exploring the benefits of running a business with direct payment. So, if you are also weary of being tarred with the same brush as the tiny fraction of rogue agents that dip into trust accounts, don't despair – there is an alternative.

 

Phillip is a media executive with over 20 years’ experience, in a career that spans finance, real estate, business and economics. As the executive editor of real estate, Phillip leads the content strategy for the market and business intelligence platforms at Momentum Media aimed at the real estate and consumer wealth sectors. This includes REB, RPM and Smart Property Investment – the authoritative voice for Australia’s property investment community. He has a passion for property and education; as head of the Property Investment Podcast Network he steers the largest network of property podcasts in Australia, which collectively generate nearing two million downloads every year. In addition to his role at Momentum Media, Phillip is a non-executive director of mortgage broking company Finni (www.finni.com.au), proptech business Managed App (www.managedapp.com.au), market intelligence business Momentum Intelligence and media and marketing agency Momentum Connect.

Counting the cost of trust account abuse
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ABOUT THE AUTHOR


Phillip Tarrant

Phillip Tarrant

Phillip is a media executive with over 20 years’ experience, in a career that spans finance, real estate, business and economics. As the executive editor of real estate, Phillip leads the content strategy for the market and business intelligence platforms at Momentum Media aimed at the real estate and consumer wealth sectors. This includes REB, RPM and Smart Property Investment – the authoritative voice for Australia’s property investment community. He has a passion for property and education; as head of the Property Investment Podcast Network he steers the largest network of property podcasts in Australia, which collectively generate nearing two million downloads every year. In addition to his role at Momentum Media, Phillip is a non-executive director of mortgage broking company Finni (www.finni.com.au), proptech business Managed App (www.managedapp.com.au), market intelligence business Momentum Intelligence and media and marketing agency Momentum Connect.

 

 

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