The new REAA/REINZ Agency Agreement is a disaster for real estate agents

 
Introduction
 

1          Sole Agencies are not exclusive – part 1
2          Sole Agencies are not exclusive – part 2

3          General Agencies do not protect the agent
4          Solicitors will advise their clients on how to avoid real estate commissions

5          Introduction and instrumentality do not protect the agent

6          The new form will be compulsory for all agents

7          Sole Agencies can get agents in trouble
8          Agents cannot offer additional protections to clients           
9          The 6 month cut-off is unfair and unnecessary
10        Agents do not need to disclose the names of interested parties
11        Agency Agreements should be a work in progress
12        What is missing from the REAA/REINZ Agency Agreement?

13        This is a radical and dangerous change to real estate agent's duties
and finally
14        Why does the REINZ no longer accurately report the AGM

15        Why I retain my membership of the REINZ

Note:   15th March 2015

This material is being updated as time permits and comments are received.   In other words it is a work in progress.
If I am wrong in any respect I invite comment so that I can correct the information.   Please let me know.  

Thank you.
 
Introduction
 

As an experienced agent and arbitrator I have developed the practice of considering what can go wrong and taking precautions to avoid this wherever possible.     Surely this is something all agents practice when drafting conditions in sale and purchase agreements.

 

As such I am commenting on what can go wrong for an agency appointed under the terms of the above Agency Agreement and expressing my dismay that the protection of the rights of agents are so weakened as to be almost worthless in most situations.   In fact the most significant and robust protections have been removed.

 

I have tried to engage with the Real Estate Institute on these issues including giving them a paper on the problems with the Agreement but they have rebuffed me at every turn.

 

For that reason I have expressed some of the issues on this page.

 

Continued at the end of this page so you can get to the important bits.

 
 

1          Sole agencies are not exclusive – part 1

 

The terms of the REAA/REINZ Agency Agreement do not require the vendor to cancel existing agencies.

 

Therefore existing agencies (normally “general”) can and will continue to run during a sole agency.

 
Therefore the sole agency is not exclusive.
 

While many general agencies provide a 7 day cancellation period, this is not always the case and in fact I am aware of agents using fixed term general agencies of as much as 90 days.

 

This being the case, the vendor would not be able to cancel the general agency/s even if they wanted to.

 

As a point of concern, any agent signing a vendor to a sole agency where one or more general agencies are in effect would place the vendor at risk of more than one commission.

 

Note:   I suspect that this situation has come about because of the Commerce Commission's stand against "anti-competitive" business practices.    If so, it seems ridiculous to me.   There are so many commercial situations where consumers and providers enter into contracts that provide exclusivity.    I believe that they should focus on underhand practice (including real estate agents) rather than banning sensible commercial arrangements.

 
 

2          Sole agencies are not exclusive – part 2

 

The terms of the REAA/REINZ Agency Agreement do not prohibit or restrict the vendor from signing additional general or sole agencies during a sole agency.

 

There are therefore many reasons why an agent could and would sign up a general agency during the term of a sole agency.

 

They could then show the property, negotiate the terms of a sale and secure the property in a number of ways, all without being caught by the provisions of the sole agency.

 
Two possibilities are:
 

i)          Sign up an option so the sale and purchase agreement is not entered into until after the termination of the sole agency.

ii)         Sign up a sale and purchase agreement that is conditional until after the expiry of the sole agency then void the sale and purchase agreement and sign up a new one.

 

There are other ways of having a sole agency and other agencies running together and many reasons why it is beneficial to the vendor to have multiple agencies.

 

Why would an agent enter into a conjunctional arrangement with a sole agency when they can have the whole commission?

 
Sole agencies do not provide exclusivity. 
 

3          General Agencies do not protect the agent

 

The REAA/REINZ Agency Agreement general agency can be cancelled at any time on 7 days written notice.    This renders it almost worthless where a vendor and/or purchaser set out to avoid the introducing agent’s commission.

 

This is because once an interested purchaser has been identified the vendor can cancel the appointment, wait 7 days and sign through a “friendly” agent.

 

In fact the situation is worse in that even if the parties have signed a conditional agreement with the introducing agent, they can mutually agree to void it then re-sign (even if the terms are identical) with another agent leaving the introducing agent with nothing and no rights.

 

The loss of entitlement in this and other circumstances was confirmed by the REINZ lawyers.

 

4          Solicitors will advise their clients on how to avoid real estate commissions

 

Solicitors are duty bound to act in the best interests of their clients.   Failure to do so places them at risk of a charge of negligence.

 

Once they realise how easy it is to avoid, or more precisely, reduce agent commissions, they have a duty to advise their clients on how to do it.     

 

Consider a vendor who is in financial trouble and has to sell their residential home or rural property.   Possibly they have used the home as collateral for money to invest in a business or their farm.

 

The property sells, subject to a conditional agreement, and the commission is – say $50,000.

 

The vendor’s solicitor could contact the purchaser’s solicitor and offer them a $10,000 reduction in the price if they will avoid the agreement and re-sign an otherwise identical agreement with another agent.    The solicitor could then redraft the agreement in the name of another agent, with whom he/she has established a business relationship, and that agent, who has done nothing, could charge $5,000. 

 

The vendor would save $35,000.   The original agent who has done all of the work would have no claim whatsoever and would get no payment.

 

This is possible because the REAA/REINZ Agency Agreement provides that an agent is only entitled to commission if they get an agreement signed and it goes unconditional.

 
Can it happen – of course.
 
Will it happen – absolutely.
 

Note: the second agreement would have to take precautions if a sole agency were still in effect but that is very simple.

 

5          Introduction and instrumentality do not protect the agent

 

Historically introduction and instrumentality have been the primary basis for claims of entitlement for real estate agents although causation was generally required to succeed for such a claim.

 

That valuable protection has now effectively gone for those agencies who use the REAA/REINZ Agency Agreement.

 

This is because the terms of the Agency Agreement provide that for an agent to be entitled to commission the agent must get the sale and purchase agreement signed and that agreement must go unconditional.     Introducing the purchaser, being instrumental in creating the sale etc count for nothing.  An agents skills at promoting property, identifying the buyer and negotiating the terms of a sale are no longer respected and count for nothing if the parties (buyer and seller) collude to cut out the introducing agent.

 

The exception and only value of introduction (and instrumentality) is that any private sale of a residential property would still be liable for commission if signed within 6 months of the end of the agency appointment.    This is potentially easy to circumvent if the parties can delay the signing of the sale and purchase agreement, or go to a friendly agent with a lower commission.

 

 

6          The new form will be compulsory for all agents

 

The REINZ have stated as recently as in the February/March Institute Journal that the new form is voluntary at present.   (Page 18)

 

They have stated on a number of occasions that they want all agents to have to use it and this can be enforced by the REAA.

 

7          Sole Agencies can get agents in trouble

An agent securing a sole agency where there is an existing general agency (or more than one general agency) must advise the vendor that they could be liable for two commissions if the property is sold by the agent holding a general agency.   Failure to do so renders the sole agent in breach of Rule 9.10 (Professional Conduct and Client Care Rules 2012).

 

See:     Agents can’t give vendors additional protections

 

8          Agents cannot offer additional protections to clients        

The stipulation of the REAA is that the REAA/REINZ Agency Agreement must not be altered in any way.

 

This means that additional clauses for the protection of the vendor are not able to be included in the terms of an agent’s appointment.

 

As an example, the Agency Agreement used by my clients includes a clause that states that if during their sole agency the property is sold by a company holding a pre-existing general agency, the sole agent will not be entitled to or claim a commission.  

 

A very simple clause that is considered by the REAA as an excellent protection for the consumer.    This has been in use by some of my agency clients for a number of years with no problems yet we cannot offer this, or other additional protections to a vendor if we use their (and the REI’s) document.

 

9          The 6 month cut-off is unfair and unnecessary

It sounds OK, real estate agents losing their rights to commission after 6 months (residential sales) where the parties arrange a private sale, but who benefits?

 

In short, agents rights have historically been based on being the cause of the sale and this right was not limited by time but by the continued significance of the agent remaining as the cause.

 

While the purported aim of this further loss of agent’s rights is to protect consumers from abuse by agents claiming commissions months after they had done their job, it is poorly thought out, and completely unwarranted.

 

If the cut-off had been based on 6 months from the agent’s last involvement with the parties it could have possibly been argued to have had some justification.   But to cut off their rights 6 months from the end of an agency is arbitrary and will in some cases be manifestly unjust.

 

While it is not the usual case, there are occasions where, for whatever reason, a sale and purchase agreement does not eventuate for an extended period after introduction.   There can be numerous complicating factors around getting the parties together and in fact it might suit the parties to not enter into a binding agreement at the outset.

 

Likewise, where an agreement has lengthy conditions, as the 6 month deadline approaches, the parties (perhaps with the advice of their protective lawyer/s) let the agreement lapse, wait out the remainder of the 6 months then enter into a replacement agreement. Same result, a professional, proficient, ethical hard-working agent is deprived of their reward for no good reason.

 

The number of cases where the time between the agent doing their job and the sale takes place after a period of more than 6 months is not great and if an agent feels sufficiently aggrieved they should have the right to take the case before a judge to prove their entitlement.   And, as in all such cases, the agent takes on costs and the risk of losing, i.e. further cost.    That is the legal system we work under and which respects the laws of contract.

 

So what possible justification is there to justify the further loss of agent’s rights?     There are none.

 

Note:   Rural agents get a 12 month protection.

 

10        Agents do not need to disclose the names of interested parties

Rule 9.11 (Professional Conduct and Client Care Rules 2012) requires an agent to give the names of any customers they have dealt with and for whom they might claim a commission if that party purchases the property.

 

This is now superfluous because introduction and instrumentality are no longer the basis of entitlement to commission.

 

There is now no reason to pass on the names of interested parties.    The principle of no sale/no fee removes all rights of the introducing agency (except in the case of private sales).

 

11        Agency Agreements should be a work in progress

For as many years as I can remember most documents in my business have been in MSWord.    This includes the most important document of all, the Agency Agreement.

 

Every time we learnt anything of significance we could adapt the Agency Agreement to cover that issue.   This information came from civil cases, the REI Journal, my experience on the REINZ Investigation sub-committee, District Committee and Council as well as what I observed in arbitrations I conducted.

 

One minor personal issue related to a property we were unable to sell.   At the end of our agency the vendor still owed us a relatively small amount of money but we sent them an invoice as was our practice – not that we generally let this situation develop.

 

The vendor turned feral and, to be difficult, demanded that we return the sign that had been outside their property.   Their argument being that they had paid for it.

 

I immediately added a clause to our Agency Agreement that stated that sign charges were for the preparation, erection and removal of the sign which at all times remained the property of my company.

 

A simple precaution that removed any confusion and adversely effected no-one.

 

I believe that we should all operate our businesses this way and that the ability to do this is an advantage of not belonging to a group that prints thousands of forms at a time making updates more challenging.

 

For more information check out the article published in the REINZ Journal, August 2011.   BTW, I was the author.   http://www.pinkney.co.nz/index.php?page=dead-or-alive

 

12        What is missing from the REAA/REINZ Agency Agreement?

The reality is that there are many provisions that should be in the document both for the protection of the vendor client and the agent as well as ensuring a buyer is well informed.

 

The form my clients use has a list of questions about the property which the vendor should be asked.   Their answers then form part of the property information to be passed on to a purchaser.

 
A simple process that benefits all parties.
 
 
13        This is a radical and dangerous change to a real estate agent's duties
 
It is an established principle that a vendor appoints a real estate agent to find a buyer for their property and that is what the agent gets paid for.     Often when the agent has found a buyer, the agent will prepare, negotiate and secure signatures to a sale and purchase agreement.     Agents do not get paid for that process.    In fact in complex agreements it is not unusual for solicitors to carry out this responsibility and this did not and should not impact on the fact that the agent has done their job, i.e. found the buyer.
 
The new REAA/REINZ radically changes this.   With the exception of the very weak situations where introduction does give the agent protection, and they are minimal (read the rest of this paper) the effect of the new Agency Agreement is that an agent's entitlement to commission will be dependent the agent getting a sale and purchase agreement, signed irrespective of who found the buyer.   
 
 
14        Why does the REINZ no longer accurately report the AGM

In November 2014 I flew to Christchurch to attend our AGM.    At that meeting I proposed a motion that the Agency Agreement be modified so that the terms of a sole agency would provide exclusivity.    The motion was debated and lost which is democracy in action.

 

Unfortunately the AGM minutes do not record my motion but show the REINZ version of what they think is relevant.     Even if their report was accurate it would concern me greatly because I believe that formal motions are sacrosanct and all Members are entitled to know what was voted on.

 

Sadly their version of what I said is not accurate and does not even refer to the point of the motion.

 
This is not, in my opinion, democracy in action.
 
Note:    The Chair conceded at the 2015 AGM that the 2014 Minutes would be amended to include the motion.
 
 
15        Why I retain my membership of the REINZ
 
I became an Associate of REINZ in 1974 and a Fellow in 1995.   I have been a District Committee Member, District President and National Councillor (for 9 years).
 
I am proud of my Institute and what it does and has done for it's Members throughout these years.      I haven't always agreed with it but that has never been a reason to leave.   In fact it is the time to speak up and demonstrate loyalty as a Member as I have repeatedly done.
 
Right now I believe that the Institute is not only wrong with the new Agency Agreement but that it is going to be an unmitigated disaster for agents and the profession in general.    Some of the changes may not be at the REINZ instigation and they may not (and should not) agree with them.   If this is the case then we should support them and help them fight against unwarranted and unfair constraints.
 
My commitment is to keep speaking up against this document and in particular the mandating of its use.   If it is mandated it will be almost impossible to reverse the compulsion and exceedingly difficult to make changes even when everyone agrees they are necessary.  I will stop my campaign either when the form is satisfactorily changed and compulsion rejected or when someone convinces me that I am wrong.      So far no-one has pointed out even one error in my comments but plenty of people have told me that I am correct.
 
I still invite anyone to advise where I am wrong because I am open to this possibility and will happily apologise and withdraw.   
 
 

Introduction - continued

 

I can assure everyone reading these that I have done my research and consulted with many knowledgeable people including three leading agency law/conveyancing specialist lawyers/barristers.    They all totally agree with me on every point I have raised with them.   In fact they are horrified at what the industry is doing to itself.

 

The REINZ have said that part of the justification is to protect vendors from legal battles and being charged more than one commission.   This is a nonsense.

 

I have been monitoring cases of agent vs vendor through the courts for many years as part of my arbitration practice and estimate that there are as few as one case a year over the last 30 years.   Just in case I have missed some, please make an allowance that this is not quite correct.   There could have been 2 or 3 some years. 

 

As for vendors being liable for more than one commission, this was successfully dealt with for many years by it being compulsory for REI Members to go through a disputes process before they could pursue a claim from a vendor.   It was almost unheard of for an agent to pursue the vendor after arbitration and in the only case I know of it was done because of the fraudulent actions of the vendor’s solicitor.

 

The REINZ has stated to me that it will not re-introduce compulsion of this type because it will lose Members.   I believe that Members who would leave over this type of process are not people worthy of the REINZ and that they would probably attract the interest of the REAA.

 

Now the REINZ has introduced an adjudication process which I believe to be third rate – and that is not a reflection on the ability of the adjudicator.   It refers to the process.

 

I invite all and any comments and questions on anything to do with these comments or the matter in general particularly if I am wrong in any aspect.