Quietly and without major fanfare the structure of regulation behind the real estate industry changed yesterday – the first major change for over 33 years.
The Real Estate Agents Act 2008 came into force on the 17th November. The changes are to be welcomed by buyers and sellers as they have been welcomed by the industry itself – an industry directly employing over 15,000 people with an annualised transaction value of upwards of $50 billion.
The outgoing Act of 1976 was certainly in need of revision and the industry itself had been looking to have it amended many times – far from the notion portrayed in the media. The nature of business in general has changed markedly over such a long period as has the scale of the business of real estate. Note, the much quoted fine of $750 for a breach by an agent – that was based on the average commission earned on a property transaction back in 1976 – so that clearly needed amending as it has been in the new Act which now establishes fines of between $10,000 and $15,000 for an individual ($20,000 to $30,000 for a company) as well as other punitive actions as well as compensation.
However the central component of the new Act is not the fines – the intent as described by the new Real Estate Agents Authority in its press release is to:
Promote and protect the interests of the consumer and to promote public confidence in the performance of real estate agency work.
The new Act has established this new organisation of the Real Estate Agents Authority (REAA) whose role is to both provide information to assist consumers in the buying and selling of property as well as to license all qualified real estate professionals and manage the regulation and complaint process should they be brought against any person operating as a licensee in this industry.
The Real Estate Institute of NZ (REINZ) formerly held the role of regulatory body under the former Act and unencumbered from this role the new look REINZ can now clearly focus on being a representative organisation providing valuable services and advocacy for its members. Among its valuable contributions is the monthly sales statistics and property price data.
For the consumer looking to buy or sell a property (as with any real estate transaction including commercial and business sales) the most visible experience of a change will come in the form of the following:
1. A public register of all licensees who are licensed to provide real estate services. This service is provided by the REAA to be able to verify that a person holds a license and the class of license. It is not designed to be a search to find agents in a particular area as the location detail in the case of a salesperson refers to the location of the office from which they operate or under which company license they operate with.
2. A code of professional conduct and client care under which all licensees are required to operate. This guide sets out the standards of service and care that a licensed real estate professional should provide to a consumer (both a buyer and a seller) as well as an outline of the processes for complaints should they arise.
3. A clear guide to the obligations that a licensee provides when a Property Agency Agreement is presented to a seller as a proposal for a licensee to list a property – this has to be provided and acknowledged by a seller at the time an agency agreement is presented to a seller.
4. A clear guide to the Sale and Purchase Agreement and what a buyer should know before signing such an agreement to buy a property.
These highlighted components are not to be taken as a exhaustive list of the changes to the Act – more as a reflection of key components. More information in regard to the new Act and its impact on buying and selling a property can be found on the website of the Real Estate Agents Authority or by speaking to a real estate professional. As in all matters regarding property transactions, it is appropriate that a lawyer be consulted prior to making an agreement or signing any document.
Whilst the new Act brings with it many changes, in many ways the process of buying and selling a property does not change. If you are looking to sell your property you will more than likely select an appropriate real estate professional to market and sell your property for which you will pay a fee as a commission together with advertising costs. That professional will use their experience and skills to market the property to maximise interest and solicit buyers with whom they will negotiate on your behalf to secure for you the best outcome that suits your needs.
As a property buyer you will still continue to undertake research into the options for the purchase of a property using appropriate material and information available online and in other media. You will identify your chosen property and then at that stage liaise with the real estate professional who will be acting on behalf of the seller to negotiate a purchase of the property on terms that are acceptable to you.
The overriding intent and desire of both this Act, the new Authority and the industry at large is to see a more open, transparent, accountable, professional, respected and trusted industry which provides exceptional service to property buyers and sellers.
Alistair, what an informative article and full of useful links, thanks.
I also applaud the Real Estate Agents Authority on their efforts to construct a user-friendly website that is jam packed with resources for both consumers and industry members.
What I do find insipid about the industry’s new regulations is that they come into existence after the sharks have already sullied the industry’s reputation in what will probably be remembered as the golden years of the NZ real estate industry (2001-2007). Anyway, if it’s change for the better, we should welcome it with open arms.
One of the key areas in the new environment will be the requirement to provide a fully researched written appraisal to the client.
Those SELLING a home can now expect to be given a clear indication of where value lies – no more of this “too hard to price” stuff!
Those BUYING will now realise that under rule 9.7 that salespeople must not mislead them with regard to the sellers expectations. Buyers will be aware that the seller has been provided with an appraisal and will expect pricing to reflect that.
The “professional conduct and client care rules” state:
9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.
9.6 An advertised price must clearly reflect the pricing expectations agreed with the client.
9.7 A licensee must not mislead customers as to the price expectations of the client.
and under 9.8 (a) the conditions under which commission must be paid and how commission is calculated, including an estimated cost (actual $ amount)of commission payable by the client, based on the appraised price of the
land or business.
The following is contained in the “Property Agency Agreements Guide”
Before you sign an agency agreement the agent should give you the following information.
A written market appraisal: this is the agent’s best estimate of the price they expect your property could be sold for, based on sales and prices for similar properties in your area or a similar area. You can also get your own valuation.
The content of the code and the guide is backed up by the following advice from REINZ
“Appraisals required for every agency agreement. The Institute advises all members that the practice rules contained in the Code of Professional Conduct and Client Care require an appraisal to be carried out in the case of every agency agreement.”
So in future sellers should expect to receive a thoroughly researched appraisal when they appoint a salesperson to sell their home.
J.C. – I agree it is a shame that these new tighter regulations are long overdue and come after as you same some of the profile sharks have left the industry, leaving a trail of poor reputation, however I cannot agree with your choice of the descriptor “insipid” in describing the new regulations – they are far from that. Anyway the principle is that we look to the future and not to dwell in the past.
Ross – really appreciate that deeper insight from a knowledgeable party within this industry.
The Act and code of conduct are indeed excellent.
Ross has highlighted valid points around pricing, expectations and appraisals.
Thank goodness the Act does not require a client’s price expectations to be relayed to customers. If their expectations happened to be low (according to fluctuating and sometimes unpredictable market forces) what a travesty that would be.
Licensees receive a reasonable fee not only to transact, but also to make sure they produce the best deal for their clients. Recent sales are a useful guide, but by their very nature markets move up and down, sometimes in an unpredictable manner, on a daily/weekly/monthly basis. For this reason, pricing a home based on historical sale prices can sometimes be risky. Even more risky if the appraiser is unfamiliar with the properties being quoted as comparable.
Some industry players have the blinkers on and still beleive that they can get away without discussing price and avoid an appraisal, however an actual dollar amount of commission payable must be estimated at the “appraised” price so I do not see how they can avoid it.
It can be difficult to do but it is now a requirement to provide a fully researched appraisal, so I repeat:
9.6 An advertised price must clearly reflect the pricing expectations agreed with the client.
9.7 A licensee must not mislead customers as to the price expectations of the client.
So it would appear to me, Steve, that we must now be pretty certain that we are in agreement with the sellers expectations. Will be interesting to read the decisions of what will no doubt be numerous cases based around this issue that will end up at the REA Disciplinary Tribunal.
From the REAA website:
Misconduct
A licensee may be found guilty of misconduct if their conduct:
would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or
constitutes seriously incompetent or seriously negligent real estate agency work; or
consists of a wilful or reckless contravention of-
the Real Estate Agents Act 2008; or
other Acts that apply to the conduct of licensees; or
regulations or rules made under the Act; or
You’re right Alistair, it was a poorly constructed sentence. What I should have said is that I find it insipid that the govt and the REI implement stronger legislation at the end of the property boom instead of cleaning up their act (ignore the pun) while the agents were behaving as a law unto themselves.
Steve – I would echo those sentiments in regard to the price of property as a guide. As is often quoted each property is unique and thereby every property transaction is unique and the price paid is a function of the individual circumstances of the buyer and seller. There would be many examples (legends in some ways) where properties sold for way over the asking price when a buyer had a capability to pay and an overriding desire to buy a property, just as circumstances of distressed selling can lead to sale prices well under expectation.
J.C. – Completely agree that it would have benefited the industry and the consumer if this new Act could have been brought in years ago – having said that I am not sure it would have changed the market outcome, just made it harder for a small minority to create such a bad reputation and thereby tar the industry with the brush of poor reputation.
It’s agreed that an appraisal must be supplied, also that advertising must accurately reflect the sellers expectations – however is it written anywhere that the two are actually one and the same? For instance, the appraisal places a value of $450,000 on the property, however the seller is ambitious and expects $500,000. Therefore the home is advertised at $500,000 as this is the seller’s expectation.
9.6 above: “An advertised price must clearly reflect the pricing expectations agreed with the client” An agent maybe simply be agreeing that this is what the seller expects (not that this is the value) – it’s still not particularly useful to the buyer who is trying to gauge value.
Sharon
Very good points on thay price range example. One of the extra steps I do is run the numbers through a .xls that will tell me approx. CV & historical SOLD pricing (ex land value)figures.
From experience you certainly can spot an “X factor” one.
EG …while one zone was showing $1300-1500m2 SOLD figures one particular property acheived over $2000m2.
When reviewing that data its obvious thats an “X factor” is at play because in 95% of cases you could build a pretty decent dwelling for well below that rate.
However it does allow one to be pretty accurate at appraisal time though, just takes a bit longer before in preparation. But then again thats what this new act is about anyway I feel….ensuring you can back up your original estimates for appraisal.
One item I see non-positively is this giving of the complaint form at the listing signing/agency agreement time. I listed a home yesterday and had to give the person this form and get them to sign a form to knowledge that they had rec’d it, and they were then curious about complaints ……what / why / etc.
I have no gripe about persons being aware of a complaint proceedure, etc – however I believe this could of been handled better.
Like most best practice agencies – a client gets a “thank you for listing with us” letter a few days after signing….now to my way of thinking this complaint form should go out perhaps as an attachment to that with a short note from a branch manager explaining its significance.
Now me, I have never had any complaints.
To me it introduces something with negative concoctions at a time when listing time should be all about positives. Maybe its just me that feels this way.
of course, the vendor can always disagree (as is more common than not!) with the value reflected in an apprasial and have expectations outside of the figure reflected by recent comparable sales. Glad we aren’t forced to provide buyers with out appraisal. I am still troubled by the fact that the new act appears to consider us licensees as property valuers. We are not, and most have no formal training in property valuation apart from learning how to compile a list of house sales from a database.
Interesting comments JC. Not sure that anything was done differently by the vast majority of agents during the boom times. Certainly the phone rang more and work days were longer, but the business of real estate marketing was the same. No “law unto themselves” here…
Ross, from what you’ve said it sounds to me like you believe that if a client’s expectations are not disclosed to customers then there is a breach of 9.6/9.7?
Ross, I respect that because you prefer to stay away from auctions you may not follow my logic. Let me explain:
A client is provided with a written appraisal of $700,000 to $800,000. The client is not too fussed about the price (a rare animal) but accepts the appraisal, signs the authority with an appraised price of $800,000 and acknowledges the commission payable on a $800,000 sale.
The licensee gets to work selling by auction program. Many people ask what the client expects. The licensee says that like most clients they expect a good result. Instead of blurting the client’s expectations (which weren’t discussed in depth at the time of listing anyway) they provide all customers with sales stats that show similar prices achieved for comparable homes.
Throughout the program the licensee never discloses the client’s expectations (irrelevant anyway in my opinion). An interest rate announcement mid program spurs the market a bit and the property sells for $823,500. An amazing result that nobody could have predicted. The right customers who were willing to compete to own the “rare as hen’s teeth” home made a mockery of the appraisal process. Appraisals are required yes. But they rely on old information.
The licensee did everything by the book. I don’t think the REAA would be disciplining this licensee. On the contrary, they might give him a medal for upholding the highest of professional standards and improving the public’s perception of the industry as a whole.
Well I think it’s obvious to all of us that it was much easier for the industry to take advantage of buyers and sellers when the market was hot and when there was so much misinformation about the property boom. Now that the exuberance has subsided, there is less opportunity for buyers/sellers to be unfairly manipulated. That’s just an “outsider” perspective but I don’t think it’s too wide of the mark.
Sharon, agree with you about that complaint process. A few days after listing would be ideal.
Steve – your example above is perfectly reasonable and logical – the difficulty is that until now salespeople have pitched auctions low to build the crowd on the day. One of the most common complaints I have heard from buyers is that they spent money on a building report, legal advice etc only to find that the owners expectation/reserve price was well in excess of what the salesperson quoted when they first phoned up about the property.
I agree that auction in it’s purest form is a great method but (and this is more likely now under the new Act) the salesperson must not quote any price whatsoever.
If you quote a home at $700,000 and the owner sets his reserve at $800,000 and it is obvious from the auctioneers “it’s on the market call” or he has to stop the auction to get the owner to lower the reserve to $800,0000 then you could be in strife if you have at any point indicated low to mid $700’s and it sells for $835,000.
I suspect that the REAA has instigated the appraisal rules in part to clean up “dodgy” auction practices.
9.6 and 9.7 are only breached if you quote a figure that is well below the vendor’s expectations. Maybe an interim reserve figure should have been made a requirement of the new code of conduct with regard to auctions.
Hey Ross agree with the under quoting comments you’ve made here and in other posts.
The whole real estate auction world is a pretty easy target and rightfully so if properties are under quoted just to gather interest.
Recently I had a property going to auction and it happened to have a low-ish CV of $890,000. Several customers asked me if the owner would accept CV. I said the only way to find out was to put it in writing. When I asked the same customers if they would pay $1mil they said no.
So if I said to future customers that my only interest had been expressed at CV, but also provided accurate sales stats (that happened to be well above CV), I reckon that would be totally transparent and not in breach of the Act.
What anyone who is wary of the auction process should realise is that customers will twist such scenarios due to self interest and (sometimes) misplaced distrust of the process. I believe most customers dislike auctions because they fear being forced (by another buyer) to pay more for a property they love. In the above example, the word on the street will often be that I low-balled this auction and told people it would sell for $890,000. Nothing could be further from the truth. But that is the mis-truth many will hear.
As I said in an above post i believe licensee’s who run auctions should not disclose client expectations because in the end they might turn out to be high, low or spot on. They must tell the truth about recent sales which could either support ot discredit genuine levels of interest. If they do this their auctions will work well and the public will trust them.
To avoid getting into any strife with customers, clients and the REAA the best policy is for auction licensees to avoid “quoting” prices/price guides for auctions. Give the stats and encourage offers.
Mr Brader
Please tell me that you drive an FPV Falcon and let me believe, at least for my sisters sake, that you could sell her Akld property on todays market in a “gung-ho” to sell her place.
Your friendly SW1 correspondent
When selling my house, does my agent need to inform prospective buyers that my neighbour is planning a major property development? Council have no records of the proposed development yet. I am concerned about my agents responsibilities under the next Act.
Mrs Malcolm
Thanks for this question. I am not an agent and therefore I will defer to other commentators (specifically licensed real estate professionals) to this blog to provide some comments and observations. My only comment is that given the significant nature of a property transaction it is always wise to seek legal council to provide clarity on any matter you have concerns regarding.
Steve
From a buyers point of view, one of the most frustrating things about an auction is the lack of price point.
As you point out there are complications with an agent giving a price indication, so I suspect what will happen is that safety will prevail and the only indication gievn will be CV.
But of course with old CV’s and in a rising market(which I believe we are back to), this is likely to result in most properties selling for above CV.
Will this result in a rash of complaints ? I don’t think so, as the agent can always point to the CV & say this is what the Official valuers priced the property at in xxxx.
As a buyer, it is down to you to get your own valuation if you consider the price point indicated (CV) is around what you are prepared to pay.