Forewarned is forearmed in the real estate game

18:43, Oct 05 2012

Homeowners and buyers should be aware of possible pitfalls when dealing with real estate agents, writes Catherine Harris.

Imagine finally selling your house and then finding out as you toast your success that your real estate agent wasn't really an agent at all.

That happened recently to a couple in the South Island town of Gore. For a $500 selling fee, Ewen McLeod took would-be purchasers through homes, put his number on advertising and drew up sales and purchase agreements. But he never had a licence as required by law.

This month in Gore District Court, McLeod was found guilty of operating as an unauthorised agent and is yet to be sentenced.

Real Estate Agents Authority (REAA) chief executive Kevin Lampen-Smith said unlicensed trading was a serious offence because consumers don't have any comeback through the authority's complaints process.

Legislation covering real estate agents was tightened in 2008. Most agents are following good practice but John Gray, president of the Home Owners and Buyers Association, says there is "always the odd rogue out there".


"There are many real estate agencies who are putting in a lot of effort to educate their agents as to the new world that exists now . . . but unfortunately there are those who are finding it hard to break old habits."

If you're buying or selling a house, here are some things to watch out for:


Some of those old habits lie in the murky areas of disclosure and misrepresentation. It's no longer good enough for an agent to blithely parrot what a vendor says.

Last year two Nelson agents were found wanting by the regulator because they mistakenly advertised a property as being architecturally designed - a fairly common complaint.

Gray also finds some agents can still be a bit "over-exuberant" about aspects of construction that they don't know enough about.

"Primarily that's plaster homes, and we see agents advertising the fact they have a [ventilation or drainage] cavity, when we find in most cases the agents wouldn't know what a cavity looked like."

Previously, an ethical agent who suspected the property had failings might have advised the would-be buyer to "get the place checked out". But under the new rules, an agent has only to suspect that something is wrong and they are obliged to ask the vendor about it - and tell prospective buyers.

And if an agent suspects that the vendor is keeping something back, they must actually end the deal.

Real Estate Institute Wellington spokesman Euon Murrell says agents are being more cautious.

Undue pressure

A frequent complaint to the REAA is from clients who claim they were pressured to sign without time to get legal advice.

"One of the things that we're seeing is agents preparing sales and purchase agreements in advance with conditions struck out and little stickers put on," says Gray. "They present these contracts as almost a fait accompli to prospective purchasers and we are warning purchasers not to accept the additional conditions or the strike-out of existing conditions in the standard sales and purchase agreements just because that's the way it's presented."

Commissions and licences

Don't be caught like the couple from Gore - check your agent has a current licence. The REAA has a register - see if there is any history of recent disciplinary action on record.

Remember that your agent gets nothing unless they find you an offer that goes unconditional. This is an important point because sometimes your agent might introduce you to a buyer but you can't settle on a price. Result: no commission.

But if that buyer comes back to you months later with a further offer, bypassing the agent, and an unconditional offer results, you DO have to pay the agent commission.

Having said this, there are plenty of cases where the agent messes up their side of proceedings.

Take the case of the agent who gave a vendor's security number to her non-agent friend so he could open the door. She didn't bank on the eagle-eyed owner who saw the whole thing and complained his privacy had been breached.

That might seem minor, but how about the agent who inserted clauses into the sale and purchase agreement without the vendor's sign-off? The agent claimed that the clauses were to the vendor's advantage but it was still a major no-no.

The odd bad egg

Even today, after the industry has mostly been cleaned up, there is a rising number of complaints made to the REAA. The REAA was set up after the Government lost confidence in the industry's self-regulating model.

The authority sifts through the serious complaints and sends the worst to its big brother, the Real Estate Agents Disciplinary Tribunal. Between November 2010 and June this year the tribunal heard 60 cases and has another 60 waiting.

Both bodies have serious clout. Agents can lose their job, their licence, or be suspended for up to two years. Individuals can be fined up to $30,000, plus compensation of up to $100,000.

One of the worst cases of misconduct was heard in July. The agent used a relation or associate to buy properties and then onsold them at a higher price, secretly pocketing the difference.

Not only did he fail to disclose that fact to the real vendors and purchasers, but he then inflated the prices on the later sales and purchase agreements to deceive the banks into offering 100 per cent finance to the buyers.

He forged signatures, inserted material, and in one case, had his client sign two blank sale and purchase agreements, forcing the client into a second purchase without his knowledge.

In this way, the agent and his associates reaped $189,000 from their offences, while the agent still got thousands in commissions.

One of the things that might have helped some of the luckless purchasers was getting an independent valuation of the property. They may then have become aware the agent had inflated the price.

John Gray suggests getting a registered building surveyor to do an evaluation first, and then send it to your valuer. And don't use the agents' recommendation on inspectors or other professionals, he adds, "because they'll direct them to building inspectors who won't be quite so critical of the property".

Gray says there's an element of personal responsibility involved. "It's about doing due diligence. Anyone out there shouldn't accept at face value any information provided by an agent and they need to take personal responsibility for gathering the information and looking beyond the shiny bathrooms and shiny kitchens to the heart of the house."


Apart from a licence, there are several things you should expect of your agent:

A copy of two approved consumer guides to ensure you know the main ins and outs – before you sign any agreement.

Disclosure of any conflict of interest. An agent working for you, or someone related to them, can offer to buy your property but there are certain procedures they must follow, including your consent.

You can also expect full disclosure of rebates, discounts and commissions your agent may receive. If you agree to pay for advertising and your agent receives a discount on it, you should know about it, even if you can't share in it.

You should also know how the commission is made up. Usually it's a set amount, a percentage of the selling price and GST. You don't have to pay anything unless your property gets an unconditional offer. If you're a purchaser, the agent is ultimately working for the vendor. If you want someone to work for you, get yourself a "buying agent" – a new but growing trend in the industry.

Waikato Times