Summary of Submissions - Real Estate Agents Authority

Real Estate Agents Authority
Review of the Professional Conduct and
Client Care Rules
Summary of Submissions

Purpose
1 This document summarises submissions made on a consultation document and consultation draft
Code of Conduct produced by the Authority as a part of its review of the Professional Conduct
and Client Care Rules 2009 (the Code of Conduct).
Background
2 The Code of Conduct sets down a code of conduct, and a reference point for discipline, for real
estate professionals licenced under the Real Estate Agents Act 2008 (the Act).
3 After two years of operation, the Real Estate Agents Authority (the Authority) is reviewing the
code of conduct.
4 In late 2011 and early 2012 the Authority undertook public consultation and released a
consultation document on proposed changes to the Code of Conduct.
5 In total the Authority received 31 submissions from:
• eight real estate agencies
• 14 individual licensees
• two complainants
• one public sector agency
• one non-licensed industry organisation
• two membership bodies representing real estate practitioners
• one membership body representing a related profession
• two property law professionals.
6 These submissions varied in length between a short email and more substantial submissions of
between 10-20 pages. This document summarises these submissions.
7 The Authority is now conducting a second round of consultation on the final proposed
amendments to the Code of Conduct. A consultation document for this second round of
consultation is available from www.reaa.govt.nz.
Overview of submissions
8 The most commented on topics within the consultation document included:
• definitions
• appraisals
• double commissions
Code of Conduct Summary of Submissions June 2012 Page 2 of 12

• disclosure of defects (rule 6.5)
• changes to the code for non-residential real estate sectors.
9 Submitters also raised a number of other questions not directly related to the Code of Conduct
consultation. A brief response to points raised is included in the table below.
Issue
Residential licensees should pay higher
fees and levies than commercial or rural
licensees.
The Code of Conduct should contain
information about the Authority’s
complaints process.
The Authority should charge a set fee to
lodge a complaint.
The Code should specify that
commission is paid on settlement and
not when contract goes unconditional.
The Code should specify a requirement
for in-person supervision through
branch managers in each real estate
office.
There should be a ‘cooling off’ period
for Agency agreements.
Authority response
There is no current intention to review fees or levies
for a number of years. This matter could be
considered at such a time when fees and levies are
reviewed.
The Authority is always looking to improve
information and guidance on the complaints process.
Any updates in this area will be included in the
Authority’s regular e-newsletters to the real estate
industry and consumer organisations.
There is no plan to review this matter. Charging a fee
to lodge a complaint is inconsistent with other
complaint processes and regulators, e.g banking
ombudsman, electricity and gas complaints, financial
advisor complaints.
This is a contractual matter unrelated to the Code of
Conduct. Consumers can negotiate conditions such
as how much and when to pay licensees when
entering into agency agreements.
Requiring in-person supervision in every office is
counter to the provisions of the Act to permit more
flexible supervision systems. The Authority is
focussing, at this point in time, on ensuring that
there is proper supervision, not the method of
supervision.
The Real Estate Agents Act already provides for a
cooling off period in relation to sole agency
agreements (see s 130 of the Act).
Cooling-off periods can lead to unforeseen
circumstances and the Authority is focussed on
ensuring that consumers have access to, and are
advised to, consult expert advisors before signing
real estate contracts.
10 Submitters comments and views on the Code of Conduct and the consultation document are set
out below according to the proposed rule to which they relate and then specific issues (eg
sectoral differences and buyers agency) that apply across multiple rules.
11 The Authority did not receive any comments or proposals in relation to Rule 7. Therefore there is
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no section dedicated to this rule in this document.
Rule Four: Interpretation
12 The consultation document contained a number of suggestions in relation to the proposals to
define client, land and questions about how to define prospective client. One submitter
contended that the Code of Conduct should not define anything that is not already defined in the
Act in order to avoid acting ultra vires.
13 Some submitters considered that it is unnecessary to define either client or land as they are
defined in the Act. Others supported the addition of these definitions into the Code of Conduct.
One submitter, while supportive in principle, warned of the risks related to making amendments
to the Act which do then not flow through to the Code of Conduct.
14 One submitter suggested implementing internationally consistent terms and definitions.
15 Submitters suggested the following additional definitions.
• Agent (with a capital A to designate licensee who hold an Agents licence)
• agency agreement
• branch manager
• sole agency agreement.
Rule Five: Standards of professional competence
16 The consultation document proposed a change to rule Five that would see explicit inclusion of
consumer protection law in rule 5.2 with a footnote referencing the Fair Trading Act, Consumer
Guarantees Act and the Contractual Remedies Act.
17 Submitters predominantly focussed their comments on the consultation document’s questions in
relation to emphasising consumer protection law. Three submitters supported the proposed
change to reference consumer law and in particular the Fair Trading Act, Consumer Guarantees
Act and the Contractual Remedies Act. Others supported the principle of better emphasising the
importance of wider consumer protection law, but were concerned that listing some specific
statutes may lead to licensees focussing their attention on those laws when there are other
aspects of consumer law which licensees may breach.
18 One late submission also considered recent Tribunal cases and decisions and proposed that rule
5.1 should be amended to provide that, where there are legal or technical issues in relation to
land or a business, it should be sufficient for the licensee to recommend that the customer or
client take expert or legal advice.
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Rule Six: Standards of professional conduct
19 The consultation document suggested amendments to the code to:
• require licensees to inform customers of their fiduciary obligations to their client
• move rule 6.5 into new rule 10
20 The consultation document also asked whether rule 6.5 should be amended to require a licensee
to both obtain confirmation from their client that there are no defects and inform customers of
significant potential risks.
21 A number of submitters commented on the proposed changes in relation to requiring a licensee
to inform customers of their fiduciary duty to clients and moving rule 6.5.
22 One submitter included a suggestion that rule six should include a provision that client money
must be held separately from other monies and be covered by adequate insurance.
Disclosure to customers of fiduciary duty
23 Of the submitters that commented on this issue only one was supportive. This submitter
considered that New Zealand needed to ensure that more information is provided to match
international best practice. One submitter questioned when a licensee should be required to
inform customers in order to discharge this duty.
24 The submitters that opposed this proposal contended that the Authority’s approved guides
already inform customers of the licensees relationship with their client, one considered that all
people realise who is paying the agent and another that this proposal would create more
confusion rather than clarity.
Disclosure of defects (rule 6.5)
25 The consultation document included a proposal to move rule 6.5 from rule six to new rule 10 and
a question about whether both of the sub-paragraphs should be retained. Submitters provided a
number of comments on rule 6.5 including:
• that rule 6.5 needs to be significantly reworded
• the ‘know or should know’ test should be replaced by a reasonable person test
• that rule 6.5 should require written confirmation from sellers about defects
• that rule 6.5 should remain in rule six and not be moved.
26 One submitter suggested that rule 6.5 should use the term ‘property’ instead of land to reflect
that the use of the term in the rule is broader than a common understanding of the word land.
27 Another submitter advised that in the rural setting what constitutes a ‘defect’ can be difficult.
The proposed use by buyer often impacts on whether there are ‘defects’ (e.g. different farming
requires different water requirements). Customers routinely do not disclose their intended use of
the property as it can affect the price that they would have to pay. However, this submitter
considered that the current wording of rule 6.5 was adequate and worked in rural practice.
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28 One submitter considered that rule 6.5 is adequate as written and another thought that both rule
6.5(a) and 6.5(b) provided for useful and complementary avenues for licensees to confirm with
clients and access the information that they have about the property.
Rule Eight: Agent’s awareness of duties and
obligations
29 The consultation document included suggestions to change the title of the rule, reorder rule eight
and new rules relating to an agent’s supervision responsibilities. The proposed changes were to:
• modify the title of the rule so that it is “Duties and obligations of agents”.
• move rule 8.4 so that it is after 8.2.
• create a section header called “supervision” after rule 8.3 and before rule 8.4.
• add a new rule to require agents to ensure that licensees they employ or engage are
familiar with current issues in the industry. This is designed to reinforce that agents should
be ensuring that their staff are aware of recent legal changes, significant tribunal or court
decisions and any other relevant developments in the industry that real estate professionals
should have an understanding of.
• add a new rule requiring agents to provide on-going support and supervision to all licensees
employed or engaged by them.
30 The consultation document also asked questions about whether greater emphasis on supervision
was warranted.
31 A number of submitters agreed with the proposed changes and viewed them as positive changes
which clarified and better defined what an agent’s supervision duties are. Another submitter
considered that s50 of the Act was adequate and the proposals around supervision are
unnecessary.
32 One submitter contended that the proposals around current issues, such as Tribunal decisions and
Authority advice, are unnecessary and they are predominantly already covered by rule 5.2 which
requires licensees to have a sound knowledge of the Act and the Rules.
33 One submitter considered that these changes should instead be implemented through the Duties
of Licensees regulations to avoid being ultra vires.
34 One submitter suggested that rule 8.5 should be listed before rule 8.4 to create a better flow from
high level to more detailed obligations and that rule 8.6 should be reworded to require agent’s to
‘make reasonable opportunities’ to licensees to become aware of recent legal changes. This was
suggested so that the rule could reflect the practical difficulties associated with the predominant
engagement of salespersons as independent contractors as opposed to direct employment
relationships.
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Rule Nine: Client and customer care
35 The consultation document contained a number of proposed amendments and additions to, and
questions about, rule nine. These were:
• replacing the word “when” with “before” in rule 9.8
• amending rule 9.21 (confidentiality) to better align with the Privacy Act
• questions about when licensees should give warnings about double commissions.
36 Double commissions and agency agreements attracted the largest number of comments from
submitters.
37 One submitter suggested that rule 9.3 (communication with clients) needs to be clarified as there
can be multiple licensees involved in an agency agreement (company agent, supervising agent,
listing salesperson and other salespersons). The communication obligations should only be
placed on a single licensee. Another suggested that rule 9.3 should only apply to sole agency
agreements due to the prevalence of long term general agency agreements in the commercial
sector.
38 One submitter contended that the proposal to change the requirements of rule 9.8 from “when”
to “before” is not a technical or minor amendment as claimed in the consultation document and
that this amendment is not required.
39 All of the submitters who commented on the proposed changes to confidential client information
were supportive of the proposed changes. One of these submitters suggested that these
requirements would be best narrowed to confidential personal information of the clients.
Double commissions
40 In general submitters overwhelmingly called for the Authority to intervene in some way to
address industry concerns in relation to clients being exposed to double commission claims.
Table One: Double commission submissions
No of subs
Issue
4 Double commissions are a very important issue that the industry is facing that the
Authority needs to intervene in.
2 The warning for double commissions should be given when the client has an existing
agency agreement in place.
3 Set timing requirement for cancellation of agency procedures
2 Set processes for cancellation of agency procedures
1 The Authority should require licensees to resolve double commission disputes and not
allow clients to be subject to double commissions
41 One submitter contended that it is a client’s obligation to read and understand what they are
signing. The only obligation for licensees should be to inform their client that an agency
agreement and a sale and purchase agreement are legally binding.
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Agency Agreements
42 Some submitters contended that there should be exemptions from the requirement to obtain an
agency agreement when:
• representing commercial clients
• representing retail and industrial clients
• managing a mortgagee sale.
43 One submitter also contented that licensees should be permitted to obtain a commission from
both parties (buyer and seller) where there is informed consent from both parties.
44 Another submitter suggested that licensees should be required to explain what the Attorney’s
consent clause in agency agreements actually means to ensure that licensees are not misleading
prospective clients on their ability to amend agency agreements, following advice from their
lawyer, after they have signed the contract.
New Rule Ten: Duties when selling
45 This proposed new rule contains those rules from rule nine and rule 6.5 that specifically relate to
a licensees obligations when their client is a seller and includes amendments requiring licensees
to:
• inform their clients when an appraisal has been conducted without any comparable sales to
base the appraisal on
• explain to prospective clients when an agency agreement will finish.
46 Submitters provided a number of comments on this new rule which separates out existing rules
that only relate to agency relationships and duties when the client is a seller.
47 One submitter suggested that rules 10.11 and 10.12 are inappropriately placed under the
marketing and advertising sub-heading and should have their own separate heading to emphasise
their focus on contractual matters.
48 Another submitter was of the opinion that rule 10.12 (which sets out record keeping obligations)
is inappropriately targeted at all licensees and creates unnecessary complication. They suggested
that instead rule 10.12 should be an obligation on agent licensees (as the agent with whom the
client has an agency agreement) and that salespersons and branch managers should have a
related duty to ensure that copies of all sale and purchase agreements are provided to their agent
for their records.
49 Submitters provided feedback that rule 10.18 (prohibiting marketing and offering without an
agency agreement) is a significant barrier in commercial and mortgagee sales and one suggested
that it should be amended to allow for presentation of unsolicited offers.
50 One submitter suggested that rule 9.1 is not adequately enforced or respected in relation to
selling property for clients. They contended that licensees breach their fiduciary duty to their
clients whenever they refuse to allow another agency access to the property to bring a customer
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through the property. They recommended that rule 10.4(c) be amended to require licensees to
specify when signing up clients how the agent would deal with other agencies on a conjunctional
basis.
51 The other parts of this rule that attracted the most comments were appraisals and questions in
relation to better disclosure of individual incentives.
Appraisals
52 The consultation document included a new rule relating to notifying clients when there was
insufficient information or comparable sales to make an accurate appraisal. Many submitters
were supportive of this proposal, but concerned about possible misuse or abuse by licensees.
One submitter, while supportive of the rule, suggested that this new rule differentiate between
information that does not exist and data that the licensee may not be able to access, or has
decided not to access due to associated costs. Another submitter supported this rule, but wanted
to see restrictions for residential real estate where licensees have, at a cost, easy access to
databases with comparable sales information.
53 One submitter questioned whether the Code of Conduct required a new appraisal when resigning
sole agency agreements after 90 days.
54 One submitter suggested that appraisals should be able to contain a price range, rather than a
specific price. Another questioned the relevance or desirability of requiring appraisals for general
agencies where clients are likely to receive a number of appraisals.
55 Another contended that the requirement for a written appraisal was only when an appraisal was
given and that the Code of Conduct could not require licensees to conduct an appraisal in all
situations.
56 One submitter was of the opinion that most licensees do not have the adequate skills and
knowledge to provide a quality appraisal and as such they would seek to use this new rule to
avoid conducting appraisals.
57 One submitter who did not support the proposed changes to the Code of Conduct around
appraisals suggested that a lack of comparable sales would be readily apparent to a client when
the agents’ appraisal of their property did not contain any comparable properties or sale
information. Another submitter suggested that it is unrealistic to require an appraisal on a
business as a going concern and that in these situations clients should obtain a valuation.
58 One submitter suggested that rule 10.1 be amended to include a sentence such as “licensees must
not inflate their appraisal of the property as a means of obtaining an agency agreement” as a
useful tool to discourage licensees from “buying listing”.
59 One submitter suggested that licensees should be required to advertise the appraised price.
Disclosure of individual incentives
60 The consultation document asked submitters about whether licensees should be required to
disclose differences in individual financial incentives when recommending specific sales method.
The Authority understands that it is commonplace for a listing agent to obtain different splits of
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the commission depending on the method of sale being conducted (e.g. auction vs tender).
61 Of those submitters that commented on this question, six were opposed, three considered it an
appropriate change with one other submitter suggesting that this would only be relevant for
salesperson licensees.
Rule Eleven: Information about complaints
62 The consultation document included a proposal to modify rule 11.1 (formerly rule 10.1) to ensure
that in-house complaints processes are transparent and current. The consultation document also
asked questions about whether rule 11 should be amended to require licensees to disclose
unresolved complaints to new employers when moving agencies.
63 Submissions on this matter were divided with some submitters considering it beneficial while
others opposed changes of this nature. Some of those who supported the proposal gave
conditional support contending that it should not include current investigations or that it should
not include vexatious or frivolous complaints that have not been investigated.
64 Those against the proposal suggested that agencies should do their own due diligence when
hiring or engaging new salespersons. One pointed out that currently, agencies could, with an
individual’s consent, obtain this information already. One submitter suggested that this proposal
was an employment matter and may not be appropriate for a professional Code of Conduct.
65 One submitter noted that some insurers, as a part of their policy, required immediate notification
of complaints against current employees or contractors, and that this rule was important for this
reason.
Sector specific issues
66 The consultation document included specific questions about whether the Code of Conduct
needed to be modified for non-residential real estate sectors such as business brokering,
commercial real estate or rural real estate.
67 The consultation document also asked submitters for their views on whether the new rule 10
should only apply to residential sales.
Business brokering
68 There were a small number of comments highlighting specific issues for business brokering.
These comments were that:
• it is difficult to secure an agency agreement
• appraising businesses is either unnecessary or difficult
• appraisals should not be required when selling a business franchise
• it is very difficult to obtain comparative data for business appraisals.
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Commercial real estate
69 A number of submitters commented on commercial real estate issues. One submitter contended
that there should be a separate Code of Conduct for commercial real estate. Another was of the
opinion that the Code of Conduct, and indeed the Act could benefit from provisions that allow for
sophisticated or large scale commercial clients from contracting out of consumer protection
provisions.
70 Another suggested that rule 9.3 should only apply to sole agency agreements due to the
prevalence of long term general agency agreements in the commercial sector.
71 Many submitters commented on appraisals for commercial real estate stating issues such as a lack
of available information due to confidentiality clauses in contracts and that most commercial
clients obtain valuations and therefore do not need appraisals.
72 One issue that submitters put forward is that it is difficult for licensees to obtain agency
agreements, including general agencies, from sellers/lessors. Linked to this issue were
submissions which sought greater clarity about the Authority’s view on what constituted
‘offering’. One submitter requested specific guidance on offering.
Rural real estate
73 Submitters commenting on rural real estate commented on difficulties in relation to appraisals.
This is primarily due to the possibility of large price variations due to stock or herds being valued
only 10 days before settlement. This means that many rural transactions are unconditional and
agreed far in advance of a final valuation and price being reached.
74 Another area that rural submitters suggested possible concerns around was rule 10.8. In many
rural settings sellers are reluctant to sign a formal agency agreement until the agency has a
serious prospective purchaser.
75 Rules relating to all material particulars (rule 9.7) can also be problematic in rural transactions.
Material particulars such as DDT testing, soil tests and company share details are typically not
available at the point of listing and are instead provided during the marketing and offering
process.
Rule 10 and residential sales
76 Submitters were overwhelmingly supportive of rule 10 applying to selling in all sectors.
77 One submitter pointed out that it would be rather difficult to differentiate between properties.
For example lifestyle blocks are located in rural areas but are typically considered residential
properties.
Other matters
78 The consultation document also contained questions about vulnerable consumers and whether
licensees should be required to recommend that clients and customers obtain legal advice.
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79 Submitters also requested information and guidelines on:
• what constituted ‘offering’ land or a business
• appropriate processes for multi-offers
80 In additions some submitters provided feedback about the Code of Conduct’s provision in relation
to buyers agents.
Vulnerable consumers
81 Question 21 in the consultation document asked if the Code of Conduct could be modified to
provide increased protection for vulnerable consumers. Industry submitters were not supportive
with questions and concerns about how a vulnerable person would be defined, that this was not
needed in the commercial sector and that whether someone was ‘vulnerable’ would be too
difficult for salespersons to assess and would be open to abuse by lawyers. One submitter
suggested that the Authority could look at the Commerce Commission’s use of the term ‘capacity’
if it were to take this concept further.
82 One submitter considered that in-house and the Authority’s complaints processes sufficiently
protected vulnerable consumers.
Recommending legal advice
83 The consultation document included a question about whether licensees should be required to
recommend, rather than allow a consumer time to obtain, legal advice before signing a
contractual document (e.g. agency agreement or sale and purchase agreement).
84 Some submitters considered that this was an appropriate step and that licensees should be
recommending legal and expert advice throughout the buying process or that licensees should
recommend that people making legally binding agreements get legal advice. Other submitters
considered that the current disclaimers and provisions were adequate, while one suggested that
recommending legal advice should only be required where the licensee is aware of defects (under
rule 6.5).
Buyers agency
85 Some submitters, including one buyers’ agent, contended that there should be an additional rule,
similar in nature and substance to new rule 10, that places specific and appropriate consumer
protection obligations on buyers agents.
Conclusions
86 Submissions were varied and robust with a number of views on both the consultation document
and wider issues.
87 Most notable were the concerns from industry about double commissions and appraisals.
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