Complaint No 04377 [2014] NZREAA 279 (25 September 2014)

Last Updated: 3 April 2015

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

And

In the Matter of Complaint No: 04377

In the Matter of The Licensee

Licence Number: XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 25th day of September 2014

Complaints Assessment Committee: CAC302

Chairperson: Alison Wallis

Deputy Chairperson: Deborah Ann Clapshaw

Panel Member: Sue Matehae-Patten

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1 This is a complaint against the Licensee who works for the Agency.

1.2 The Complainant was the vendor of the Property.

1.3 The Agency was employed as property manager for the Property. In March/April 2013 the Licensee contacted the Complainant to enquire whether she was interested in selling the Property, as there was a developer interested in purchasing it. The Complainant declined.

1.4 In June 2013, the Complainant who is located in City B heard that the property market in City A

was growing, so she contacted the Licensee to enquire what the Property was worth.

1.5 The Licensee stated that the Property was worth $490,000.00 and that the developer who had shown interest was willing to offer this. The Licensee explained that this figure was for the land value only as the house was in a condition where it would not comply with rental standards for the following year.

1.6 The Complainant indicated that she felt pressured by the Licensee to accept the offer. The Licensee allegedly stated that there were no major conditions on the offer, the price for the land was high and there was more L3 land coming onto the market in the following week. The Licensee reminded the Complainant that if they were going to continue renting the Property it would require significant work being carried out.

1.7 The Complainant agreed to sell at $525,000.00.

1.8 The Complainant has since discovered that the Property was in an acceptable condition for rental standards and that EQC had carried out repairs and repainting prior to the sale of the Property.

1.9 The Complainant alleges that the Property was undervalued and that she was misled about the Property’s ongoing rental ability. She also questions the nature of the relationship between the Licensee and the purchaser.

1.10 In the course of the investigation the Complainant further alleged that she was not informed prior to sale that the earthquake damage to the Property had been repaired and that she was not asked to sign off on the repairs.

1.11 The Complainant seeks damages for misleading and deceptive conduct, the alleged undervaluing of her property, lost rental income of $100,000.00 and a refund of the commission on the sale.

2. Material Facts

2.1 The Licensee first spoke with the Complainant about selling the Property on 16 November 2005 and made further enquiries during 2006, 2009, and 2010. On 10 March 2013 he approached the

Complainant again regarding a sale and she indicated on 19 March 2013 that she would possibly look at an offer.

2.2 When the Complainant requested an appraisal of the Property and another property she owned on 18 June 2013 the Licensee was dealing with a potential purchaser for the Property.

2.3 The Licensee did some research and found only two sales of relevance to the Property which he discussed with her on 19 June 2013.

2.4 By email to the Complainant dated 19 June 2013 the Licensee appraised the Property as a redevelopment site at $650 per metre square giving a price of $490,000.00. He suggested that it may be worth going to the market to test the value as there were no recent sales of L3 land in the immediate location.

2.5 Information on the sales of the two relevant properties was sent to the Complainant with this email.

2.6 The Property was then listed on the Complainant’s instructions at $525,000.00.

2.7 An offer to purchase the Property at $490,000.00 was communicated to the Complainant on 9

July 2013.

2.8 Various counter offers followed over the period 10 July 2013 to 15 July 2013. On 18 July 2013 the Complainant agreed to accept $525,000.00 and an agreement for sale and purchase of the Property was signed on 19 July 2013.

2.9 During the course of conversations between the Complainant and the Licensee the rent ability of the Property was discussed. The Complainant alleges that the Licensee advised her that the Property did not comply with rental standards.

3. Relevant Provisions

3.1 The Committee has considered the provisions of the Act, set out below:

Section 4 real estate agency work or agency work –

(a) means any work done or services provided in trade, on behalf of another person for the purpose of bringing about a transaction; and

(b) 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 the services described in the paragraph (a).

Section 72 of the Act which provides for “unsatisfactory conduct” and states as follows:

Section 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.

Section 73 (a) or (c) of the Act relating to “misconduct” by a licensee without requiring the

conduct to relate to real estate agency work. These provisions provide:

Section 73 Misconduct

For the purposes of this Act, a licensee is guilty of misconduct if the licensees conduct –

(a) would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or

(b) constitutes seriously incompetent or serious negligent real estate agency work; or

(c) consists of a wilful or reckless contravention of –

(i) This Act; or

(ii) other Acts that apply to the conduct of licensees; or

(iii) Regulations or rules made under this Act.

The Real Estate Agents Act (Professional Conduct and Client Care (Rules 2012) the Rules) set out the standard of conduct and care agents, branch managers and salespersons (licensees) are required to meet when carrying out real estate agency work and dealing with clients. Whilst these rules are not meant to be an exhaustive list, they set minimum standards that licensees must observe and a reference point for discipline.

In relation to this complaint, the following rules may apply;

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

Rule 6.2 A licensee must act in good faith and deal fairly with all parties engaged in a transaction

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

Rule 10.3 Where there is no comparable or semi-comparable information this must be explained in writing

4. Discussion

4.1 There are three main issues for consideration by the Committee.

4.2 The first is whether the Licensee misled the Complainant in relation to the Property’s ongoing

rent-ability.

4.3 The Complainant states that the Licensee advised her in conversation that the house condition did not comply with rental standards and would not be fit for rental the following year unless money was spent on it to bring it up to required standards.

4.4 The Complainant has perceived the Licensee’s comments to be a statement that the Property was not fit for tenanting with an inference that the discussion may have been for the purpose of encouraging her to accept the offer for sale presented to her.

4.5 The Licensee’s evidence is that he advised the Complainant that her choice not to complete outstanding maintenance on the Property would affect her rental levels in the near future. This was based on his knowledge of a proposed government rental warrant of fitness that might impact the rental for the Property, which had been the subject of discussions at Agency staff meetings.

4.6 He referred the Committee to property management inspection reports spanning 9 years which refer to rotten timber areas, both weatherboards and window framing and the need for repainting. There is also an email from the Property Manager, Mrs. S, (the Property Manager) to the Licensee which states that all inspection reports were provided to the Complainant but that she took no action on receiving these reports.

4.7 It is accepted by the Complainant that she knew that the external weatherboards were peeling and that some were rotting but she states that she was unaware of the state of the interior of the Property, having not seen it in 8 years. This is consistent with her having seen the Property Management Inspection Reports.

4.8 The Complainant has also alleged that she was not made fully aware of the EQC damage repair and sign off in January 2013. However, the evidence from the Property Manager, Mrs. S’s diaries for 18 October and 7 December 2013 make reference to two meetings at the Property with a Construction Company and the Owner for the EQC sign off. A text message to the tenants of the Property also records that the Owner will be in attendance for the EQC inspection. It is apparent that the Complainant did not attend the initial inspection meeting or the sign off but it does appear to the Committee that she was invited to do so and was made aware that the repairs had been done.

4.9 A letter from EQC addressed to the Complainant dated 26 June 2011 advises that an inspection has taken place and that the claim will require an EQC managed repair and that the claim has been forwarded to the Construction Company.

4.10 The Complainant refers to an email she received on 17 July 2012 regarding the EQC repair, but states that she received no further emails about when the EQC repair would begin. Evidence from the Property Manager differs. She states that she notified the Complainant of the initial inspection on 18 October 2012, the start date of the repairs (5 November 2012) and the meeting with the Construction Company to sign off on the repairs and her diary notes support this. She also states that the Complainant made payments to the Property Manager for the inspection meeting on 24 October 2012, a final EQC sign off inspection on 21 January 2013 and for extra work to the EQC contractor on 25 February 2013 after discussions with the Complainant about the additional repair work.

4.11 Whilst it is difficult for the Committee to form a view on the evidence, the diary notes and the records of payments to the Propery Manager corroborate the statements of the Property Manager.

4.12 The Licensee has provided further evidence of the Property condition to support his comments about its ongoing rentability, namely,

- a letter from the purchaser of the Property which notes that the Property was purchased for land value “as the dwelling situated on the Property was/is in a bad state of repair” it also records that “as the house is in such a bad state of repair, I have had to reduce the rent by

$20 per week.”

- an electrician’s report dated 3 February 2014 recording that an inspection of the Property was conducted and that “extensive rewiring and upgrading to the electrical services of this Property is required before it could safely be reconnected and reoccupied”.

4.13 A Property Inspection Report also commissioned by the Agency dated 3 February 2014, when the Property became vacant, details substantial repairs and maintenance required to bring the standard of the building to a reasonable level for habitation.The Complainant considers that this report may not be independent and includes items of damage by the tenants and is inconsistent with the Property Management Inspection Report of 17 May 2013. However, we note that the Property Inspection Report specifically excluded damage by tenants and appears consistent with the earlier Property Management Inspection report of 17 May 2013.

4.14 In light of the evidence, we find that the Licensee’s comments about rentability refer to the condition of the Property and the maintenance requirements for it. The Complainant has perceived these comments to be a statement that the Property was not fit for tenanting, with an inference that this discussion may have been for the purposes of encouraging her to accept the offer for sale and purchase which she eventually did.

4.15 We do not find the Licensee’s comments to be misleading or deceptive in the light of this evidence. It is possible that the Complainant misconstrued the statements made by the Licensee.

4.16 The second issue which the Committee has considered is whether the Licensee undervalued the

Property, did not give marketing options and did not achieve a fair market value for the Property.

4.17 The evidence supports the Licensee’s statements that he researched the valuation by reference to comparable sales and the Capitalisation Method. The Licensee’s evidence is that there were no sales of L3 land within the preceding 6 months but that there were two older comparable sales of $606 per square metre and $616 per square metres. He states that he took an average of

$610 per square metre and then increased the average by 6.5% on the basis of the market

volatility to produce a figure of $650 per square metre producing a price of $490,000.00. The

Capitalisation Method of valuation confirmed that the highest value was the value of the land.

4.18 It is evident from the Licensee’s diary notes that he suggested a marketing approach to the Complainant to ascertain value which the Complainant did not wish to do, to avoid costs. The Complainant refutes this and contends that she was not given marketing options. It appears to the Committtee that a range of marketing options was not given to the Complainant in June

2013, because when the Licensee proposed going to the market or getting the offer from the potential purchaser, the Complainant instructed him to get the offer. We accept the Licensee’s evidence that if she had not, the Licensee would have offered a range of marketing options to her to consider.

4.19 The independent evidence of three valuers obtained by the Licensee retrospectively clearly indicates that a fair market value for the Property was achieved.

4.20 The third issue is the nature of the relationship between the Licensee and the purchaser of the

Property. The Complainant raises a concern about this and questioned the genuineness of the

upcoming property on the market which the Licensee informed her about when she signed the sale and purchase agreement.

4.21 The Licensee’s evidence is that the relationship was a purely business one and there is no

evidence produced by the Complainant to contradict this.

4.22 The Licensee has produced evidence of the potential upcoming sale of a property, which was listed on 16 July 2013 for auction on 8 August 2013. The sale and purchase agreement for the property was signed on 19 July 2013.

4.23 The Licensee has taken significant steps to address each aspect of the complaint comprehensively and the evidence has assisted the Committee to make our findings.

4.24 A further point to note is that the Licensee, the Agency principal, the Property Manager and the Complainant all state that there was a preference for personal reasons for communications to be by telephone rather than in writing, which explains why some of the communications are recorded in diary notes of telephone calls rahther than in email correspondence. The Licensee and Agency are based in City A and the Complainant in City B.

4.25 In order to make a finding of unsatisfactory conduct against the Licensee the Committee must be satisfied on the evidence before it that there was a breach of the Act or the Rules. In light of the evidence referred to above, we do not consider there was anything in the Licensee’s behaviour to justify a finding of unsatisfactory behaviour.

4.26 The Committee therefore determines to take no further action in relation to the complaint and accordingly dismisses it.

5. Decision

5.1 After conducting an enquiry 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 Committees 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 o anyr 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 to 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 unless an application for an order preventing publication has been made to the Real Estate Agents Disciplinary Tribunal (Tribunal). Such an application can only be made as part of an appeal to that Tribunal. In order to ensure publication of the decision does not take place it is important that you serve a copy of your application on the Authority. Publication of the decision will not take place until the Tribunal has made a decision on the application.

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

Deborah Ann Clapshaw

Deputy Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 25 September 2014