Real estate industry abandons print media!

by Alistair Helm in


OK - this headline is not quite true. But I couldn't help myself to take the opportunity to headline an article that I never foresee occurring, a least not anytime soon.

So the real headline is

Real Estate Industry Authority abandons print media

The news is that the Real Estate Agents Authority (REAA) the body that has under the mandate of the Real Estate Agents Act (2008) undertakes the licensing of the industry has after 4 years in existence decided (very smartly in my view) that there is no logic in requiring that prospective agents advertise as a Public Notice their intention to seek registration as a licensed real estate agent in local newspapers. Instead they are offering the facility on their own website. This is completely logical as their website also hosts a directory of all licensed agents in the country.

It always seemed somewhat illogical to me at the time to seek to make a public notice in a newspaper as a means to challenge people's right to oppose applications to be an agent. At the time I offered for Realestate.co.nz to host such notices given the contextual audience.

The move will also no doubt please prospective agents who in addition to the costs of the course and the license application (c.$3,000+ in total) were required to spend what in the case of Auckland was around $500 on 2 adverts which I would challenge anyone to say they had ever read.

The losers will be the print media companies who will face an estimated loss of c. $100,000 of advertising revenue per annum - so continues a steady and pervasive decline, however those media companies can still count on the more than $75,000,000 of spend the real estate industry overall will spend this year on print media. A sum that seems slow to transition to digital and thereby pushes further out my long awaited headline of "The Real Estate Industry abandons print media!"


Do agents warrant such front page public censure?

by Alistair Helm in , ,


Waking up to the headline of the Herald on Sunday this morning, I was confronted with the story that must be the worst nightmare for a real estate agent Agent put pressure on widow to sell!

Real estate agents rely on their reputation, as there is very little else to differentiate the services of one agent to another or one real estate company to another, and in this world where the right to be forgotten is wholly unworkable the real estate agent involved in this matter is likely to suffer significantly greater loss than the $2,000 he was fined by the Real Estate Agents Authority.

It was in fact the scale of the fine that peaked my interest and stirred me to look a little bit deeper into this matter as the authority has the jurisdiction to fine an individual licensee up to $10,000 and up to $20,000 in the case of a company - Bayleys, the company in question was fined just $1,500 in this case. Objectively then it is clear this case is by no means at the most extreme end of the criteria of unsatisfactory conduct. It should be noted that the finding in this case was unsatisfactory conduct not the more serious finding of misconduct for which the fines are up to $15,000 for an individual or up  to $30,000 for a company

I have faith and belief in the role and effectiveness of the Real Estate Agents Authority as clearly, through their complaints procedure they have found the licensee agent and the company guilty and certainly the complainant did have due cause to complain. My concern though is with the reporting of this case in the media which I think does not in anyway match the scale of the complaint.

The readership of the Herald on Sunday as the newspaper publisher so glowingly highlighted the other day is 371,000, add to that an even larger audience online and the fact that this article is already the most read article of the day; and I would judge that this is effectively a public flogging and humiliation of an agent far more severe than is fairly justified.

 

Lets examine the facts which I have done so that transparency can aide an objective evaluation. (The full details of the decision by the Complaints Assessment Committee can be read here).

Firstly this headline and front page article is not actually news. The auction to which the complaint relates was held in March 2012, the complaint was heard and adjudicated upon on the 29th November 2013 and the fine was imposed on the 6th March. The article is published here on the 1st June 2014. So the newspaper has been sitting on this article in reserve for 3 months waiting for a quiet-news-day when they could roll this out in an attempt to fill a void as there is nothing remotely newsworthy (in the context of current) about this - it was news on the 6th March.

 


The complainant made 6 complaints against the company and 7 complaints against the agent 

 

The complaints against the Licensee can be summarised as follows: 

 1. The Licensee had a conflict of interest when assisting the Complainant to obtain finance in September 2011: 

The complainant approached the licensee in November 2011seeking to borrow $10,000 to undertake renovations on her home. The licensee advised  the Complainant that this was not possible, but provided the Complainant with contact details of a mortgage broker who could possibly assist her in obtaining finance - appropriate and professional advice

Complaint dismissed

2. The Licensee failed to allow the Complainant to run an onsite auction with her preferred auctioneer Mr. S:

The Complainant signed a listing authority which featured an onsite auction with the preferred auctioneer in December 2011, however that authority was cancelled by the Complainant some hours after signing it.

Complaint dismissed

3. The Licensee applied pressure to the Complainant to list the Property for sale with the Agency:

There was no evidence of pressure. The agency listing agreement was signed by the Complainant after a 24 hour period had elapsed during which the Complainant had reviewed and consider the agreement and the auction as part of Bayleys “Big Call” auction campaign.

Complaint dismissed

4. The Licensee presented offers to the Complainant from potential purchasers which were in the region of $370,000.00 (being the Government Valuation) when instructed by the Complainant not to do so:

The licensee presented offers of between $367,000.00 and $405,000.00 and in the words of the Complaints Assessment Committee report were “therefore below the Complainant's price expectations (but) was beyond the control of the Licensee and no fault of the Licensee.

Complaint dismissed

5. The Licensee arranged to sell the Property to a personal acquaintance:

The Complainant alleges that the eventual buyer of the Complainants house was a personal acquaintance. The Complaints Assessment Committee received statements that disproved this as the eventual buyer had only met the Licensee at open homes

Complaint Dismissed

The final two complaints were upheld as unsatisfactory conduct and reading the evidence it is clear that the agent failed to act at all times in the best interest of his client, especially considering the age and emotional state of the client.

6. The Licensee applied undue pressure on the Complainant to sale the Property to the purchaser following the auction; 

7. The Licensee’s conduct, during the course of selling the Complainant’s Property and as a result of the outcome, caused the Complainant pain and stress and reduced her financial security for her retirement years;

 


The 6 complaints against the Agency: 

1. The Agency had a conflict of interest in assisting the Complainant to obtain finance in September 2011 to carry out renovations on the Complainant’s property (the Property):

Complaint dismissed based on the same evidence for the Licensee complaint

2. The Agency did not allow the Complainant to run an onsite auction with her preferred auctioneer Mr. S:

Complaint dismissed based on the same evidence for the Licensee complaint

3. The Agency did not provide the Complainant with adequate time to sell her property:

Complaint dismissed based on the due process was followed in the signing of the agency agreement and the professional manner shown by members of the Bayleys team and the auctioneer particularly at the auction.

4. The Agency’s auctioneer failed, prior to the auction, to read a statement prepared by the Complainant pointing out the Property’s selling points:

Complaint dismissed as the auctioneer presented the property in a professional manner to the ultimate benefit of the client

5. The Agency charged the Complainant an excessive commission:

Complaint dismissed based on the very clear detail provided in the listing agreement as to the commission and the ultimate sale

6. The Agency sold the Property for $451,000.00 when it had a true value between $480,000.00 - $520,000.00, thereby causing the Complainant substantial financial loss:

The Licensee appraised the property for sale in November 2011 fro between $440,000 and $470,000, it sold for $451,000. The figure if $520,000 was presented by the Complainant as a value estimate based on the view of another real estate agent who valued the property at $550,000

Complaint dismissed

 

The Agency was though found guilty  of unsatisfactory conduct  as “on balance, the Committee (took) the view that the Agency had ample evidence of the distress of the Complainant and the actions of the Licensee. In these circumstances the Committee view(ed) that that the Agency should have intervened and properly supervised the Licensee." 

 

This brief summary of this case seeks to present a fuller picture surrounding this case rather than the truncated version presented in the headline story.

The fact is that the transaction of a property is an emotionally charged undertaking, even more so in the case of an auction. The process needs to be given the care, time and consideration by all concerned - both the agent and client. It is also logical that if the client is elderly and / or emotionally upset that the process should be handled with appropriate care. This was done by Bayleys and their team, however the agent in question did not apply the necessary care, and through the requirement of the oversight, Bayleys are found to be guilty on this matter.

This case is being appealed as per the article in the paper - as to the decision of the penalty, as opposed to the determination of the Complaints Assessment Committee.

The agent in this complaint Mark Birdling has only this one disciplinary complaint against him. He has been in real estate for over 9 years and has over that time sold many properties for which I am sure there have been many satisfied customers. He has been in my view wrongly singled out for headline-grabbing attention when the other 34 such offences of misconduct or unsatisfactory conduct in 2013 have been largely ignored. Sure the media have a responsibility to report what they see as stories and news of importance to their readers. However you have to seriously ask, is the headline story in today’s paper appropriate to the conduct or is it as so often happens and as I contend, a cheap media grabbing story where the short term profit motives of the media company rides rough-shod over the career and reputation of the real estate agent concerned.


The inappropriateness of using the emotions of fear and greed to prospect

by Alistair Helm in


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Many years ago, just after I had bought my first house I was visited by a salesperson who on the front door step started to tell me and my wife about the spate of burglaries in the area. The emotion he instilled in us was one of fear.

He used approach this to convince us to sign up for a burglar alarm that we could barely afford. This tactic taught me a valuable lesson – be wary of self-interested groups playing on your emotions.

The other day a leaflet was dropped into our letter box from a local real estate firm – its emotional message was not couched around fear but around greed!

Here is the leaflet:

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and on the reverse: 

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The text of the message:

The Reserve Bank wants to dampen the Auckland Market. What does this mean for you as a home owner?

Strategically you can use this to your advantage. Consider this… sell now on a higher market with a long settlement, so you are in a position to buy in a lower market next year.

If you are considering a move then call us urgently and we will explain how to ride this wave with success.

On second thoughts maybe the emotional tactic is two fold – fear at the impending crash, which is likely to follow this action by the Reserve Bank and greed at the opportunity to sell now, buy later ‘short-sell’ tactic. All we need is the herd instinct to complete the three main emotional motivators of stock markets and business behaviour.

So here we have a case of future forecasting by local real estate agents. Next year according to them the market is going to be ‘lower’ – the inference being in terms of prices.

Big call!

There is no sound statistics to back this up and therefore there is no basis for a real estate agent to make such an assertion. Selling a service based on possible gain from market movement is neither professional nor ethical. Selling based on emotion is not appropriate.

I propose to bring this to the attention of the Real Estate Agents Authority as in my mind it breaches their Code of Conduct 6.4 “A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client”.

 


Industry Authority issues warning over 'Quick flick' auctions

by Alistair Helm in ,


REAA.png

It all started earlier this year as the active Auckland property market came alive and auctions became the guaranteed process to sell every property or so it seemed. At the same time as buyers became more desperate agents decided to shorten marketing period from the usual 3 to 4 weeks to a matter of 2 to 3 weeks.

Then of course we had that much publicised  'Quick flick' auction with a marketing campaign of 33 hours roundly defended by the real estate industry.

Whilst the industry locked arms and stated that they were merely responding to the demands of the market and serving the needs of their clients - the sellers of properties, the Real Estate Agents Authority (REAA) in their role as overseers and licensors of the industry reflected on this behaviour and when questioned in the NZ Herald article stated:

That the situation raised "significant concerns".

"The practice is not one that the authority encourages and one that we would strongly urge any vendor or purchaser to take legal advice about prior to entering into," she said.

"From a vendor's perspective, an issue is raised as to whether (they) could receive the best possible result from such a limited marketing campaign.

"For any short marketing or sales programme, the vendor should have been given adequate time to ensure they are well informed about the decisions that are being made and the potential consequence of those."

Over the past month the REAA has reflected further and just this week they have sent out  guidance to all licensees on this issue. In an email sent to the industry last week they stated:

There has been some media attention recently about property’s having very short advertising periods and being sold within days of being listed. While this may be a sign of the times in some markets around the country it does raise some concerns for us. We are concerned that the marketing period may not be long enough to achieve the best results for the vendor and that prospective buyers may not have enough time to do their due diligence and get legal and technical advice. As licensees you must point out these risks to both the seller and the potential buyers, and of course you must continue to meet all of your obligations under the Act and the Code of Conduct.
— Real Estate Agents Authority - Sep 2013 Update

I am pleased to see this communicate from the governing body of the industry. They have not made changes the code of conduct but I see this as a valuable communication especially as they make the point that licensees must consider the needs of buyers to ensure they have the appropriate time to undertake due diligence. Too often we only hear the needs of sellers being expressed by agents.


Incentivising agents to list properties for Auction

by Alistair Helm in ,


Agent with cash in pocket iStock_000016530240XSmall.jpg

The real estate industry keeps telling us that auctions are the best way to sell a property in today’s market. They reiterate that Nationally 20% of properties are sold by auction and in Auckland that number is 40%.

Leaving aside whether those numbers are truly reflective of a successful sale at the fall of a hammer at an auction, there is another side to this Pied-Piper-like behaviour by agents to encourage sellers to choose auctions. It is simple and yet not as well reported as the “success rate”.

Real Estate agents are being financially incentivised to persuade vendors to go for an auction.

I have been provided with information that shows that a real estate agent listing a median priced house in Auckland today could earn an extra $2,000 by gaining the listing as an Auction than as a standard Sale by Negotiation. The extra $2,000 would be in addition to a standard earning of $5,300. That is, in effect a 40% bonus incentive to list a property as an Auction.

Here are the facts.

The sales commission payable by the vendors for a median priced Auckland property today would be $20,528 inc GST based on a $600,000 sale price.

It is likely that on average the real estate company will pocket 40% of this commission ($7,140) and then distribute the balance ($10,710) to the agent or agents involved in the successful sale.

If the agent who lists the property, also successfully sells the property with no other agents acting for or introducing a buyer then the sole agent will pocket the full $10,710.

However, if as does occur especially in larger companies and as a function of the heated property market, buyers are introduced to properties by eager agents, then these agents described as  "selling agents" are entitled to a split of the commission with the listing agent. 

This is where the real estate company leverages that incentive. If you list a property as as a standard 'for sale by negotiation' or as simply a priced property and the subsequent sale involves a separate 'selling agent', then you as the listing agent pick up just 50% of the commission – you take home $5,355, and the selling agent picks up $5,355.

If however you persuade the vendor when you list a property to take it to an Auction sale (or a Tender) then you as the listing agent will receive not 50% of the commission but 70% - allowing you to take home $7,497 with the selling agent getting just $3,213. Therefore as an agent listing a property as an Auction in a way secures you a higher guaranteed income than as a standard listing.

Now there is nothing wrong, illegal or unprofessional with companies providing sales people with incentives to encourage performance or direct outcomes that suit the company – that is human nature and how commerce works and has done for centuries. However when it comes to selling a home there is a deeper principle of conduct that should be paramount above and beyond the personal financial motivation of agents and their bosses. After all their clients as vendors of houses look to agents to advise them on how to sell as vendors are not that aware of the best approach.

That is why the Real Estate Agents Authority, the governing body that oversees, regulates and administers the industry in their latest update to their Code of Conduct specifically included the requirement for agents to disclose to their clients any financial benefit they may receive as a result of a choice in how to sell their house.

Clause 10.5 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 states:

Before a prospective client signs an agency agreement, the licensee must explain to the prospective client how choices that the prospective client may make about how to sell or otherwise dispose of his or her land or business could impact on the individual benefits that the licensee may receive.

Are agents actively informing vendors when they recommend an Auction that they may be receiving a benefit in recommending this approach to selling? – who knows, it is a legal requirement of all agents to make sure they do.

 


When is an auction not an auction?

by Alistair Helm in , ,


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The Real Estate Institute of NZ stated in their April property report press release that “Auctions are progressively becoming the favoured sales method in certain centres”. They went on to say that properties sold by auction represented just under 1 in 5 in April. In Auckland which they described as “dominating the auction market” 37% of all sales were by auction.

In Auckland their figures stated that 1,045 properties were sold by auction last month. As we all know Barfoot & Thompson is the largest real estate company in Auckland representing around 40% of the market. As their advertisement in a recent property magazine states they reported 593 successful auctions in April. That would mean that Barfoot & Thompson represented 56% of all Auckland auctions which clearly shows that this is without doubt their favored method of sale.

 

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However if you read into the advert a little deeper, the headline figure seems to be somewhat misleading.

The facts state that only 410 properties sold under the hammer. To this final total of 593 “Successful Auctions” they have added 15 properties sold before the auction; 25 properties sold on the auction day (but not under the hammer) and a further 143 sold after the auction (and not on the day of the auction).

I was interested to see if I could find a definition as to what is an auction in the context of real estate sales. I chose to turn to the government body tasked with regulating and administering the industry – The Real Estate Agents Authority. In their auctions information sheet accessible as a download pdf document on their website they state:

 

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My clear interpretation of this is that a property that is sold in a private agreement between a buyer and a seller after the “passing in” of a property at an auction is not an auction sale, despite the fact that the property was marketed as an auction. The same goes for properties sold before an auction. A successful auction is defined and assumed to be an unconditional sale on the fall of the hammer in an open process.

Therefore rather than the claimed 593 “Successful auctions" by Barfoot & Thompson in April, the reality was that just 410 successful auctions were achieved in the month. It further means that of the 707 completed sales which had been marketed as auctions in the month – 58% were sold successfully at the auction; whereas more than 4 in 10 of the properties marketed as auctions did not sell “under the hammer”.

The fact is that only Barfoot & Thompson publish this degree of insight into their auctions, I congratulate them for their openness. One only wonders as to the number of real estate companies who submitted statistics to the Real Estate Institute stating for auction sales in April making up the total of 1,045; as to how many actually sold under the hammer as a true auction. Maybe, just maybe, the statement made by REINZ should be restated as “Property marketed as auctions  is becoming the favoured marketing strategy in certain centres”.