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Property Market
Principles
Week 6 Objectives
• Understand the role of an Agent
• Understand the REA Act 2008 regime
• Understand the guidance, forms and processes of
the property sale process
Definition of Agent
“For the purposes of the Act, Agency work
is defined as any work done or services
provided, in trade, on behalf of another
person for the purpose of bringing about a
transaction; and includes any work done by
a branch manager or salesperson under
the direction of, or on behalf of an agent to
enable the agent to do the work or provide
those services”
Real Estate Agents Act 2008
• The Act is binding on anyone who meets this
definition …but with some exceptions
Agency Exceptions
• the provision of general advice or materials to assist
owners to locate and negotiate with potential buyers
• the publication of newspapers, journals, magazines, or
websites that include advertisements for the sale or
other disposal of any land or business
• the broadcasting of television or radio programmes that
include advertisements for the sale or other disposal of
any land or business
• the lending of money on mortgage or otherwise
• the provision of investment advice
• the provision of conveyancing services within the
meaning of the Lawyers and Conveyancers Act 2006
• An Auctioneer under the Auctioneers Act 2013
Agent / Principal Relationship
• A fiduciary relationship
• Conflicts of interest
• Disclosure to buyers and sellers
• Trust accounting, monthly reconciliations,
3x year audits
Why have an Act?
Why have an Act?
Why have an Act?
• The purpose of the Act is to promote and protect the
interests of consumers in respect of transactions
that relate to real estate and to promote public
confidence in the performance of real estate agency
work.
• The Act achieves its purpose by:
• regulating agents, branch managers, and
salespersons
• raising industry standards
• providing accountability through a disciplinary
process that is independent, transparent, and
effective
What in the Act?
• Consumer-oriented legislation, with 2 aims
• Promote consumer protection
• Promote consumer confidence
• Defines ‘unsatisfactory conduct’ as behaviour that falls
short of what could be expected by the public;
contravenes the act; is incompetent or negligent
• Defines ‘misconduct’ as disgraceful, seriously
incompetent or negligent, wilful, reckless and an offence
• Publishes the Professional Conduct and Client Care
Rules
• Regulates agents, branch managers and salespeople;
raising standards, and providing a disciplinary process
and Governing Body The Real Estate Authority
Real Estate Authority
• A government agency with independent
direction and board members
• http://www.rea.govt.nz
• What’s on the website:
• Codes of conduct
• Consumer guides
• Public register of licenced Agents
• Results of consumer complaint investigations
• This is not the same as the Real Estate
Institute of NZ
Real Estate Regulations
• The Act provides for regulations to be issued with more
detailed rules. The following regulations have been issued:
• Real Estate Agents (Audit) Regulations 2009
• Real Estate Agents (Complaints and Discipline) Regulations 2009
• Real Estate Agents (Duties of Licensees) Regulations 2009
• Real Estate Agents (Licensing) Regulations 2009
• Real Estate Agents (Exemptions) Regulations 2017
• Real Estate Agents (Professional Conduct and Client Care) Rules
2012
• Real Estate Agents (Continuing education Practice Rules) Notice
2011
• Real Estate Agents (Fees and Levies) Notice 2016
• Real Estate Agents (Continuing Professional Development Rules)
Notice 2018…
What does the REA Do?
• Administers the licensing regime for agents, branch
managers, and salespeople
• Maintains a public register of licensees
• Develops (Minister approved) practice rules including ethical
responsibilities
• Administers consumer complaints, and as can investigate and
initiates proceedings for offences under the Act
• Publishes consumer information on matters relating to real
estate transactions, including approved guides on agency
agreements and sale and purchase agreements
• Publishes consumer information on matters relating to the
provision of real estate services, including providing the public
with information on how to make a complaint
• Sets professional standards for agents
Licensing
• To act as an agent requires a licence under the Act.
• Licences are issued by the Real Estate Agent’s
Authority (REAA) and must be renewed annually
• A person who holds a license must be:
• 18 or over
• have prescribed qualifications and experience
• be of good character
• Fees are payable
• Licensees must undertake continuing education on
an annual basis
• There is a 3 tier licencing system, requiring different
levels of qualifications and experience
3 Agency Licence Types
• An Agent’s licence:
• Allowed to carry out real estate agency work on their own account, whether
in partnership or otherwise
• An agent can employ real estate salespersons and Managers to carry out
real estate agency work on their behalf
• A branch manager’s licence:
• Can carry out real estate agency work for or on behalf of an agent.
• If you hold a branch manager’s licence you must work for a licensed agent
to do agency work under their supervision
• May supervise salespersons carrying out any real estate agency work
• A salesperson's licence:
• Can carry out real estate agency work for or on behalf of a licenced Agent.
• Must be supervised by an agent or branch manager when carrying out any
real estate agency work.
Behaviour and Conduct
• Licensee must comply with fiduciary
obligations to the client
• Must deal fairly with all parties to a transaction
• Not bring the profession into disrepute
• Not mislead, provide false information and
withhold information to either party
• Where does this behaviour expectation come
from?
• Incentives
• Public (and political) perception
Misleading Conduct
• Misleading conduct can be:
• What you do or say
• What you don’t do or say
• Passing on information given to you that is not
accurate
• Incorrect property details such as the title, chattels or
infrastructure
• Cannot mislead about the price the vendor wants
• All the above applies in showing the property,
advertising, emails, at social functions etc.
• Cannot use coercion or harassment or accept gifts
Complaints Process
• Initially, complaints to the REAA are assessed by the
REA Complaints Assessment Committee (CAA)
• The CAA is an independent judicial panel that issues
decisions on complaints referred by the REA
• Some complaints may proceed to the REA Disputes
Tribunal (or to higher Courts)
• CAA findings are held on a public record
• Agents can receive a fine or suspension /
cancellation of licence
• The REINZ also has a complaints and disciplinary
process for its members.
Complaints Process
The Complaints Assessment Committee can make a
number of decisions:
• Decide that no further action is required
• Choose to investigate the complaint further
• Request the complainant and the agent to consider
using an alternative dispute resolution process e.g.
mediation, conciliation or negotiation.
• Make a finding of unsatisfactory conduct
• Lay a charge of misconduct to be heard by the Real
Estate Agents Disciplinary Tribunal
• Refer the matter to another agency such as the
Police or the Commerce Commission
Investigation Outcomes
Complaints Assessment Committees can make the following
orders when it decides that was a matter of unsatisfactory
conduct:
• Formal reprimanding of the agent
• Requiring the agent to apologise to the complainant
• Requiring the agent to undergo training or education
• Ordering the agent to reduce, cancel or refund fees or fix an
error or omission
• Fining the agent up to $10,000 if an individual or $20,000 if a
company
• Ordering the agent to pay costs
• If the Committee reasonably considers that the case may be
misconduct, the complaint will be referred to the Real Estate
Agents Disciplinary Tribunal
Fair Trading Act 1986
• Another consumer-oriented Act, designed to
protect the consumer
• It prohibits misleading and deceptive conduct
amongst people in trade
• Private sales are excluded as ‘not in trade’
• Those ‘in trade’ are those in business, professions,
occupations, supply and acquisition of goods and
services
• This includes real estate practitioners
• The REAA can refer any potential breaches of this
Act to the Commerce Commission
Incentives
• They act as middle people in transactions
between the owners of property (the
principal, the client) and buyers or renters of
property
• A fiduciary relationship…and a Duty of
Care…a fine balancing act? The source of
discontent amongst the public?
• Income is usually based on commission
earned for listing and selling a property or
renting space
• Fixed and flat fees becoming more common
Representing a Property
• Open, transparent guidance, matching with buyer requirements –
disclosure of defects
• Follow the Code of Practice (do I know something? Should I
know something? Is what I know material to either party? Rule
10.7 in professional care rules)
• Sound advice on sale method and marketing
• Unsubstantiated comments: oral, websites, brochures
• Remaining silent on a problem issue
• The notion of ‘caveat emptor’ does not apply!
• Section 9 in the Fair Trading Act 1986 says no person engaged
in trade (the licensee) should mislead, or be deceptive
• Note: ‘caveat emptor’ only applies to private sales
• Disciplinary issues – fines up to $600,000
• Forms, boxes to tick, questions to answer….
Agency Agreements
• Is the agreement with the vendor client to sell or lease to find
a buyer on the terms outlined in the listing contract
• See the guide to the listing agreement (posted reading)
• Must be in writing and signed fully
• The client must have a copy
• Certain things need to explained to the client before signing:
• Commission in writing and any double commission jeopardy
• Tell them what the property is worth in writing
• Discuss selling options
• Give them a guide to selling booklet
• Explain marketing costs and any rebates
• Explain any conflicts of interest
• Explain need for legal advice and when agency ends
• Describe how they can make a complaint if not satisfied
Agency Agreements
• Two main types: General and Sole
• Agreements vary by marketing approach
• Standard clauses (published by the REA, but not mandatory):
• Sole agency standard clauses:
• if no end date is specified, the agreement will automatically expire after
90 days (residential only)
• an agent can only claim a commission if a sale and purchase
agreement is signed during the term of the agency agreement
• General agency standard clauses:
• agreements can be cancelled on seven days’ written notice
• an agent can only claim a commission if a sale and purchase
agreement is signed during the term of the general agency agreement
and where the agent has been instrumental in bringing about the sale
and purchase agreement, or the sale and purchase agreement is
signed with someone introduced by the agent
Agency Agreements
• Further general conditions (REAA standards)
• For both sole and general agency agreements, in order to
claim a commission, the sale and purchase agreement
must be unconditional.
• The agent can still claim a commission even if the sale and
purchase agreement becomes unconditional after the
agency agreement has ended.
• A commission is also payable if a seller sells privately to a
buyer that was introduced to the property by an agent
• If the seller cancels a general or sole agency agreement
and then sells privately to someone the agent has
previously introduced to the property, the agent can claim a
commission, but only if the sale is made within 6 months
(residential ) or 12 months (rural).
Agreement for Sale & Purchase
• Address and legal description
• Payment
• Conditions
• Tenancies
• Further terms
• Chattels
• Warnings
• As with other standard forms it gets updated
from time to time
• Lets take a look…
Marketing Approaches
• Auction
• Tender
• Negotiation
Auctions
• Live binding auction at a set date ahead of a
marketing period.
• Selling: Sole agency, agreed marketing plan and
costs; a confidential reserve price and a set date.
• Buying: Due diligence can be expensive if
unsuccessful. Conditions not usually possible –
binding offer at auction
• Issue of vendor bidding guidance is issued by
REA: https://www.rea.govt.nz/real-estate-
professionals/the-sales-process-and-general-
guidance/auctions/
Auctions
• The vendor sets a reserve price based on feedback from
potential buyers
• Bidding is open & transparent (mostly!)
• Theoretically if there are two or more interested parties the
bidding can go up to achieve an optimum price
• This can be a stressful, disappointing process
• Auctions can cost the vendor more
• If there is only one bidder the process fails
• There is no ability for purchasers to negotiate with the vendor
on a one to one basis
• Purchasers can get disillusioned and complete considerable &
costly due diligence without securing the property
• When there is to be an auction, the listing agent usually obtains
a larger proportion of the fee charged to the client
Negotiation
• Usually with a price guide (BEO)
• Selling: the value is agreed with the
salesperson, usually after a written appraisal
(independence is important), no finality as to
timeframe.
• Buying: Chance to make an offer and negotiate
with the vendor until an agreement on
conditions and price is agreed
• Vendor will negotiate with offers on a first
come basis and there can be multiple offer
situations – various conditions and price
Tenders
• Buyers submit confidential written offers
by a deadline
• Selling: If no offer is suitable the vendor
does not have to sell or can enter into
further negotiations with the buyer
• Buying: Need to put ‘best foot forward’ as
ability to negotiate isn’t certain. Must
decide how much to offer and accept that
is may be rejected. Conditions can be
included.
Qualifications
• A licensed agent needs the NZ Diploma in
Business (Real Estate) to level 6. and 3 years
experience
• A branch manager must have the NZ Certificate
in Real Estate (Branch Manager) to level 5, and
3 years of experience
• A salesperson needs only a New Zealand
Certificate in Real Estate (Salesperson) or a
National Level Certificate in Real Estate
(Salesperson) Level 4
• http://www.rea.govt.nz for more information
Qualifications
• If you have a property degree, you can use this to
apply for any class of real estate licence. To get a
branch manager's or agent’s licence, you will also
need 3 years' work experience.
• You must apply for a licence within 10 years of
completing your property degree.
• You also need to complete an Industry Training
Organisation assessment with The Skills
Organisation (https://skillsconsultinggroup.com),
unless you’re already licensed and are applying for
a licence of a higher class.
• See https://www.rea.govt.nz/real-estate-
professionals/apply-for-your-licence/apply-for-your-
licence-2/
Final Points
• Anti Money Laundering Act applies to REA work
• High standard of expectation to know the identify of
your client
• Please take the time to review the REA readings
Workshop Questions for next week
• What is the intention of the Real Estate Agent’s Act?
• How does the REA differ from REINZ
• Which of the marketing approaches would you use in a
strong market or a weak market?
• What changes (if any) does the current government
propose for the REA regime?
This Week’s Workshop Questions
• What are the 3 principles of valuation?
• How are these principles reflected in the 3
valuation approaches?
• How do we know when a property is in its highest
and best use?
• What do we mean by the ‘value’ and ‘most
probable value’?
