Complaint No C10632 [2016] NZREAA 36 (2 March 2016)

Last Updated: 29 November 2016

Before the Complaints Assessment Committee

Complaint No: C10632

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

Licensee One (XXXXXXXX) Licensee Two (XXXXXXXX)

Decision to take no further action

2 March 2016

Members of Complaints Assessment Committee: CAC410

Chairperson: Nigel Dunlop

Deputy Chairperson: Paul Elenio

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 25 September 2015 the Real Estate Agents Authority (the Authority) initiated an own motion complaint against Licensee One and Licensee Two. It is empowered to do so by section 12(1)(k) of the Real Estate Agents Act 2008 (the Act).

1.2. The Licensees are licensed salespeople under the Act.

1.3. The complaint relates to a property (the Property).

1.4. The complaint was laid following the publication of an article (the Article). The Article correctly stated that the Property had been sold on four occasions in three months, for an overall price increase of more than $150,000. The Licensees were involved in some of the transactions.

1.5. The concern was that the Licensees might not have fulfilled professional and legal obligations owed to the vendors and purchasers involved, having regard to the rapid turnover of the Property and its markedly escalating price.

1.6. The four transactions, all in 2015, were as follows:

i. Purchased at auction on 24 May for $475,000;

ii. Sold on 12 July for $522,500;

iii. Sold on 16 July for $559,000;

iv. Sold on 23 August for $628,000.

1.7. It is apparent therefore, that in the space of less than three months the price escalated by

$153,000 or some 32%. Two of the sales took place just four days apart. It was therefore reasonable to question whether the deals were fair to all the parties to the transactions. It was also reasonable to question the roles the Licensees played in the transactions, and whether their conduct was proper. The circumstances hinted at the possibility of an unprofessional link of some kind between the Licensees.

1.8. The Article noted that both Licensees had been suspended by their respective agencies while those agencies carried out investigations into the transactions, adding a further layer of suspicion that unprofessional conduct might have occurred.

1.9. Furthermore, the Article noted that the purchaser in transaction (ii.) and the vendor in transaction (iii.) was a company (the Company) of which Licensee One was a director.

1.10. The Licensees responded to the complaints against them in the course of the investigation initiated by the Committee.

Licens ee One

1.11. Licensee One denied any wrongdoing.

1.12. His involvement was in transactions (ii.) and (iii.) above. He had no involvement in the other two transactions.

1.13. Licensee One explained to the investigator that his involvement in the two transactions was as a private citizen, and not as a real estate agent.

1.14. He said that he was helping out his sister-in-law who wanted to purchase a property. He found the Property, which he regarded as eminently suitable for her. He signed up for the Property in the name of the Company or nominee, with the intention that either his sister- in- law or father-in-law be the nominated registered proprietor.

1.15. Licensee One is one of two directors and shareholders of the Company. The other director and shareholder is his wife. Licensee One told the investigator that he and his wife use the Company for their private real estate transactions.

1.16. Much to Licensee One’s surprise and consternation, his sister-in-law did not like the Property.

Finance on the purchase was subsequently approved, and so he considered that the

Company was legally obliged to go through with the purchase.

1.17. Licensee One, through the instrumentality of the Company, was naturally very keen to on-sell the Property as soon as possible, given that the Company was committed to the purchase. Ideally, he would on-sell with the settlement date on the sale coinciding with the settlement date on the purchase, in order to avoid the borrowing of money to pay for the purchase. He informed Licensee Two that he only wanted to break even on the sale of the Property.

1.18. The listing agent entitled to commission on the sale of the Property to the Company in transaction (ii.) was Licensee Two. Licensee Two was also the listing agent in respect of transaction (iii.), that is to say the sale of the Property by the Company. Until this time, Licensee One and Licensee Two did not know one another. They worked for different real estate franchises in different parts of the city.

1.19. In the event, the Company sold the Property for $36,500 more than it bought it. The extra amount covered the commission paid out on the sale and legal fees, and so broadly put the Company in a neutral position. It neither lost nor appreciably profited from having bought and then sold the Property. Furthermore, the settlement date for both the purchase and sale of the Property by the Company was 18 August, thus avoiding the need for the Company to fund the purchase.

1.20. As it so happened, one of the purchasers of the Property from the Company was a real estate agent who was not previously known to either Licensee One or Licensee Two. That licensee worked for agency X, unconnected to the firms for which Licensee One and Licensee Two worked.

1.21. In summary therefore, Licensee One asserted that he was not acting as a real estate agent when his Company bought and sold the Property. He was simply helping out a family member in a private capacity. He personally did not profit from his involvement. He was not entitled to commission on either the sale or purchase of the Property because he was not acting as a licensee in either transaction. It was Licensee Two who was the licensee involved in both transactions. The Company on-sold the Property to a presumably informed purchaser (another licensee) for an increase of $36,500 or 7% over the previous purchase price. He counts himself lucky to have extricated his Company from an awkward situation. Finally, he says that because he was involved in a private capacity, there were no professional

obligations on him to disclose that fact that he is a licensee to either the vendors or purchasers of the Property.

Licens ee Tw o

1.22. Licensee Two denied any wrongdoing.

1.23. He told the Committee’s investigator that on 6 July he was approached by one of the two owners of the Property who had acquired it at auction on 24 May (transaction (i.) in paragraph 1.6.). He had not been involved in that first transaction, as it had been sold through another firm of real estate agents. The purchaser informed him that due to a change of circumstances he and the co-owner wanted to sell the Property, despite having owned it for a short time.

1.24. Licensee Two said that he listed the Property on Sunday, 12 July, and on the same day it was inspected by Licensee One. An agreement for sale and purchase was entered into that same day. Licensee One’s sister-in-law inspected the Property the following day, but decided it did not suit her. The agreement for sale and purchase became unconditional on 15 July as a result of finance being confirmed. That same day Licensee One instructed Licensee Two to sell it. Licensee Two put it on the market that day after obtaining the consent of the owners to do so. That consent was necessary because the purchase by Licensee One (the Company) was yet to settle.

1.25. That very night Licensee Two showed the Property to one of its eventual joint purchasers (in transaction (iii.)). This person was a real estate agent from another firm, acting in her personal capacity, but she did not inform Licensee Two of this fact.

1.26. The agreement for sale and purchase for transaction (iii.) was signed the next day, with the consent of the registered owners of the Property (the purchasers in transaction (i.)/vendors in transaction (ii.)).

1.27. Licensee Two was not involved in the subsequent sale of the Property (transaction (iv.)). It was listed by agency X for whom the real estate agent vendor worked. (The Committee has sighted documentation indicating that the connection between the agent vendor and her agency was disclosed to the final purchaser, although that disclosure did not relate to either of the licensees under investigation).

1.28. In summary, Licensee Two says that he was the listing agent for transactions (ii.) and (iii.). He says that there was nothing untoward about the transactions. He had no prior contact with his clients for either transaction before May. He earned the commission to which he was entitled and nothing more. He fulfilled all his professional duties. His clients in both transactions were happy with the services he provided them.

2. What we decided

2.1. On 27 October 2015 the Complaints Assessment Committee (the Committee) considered the complaint and decided to inquire into it under section 79(2)(e) of the Act.

2.2. On 16 February 2016 the Committee held a hearing on the papers and considered all the information gathered during the inquiry. It should be recorded that the usual third member

of the Committee recused himself from the case on 8 February 2016 without having read or commented on the investigation report.

2.3. The Committee has decided under section 89(2)(c) of the Act to take no further action against either licensee on the complaint.

2.4. The Committee does not consider either Licensee One or Licensee Two to have been guilty of misconduct or unsatisfactory conduct with respect to the Act and the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (the Rules).

3. Our reasons for the decision

3.1. Amongst other things the Committee obtained evidence from the following persons in the course of its investigation:

• Licensee One’s father- in- law;

• Licensee One’s branch manager;

• One of the licensed salespersons involved in transaction (iv.);

• One of the joint purchasers in transaction (iii.)/vendors in transaction (iv.).

3.2. Additionally, the Committee obtained copies of a wide range of documentation, including:

• Listing agreements;

• An appraisal;

• Agreements for sale and purchase;

• Multi offer forms;

• Companies office documentation;

• Certificates of title;

• Transaction reports.

3.3. The initial documentation the Committee received prior to commencing the investigation ran to 15 pages, and the report from the Committee’s investigator ran to over a 100 pages.

3.4. The Committee has carefully considered all the evidence. It has found that evidence to be entirely consistent with the responses of Licensee One and Licensee Two.

3.5. The Committee is satisfied that:

a) Neither Licensee, nor their respective firms, were involved in any way with transaction

(i.), by which the Property was acquired for $475,000 in May.

b) The purchasers in transaction (i.) decided that they no longer wanted the Property.

c) They listed the Property with Licensee Two, who sold it for $522,500 to the Company, the entity through which Licensee One was purchasing the Property for his sister-in- law; Licensee One did not act as a real estate agent in relation to that purchase, nor the subsequent sale.

d) Licensee One’s sister-in-law did not want the Property, and so it was listed through

Licensee Two and sold for $559,000.

e) Thereafter, Licensees One and Two had nothing further to do with the Property; it was sold through agency X, with whom they have no connections, for $628,000.

f) All four transactions were regular and untoward, albeit that the price of the Property

escalated in the short period of three months by over 32%, from $475,000 to

$628,000.

g) Until July, Licensee One and Two were unknown to one another.

3.6. It is to be observed that:

a) Licensee One did not owe any duties under the Act or the Rules to a client or customer, because in relation to the two transactions in which he was involved, he was not undertaking real estate agency work, as that term is defined in section 4 of the Act, and so did not have any clients or customers in relation to the transactions.

b) In relation to transaction (ii.) in which the Company bought the Property, Licensee Two’s clients were the vendors, and the Company was his customer; there is no indication that Licensee Two failed to fulfill his professional obligations to his clients and customer.

c) In relation to transaction (iii.) in which the Company sold the Property, Licensee Two’s client was the Company, and the purchasers were his customers; there is no indication that he failed to fulfill his professional obligations to his client and customers.

d) 45% of the $153,000 increase in the price of the Property during the three month period occurred in the last transaction in which Licensee One and Two had no involvement whatsoever (the increase being $69,000).

3.7. It would appear therefore, that the rapid on-selling of the Property for escalating prices reflected the changed needs of at least two of the parties to the transactions (the vendors in transactions (ii.) and (iii.)), and the pressured housing market.

4. Your right to appeal

4.1. If you are affected by this decision of the Committee, you may appeal in writing to the Real Estate Agents Disciplinary Tribunal (the Tribunal) within 20 working days after the date of this decision s111.

4.2. For further information on filing an appeal, read Guide to Filing an Appeal at Mi ni stry of

J usti ce -Tri bunal s ( ww w. justi ce. g ov t. nz/ tri bunal s ).

5. Publication

5.1. At the Committee’s discretion, the decision will be published without the names or identifying details of the Property, the two licensees and third parties.

5.2. The Authority will publish the Committee’s decision after the period for filing an appeal has ended, unless the Tribunal receives an application for an order preventing publication. The Authority will not publish the Committee’s decision until the Tribunal has made a decision on the application.

5.3. Publishing the Committee’s decision supports the purpose of the Act by ensuring that the disciplinary process remains transparent, independent and effective. The Committee also considers that publishing this decision helps to set industry standards and that is in the public interest.

Signed

Nigel Dunlop

Date: 2 March 2016

Appendix 1: Relevant provisions

The Real Estate Agents Act 2008 provides:

Section 89 Power of Committee to determine complaint or allegation

(1) A Committee may make one or more of the determinations described in subsection (2) after both inquiring into a complaint or allegation and conducting a hearing with regard to that complaint or allegation.

(2) The determinations that the Committee may make are as follows:

(a) a determination that the complaint or allegation be considered by the

Disciplinary Tribunal:

(b) a determination that it has been proved, on the balance of probabilities, that the licensee has engaged in unsatisfactory conduct:

(c) a determination that the Committee take no further action with regard to the complaint or allegation or any issue involved in the complaint or allegation.

(3) Nothing in this section limits the power of the Committee to make, at any time, a

decision under section 80 with regard to a complaint.

Section 111 Appeal to Tribunal against determination by Committee

(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 the notice given under section 81 or 94.

(2) The appeal is by way of written notice to the Tribunal of the appellant's intention to appeal, accompanied by—

(a) a copy of the notice given to the person under section 81 or 94; and

(b) any other information that the appellant wishes the Tribunal to consider in

relation to the appeal.

(3) The appeal is by way of rehearing.

(4) After considering the appeal, the Tribunal may confirm, reverse, or modify the determination of the Committee.

(5) If the Tribunal reverses or modifies a determination of the Committee, it may exercise any of the powers that the Committee could have exercised.