Real Estate Agency is now the highest risk business in this country

An opinion by Mike Pinkney
It is the only type of business that can be sued for costs and/or damages at no cost or risk to the complainant.   And the same risks apply to all licensees, be they agency owners or salespeople.   And it can happen for years after the event.
All the complainant has to do is lodge a complaint with the Real Estate Agents Authority (REAA). From there on, the total cost of all legal proceedings, including the lawyers who will prosecute the licensee, and the costs of the tribunal, are free to the complainant.
Currently there is no provision for the licensee to be compensated or for any costs to be recovered from a complainant, even if the complaint is found to be frivolous and/or vexatious..  In other words there is no downside for the complainant.
Prior to this situation being created by the new legislation (Real Estate Agents Act 2008), the Real Estate Institute (REINZ) used to receive complaints where the complainant wanted costs and/or damages. On being told that REINZ did not have the power to award them, many would go no further.
One vendor took an action against my company for seling his property too cheaply, despite that we received six wroitten tenders and achieved the vendoe=rs valuation.   The matter was resolved in a pre-trial settlement conference but not before my legal bills were over $100,000 - high courts are not cheap!   The venors costs would have been similar and that was a huge disincentive to most members of the public.    As a point of interest, the court appearance was six years to the day from the closing date of the tenders.
Now such people will no longer give up because they can pursue the claim with the potential of collecting damages and/or costs, plus having the commission refunded to them.   All without cost or risk to themselves. How good is that?
In addition to the genuine and justified complaints, we also have the frivolous, the vexatious and the malicious complaints (many of us have experienced these), but now we have huge potential for a new type of complainant who will be able to wreak havoc. They are:
The Opportunists
The opportunities for making claims are now virtually endless and anyone who has been in real estate agency for more than a short time will know that if the opportunity is there, people will take it.
In my experience (40+ years) I can quote plenty of examples of frivolous, vexatious and/or malicious claims but now the risk has been increased beyond measure.
I could write pages about this and the risks, but will limit my comments to one simple comparison to the previous legislative regime, and one which most agents understood.
Before that however I will emphasise one change which, from an agency company point of view is excellent, and that is that the accountability now can be placed on the licensee salesperson (other than for the refund of the commission). Previously, with very limited exceptions, the agency/company carried the risk.   This is a great improvement.
However, and it is a big however, one problem with this situation is that if there is a complaint against a salesperson, the REAA is not obliged to notify the agency although it now says it will.   Even so, the salesperson could respond with evidence and comments that could prove very harmful to the agency.   Well advised agencies cover themselves with a clause in their “employment” contract with the salesperson that provides that the agency must immediately be advised if the salesperson receives anything from the REAA.   That is all very well while the salesperson is still with the agency.   But the communication to the salesperson could be long after they have left the agency.   And if the relationship between the salesperson and the agency was less than friendly, the salesperson may feel no compunction at maliciously providing damaging information to the REAA.
So, regarding the comparison with the previous regime.    It has always been the case that quality real estate salespeople would frequently and genuinely know of owners who would not list their properties for sale but would sell if the right offer came along.
On that basis many skilled, conscientious, professional and ethical salespeople did introduce potential buyers to unlisted properties and made sales.  The result was happy vendors and happy purchasers.  We knew the risks.  The main one being that if the parties got together and arranged a private sale the law did not allow us to claim a commission.   However, if a deposit was collected then the salesperson got paid and the commission could not be claimed back by the vendor without further very good reason and legal action through the Courts.
That has now changed.   If the proper processes are not followed, or if the vendor claims that the process was not followed, then the commission may have to be returned and there is no downside to the vendor in making such a claim.
It is the agency that collects the commission from the vendor, therefore it is the agency that would have to repay it. The fact that the salesperson, who has been paid their share, may no longer be with the agency is of no concern to the claimant.
The salesperson may be called to account for their conduct by the REAA but the cost of return of the commission could only lie with the entity that received it, the agency.
While thinking about this, it would pay to remember the words of a wise counsel who told me years ago:
            “It is not what you say or do (or don’t do) that will get you. 
 It is what they say you said or did (or didn’t do) that will get you”  
So, doing it properly and being scrupulously honest (both bottom line) are simply not enough. You will have to be able to prove beyond reasonable doubt that you did it right.  And sadly this is where so many people in this industry fall short.
Honesty, integrity and doing the right thing alone will not protect licensees and their families.   They must prove they did it right.   There are already plenty of examples of REAA decisions where the complainant and licensee give differing accounts of what took place and the decision has to be made on "probabilty."  This opens up huge opportunities for vendors and buyers to collude and portray their version of what happened.  There is nothing unique about this in any dispute situation, except that there is simply no cost and no risk, and no downside to the complainant.
Finally, for how long do licensees carry the risk? The statute of limitations on issues of contract law is six years from the time when the problem or "alleged problem” is or might reasonably be discovered.    You can work out how long that might be.
No other businesses (or individuals) are as vulnerable as real estate agencies (or licensees).   For more on protecting yourself as a salesperson, or agency, please feel free to contact me.
Mike Pinkney FREINZ AAMINZ                          021-78-3030
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