Complaint No CB7008869 [2013] NZREAA 54 (21 March 2013)

Last Updated: 2 March 2014

In the Matter of Part 4 of the Real Estate Agents Act 2008

And

In the Matter of Complaint No: CB7008869 & CB7008896 & CB7052735

In the Matter of Licensee 1 & Licensee 2 & Licensee 3

Licence Numbers: XXXXXXXX & XXXXXXXX & XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 21st day of March 2013

Complaints Assessment Committee: CAC20003

Chairperson: Marina Neylon Deputy Chairperson: Alison Wallis Panel Member: John Auld

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. This is a complaint made by the Complainant against Licensee 1 and Licensee 2. The Complaints Assessment Committee (the Committee) determined to join the Agency/Licensee 3 to the complaint as the Complainant refers to matters which were under the control of the Company. All three Licensees are licensed agents under the Real Estate Agents Act 2008.

1.2. The complaint concerns the conduct of the Licensees’ when the Complainant purchased a property listed by the Agency. The transaction involved all three Licensees and the Committee has determined to deal with the matter in one decision as the facts and conduct are interlinked.

1.3. The Complainant alleges in her complaint specifically that –

• Concern 1. Licensees 1 and 2 misled the Complainant about the existence of other offers on the property to push her into making a higher and unconditional offer

• Concern 2. All Licensees failed to disclose the existence of a basement or that the basement leaked

• Concern 3. Licensee 1 included a clause in the agreement for sale and purchase instigated by Licensee 3 which she stated was a standard clause but which was an additional clause that subsequently disadvantaged the Complainant.

2. Material Facts

2.1. Licensees 1 and 2 are husband and wife who work together for the Company. Licensee 2 is a director and sole shareholder of the Agency/Licensee 3.

2.2. On 12 September 2011 Licensee 1 listed the Property for sale on a 90 day sole agency agreement between the Owners and the Agency/Licensee 3. The Owners had purchased a business and needed to sell their home to fund that purchase. The Property was put up on a website and a sign erected.

2.3. The Property was offered at an asking price of $595,000 and the listing authority shows that the Owners confirmed that the Property “is not subject to any underlying defects”. This statement was initialled by the Owners on the document.

2.4. On 13 September 2011 other salespeople from the Company went through the Property on a team inspection. Later, Licensee 1 photographed the Property and informed the Owners that she already had two offers via her colleagues. The Owners were not available to consider these until the next day, by which time Licensee 1 had another offer. The Owners counter offered the offer from Offer A on 14 September.

2.5. The Complainant viewed the Property along with several other parties at an open home on 15

September. She was informed by Licensee 1 that there were already three offers on the Property and that the Complainant should make her best offer if she was interested. The Complainant left the Property but returned later to make her offer. Licensee 2 drew up the agreement initially but

it was completed by Licensee 1. In the meantime, offer “A” had been counter offered back to the

Owners, who were considering their options.

2.6. The Complainant has completed her real estate certificate but is not working in the industry.

During the offer process she became concerned that Licensee 1 or 2 did not have her sign a “multi offer form”. The multi offer form is a common document used in the industry when there is more than one interested customer, however, it is not a requirement and merely formalises the disclosure to each customer that there is more than one interest in the property and that they have been advised to make their best offer as the owner will not necessarily negotiate further.

2.7. The Complainant’s offer -“Offer B”, was an unconditional offer of $588,000 which was accepted by the Owners. This contract included a clause inserted as Clause 18 in the General Terms of Sale by Licensee 3 /the Company. This clause states:

• Weather Tightness Acknowledgement 18.1 The purchaser acknowledges that neither the vendor(s) nor the vendor’s agent(s) have made any statement, representation or warranty to them about the weather tightness, structural integrity or fitness for purpose (domestic or otherwise) of any building on the property. The purchasers agree that, in choosing to purchase this property, they rely on their own judgement. The purchasers also agree that the vendor or the vendor ’s agent has brought this clause to their attention and that they understand the nature and the meaning of this clause.

• Clause 18 is initialled by the Complainant and the owners.

2.8. The Complainant completed her final inspection with Licensee 3/The Agency’s director on 13

October. That day it was raining heavily and the Complainant noticed the sound of running water coming from the “basement”. The Complainant could see water entering the basement from a corner wall. The Complainant immediately contacted her solicitor to advise that she did not want to settle. The Complainant also contacted Licensee 1 who told her that the agreement was unconditional and that she could have the problem fixed. Later that day the Complainant arranged for a building inspection of the basement area. The inspector confirmed that the basement area and downstairs bathroom required immediate attention. The Owners agreed to a reduction of price on settlement of $5000. They were under considerable pressure to do so, as they required the funds to settle the purchase of the business.

2.9. Licensee 1 states that the Complainant came to her office to make a complaint about the matter and demanded that the commission for the sale be paid to her. This was refused. A complaint was received by the Authority from the Complainant on 17 July 2012.

3. Relevant Provisions

3.1. Real Estate Agents Act 2008

72 Unsatisfactory conduct

For the purposes of this Act, a Licensee is guilty of unsatisfactory conduct if the Licensee

carries out real estate agency work that—

(a) falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent Licensee; or

(b) contravenes a provision of this Act or of any regulations or rules made under this Act; or

(c) is incompetent or negligent; or

(d) would reasonably be regarded by agents of good standing as being unacceptable.

3.2. The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009

Rule 5.1 A Licensee must exercise skill, care competence and diligence at all times when carrying out real estate agency work.

Rule 6.4 A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or fairness be provided to a customer or client.

Rule 6.5 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Further, where it appears likely, on the basis of the licensee’s knowledge and experience of the real estate market, that land may be subject to hidden or underlying defects, the licensee must either –

(a) Obtain confirmation from the client that the land in question is not subject to defect; or

(b) Ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses.

4. Discussion

Concern 1. The Complainant was misled by Licensee 1 and 2 regarding the existence of offers

4.1. The Committee has been provided with copies of offer “A”, offer “B” and 3 further signed offers for the Property. It is clear from this evidence that Licensee 1 and 2 were being truthful with the Complainant about the existence of other offers.

4.2. The Committee is satisfied that the pressure to make a higher unconditional offer came from the Complainant’s own desire to acquire the property in the face of stiff competition. The Complainant was familiar with the process of multi offer as she comments that she completed the salesperson’s course several years ago and she seemed to know that a form could have been provided. The Committee takes from this evidence that the Complainant was not an uninformed buyer and knew enough about the process to be aware of the risks that making an unconditional offer entailed. The Committee therefore finds that there is no substance to this concern.

Concern 2. Failure to disclose the existence of the basement or the fact that it leaked.

4.3. The Complainant appears to suggest that the existence of the “basement” was concealed from her by the Licensees. The Committee is satisfied that the Complainant had an opportunity to inspect the Property prior to making her offer. As this was an open home situation, it is not unusual that the Complainant would be unaccompanied. It fell to the Complainant to satisfy herself that the Property was suitable.

4.4. The advertising for the Property which has been provided does not mention a basement or workshop and this is possibly because it is of little value or consequence as part of the dwelling.

4.5. The listing authority provided to the Committee notes the area as a “workshop” and plans from the Council file indicate that the area is not a designated room but a gap between the block foundations and the rest of the downstairs amenities. Disclosure of such an area would appear to us to be inconsequential.

4.6. The Committee then turned its mind to the matter of the leaking in this area. It is apparent that the Owners did not consider this leak as an underlying defect as they stated as much to Licensee

1 after the issue arose and signed a declaration to that effect at the time of signing the listing

authority. The Owners have said that the area only leaks when it rains heavily. The Fairview House Inspections Limited report supplied in evidence by the Complainant concludes that it may be caused by a blocked downpipe or field drain. In either case, this is not something that was disclosed to the Licensees. The Committee is also satisfied that it is not a defect that would have been apparent to anyone unless it rained. Therefore the Committee is satisfied that the Licensees were not at fault in failing to discover the leak in the Property foundation. This concern is hereby dismissed.

Concern 3. The addition of Clause 18

4.7. Clause 18 is at issue for two reasons. Firstly, that by placing the clause after the 17 other general terms and stating that it was a “standard clause”, the Complainant was misled. The Committee has some sympathy for this view as the clause is not a general term of the eighth edition sale and purchase agreement. In their defence, Licensee 1 and Licensee 2 state that because it was an additional clause, they have been trained to make sure to point out the clause and gain specific acknowledgement of this through the parties’ initials. Taking that into account, and with evidence to show that this had been done on all 5 agreements for this property, the Committee is satisfied that the Complainant was aware of Clause 18 as a specific acknowledgement. The Committee also notes that Licensee 3 has taken steps to change the visual impact of this clause for future agreements by placing a box around it. The Committee would prefer it to be included on the Further Terms page as this would ensure the Clause would be recognised for the substantial statement that it is.

4.8. Secondly, the Complainant believes that, by having her sign Clause 18, Licensees 1, 2 and 3 were negligent in their duty of care to her. Licensees 1 and 2 explained that they were under instructions from their supervising Agent (Licensee 3) to include this provision. Licensee 3 in turn has produced in evidence a letter of instruction from the company’s insurer recommending that the Clause be included in all sale and purchase agreements to avoid the risk of being “wrongfully” sued for non-disclosure of leaky homes. The letter states that the number of leaky building claims against real estate agents is on the rise and that some purchasers are buying homes knowing that the dwelling leaks and then blaming the real estate agent for lack of disclosure. The insurer recommends the inclusion of the Clause to discourage these sorts of claims. The letter further states that the Clause must be carefully explained and initialled by all parties. The insurer recommends that each buyer be encouraged to undertake a building inspection and that if the buyer refuses to allow the Clause to be included in the agreement, that such refusal should be noted in the transaction report.

4.9. Licensee 1 states that the Complainant was offered the opportunity to make her offer conditional upon a builders report but that this was refused due to cost. The Complainant denies being given that option. The Committee does not have enough evidence before it to decide whether or not the Licensee did offer this to the Complainant or not. Clearly, by the wording of

Clause 18, the Complainant was made aware that she had little recourse if the building had serious issues but proceeded anyway.

4.10. The Committee notes that all the other offers had conditions, which is possibly why the Complainant’s offer was successful despite being $4000 lower than the highest offer. The Committee also believes that the Complainant was confident enough to proceed due to her own experience. Therefore, although we are not completely happy with the placement of Clause 18, we do not find that this clause breached the duty of care owed to the Complainant.

In Summary

4.11. The Complainant has received a $5000 reduction in the purchase price from the Owners to take account of the unexpected expense of the repairs. We understand that Licensee 1 has contributed to that amount. The Committee is satisfied that the conduct of the Licensees’ in these circumstances does not breach the Act or the Rules and we therefore determine to take no further action on the matter.

5. Decision

5.1. After conducting an inquiry into the complaint, pursuant to section 89(1) of the Real Estate Agents Act 2008 (the Act), the Committee held a hearing with regard to that complaint. In accordance with section 90(1) of the Act, the Committee conducted the hearing on the papers, and pursuant to section 90(2) the Committee’s determination was made on the basis of the written material before it.

5.2. The Committee has determined under section 89(2)(c) of the Act to take no further action with regard to the complaint or any issue involved in the complaint.

6. Publication

6.1. One of the Committee’s functions pursuant to section 78(h) of the Act is to publish its decisions.

6.2. Publication gives effect the purpose of the Act of ensuring that the disciplinary process remains transparent, independent and effective. The Committee also regards publication of this decision as desirable for the purposes of setting standards and that it is in the public interest that the decision be published.

6.3. The Committee directs publication of its decision, but omitting the names and identifying details of the Complainant (including the address of the property), the Licensee and any third parties in the publication of its decision.

6.4. The Authority will publish the Committee’s decision after the period for filing an appeal has ended. Any application for an order preventing publication must be made to the Real Estate Agents Disciplinary Tribunal (the Tribunal).

7. Right of Appeal

7.1. A person affected by a determination of a Committee may appeal to the Tribunal against a determination of the Committee within 20 working days after the date of this notice.

7.2. Appeal is by way of written notice to the Tribunal. You should include a copy of this Notice with your Appeal.

7.3. Further information on filing an appeal is available by referring to the Guide to Filing an Appeal

at www.justice.govt.nz/tribunals.

Signed

Marina Neylon

Chairperson

Complaints Assessment Committee 20003

Real Estate Agents Authority

Date: 21 March 2013