Tony Brazier
The Press - Wednesday 26 May 2010
What's it Worth?
Inevitably as a real estate salesperson, one is drawn into a topic of conversation around 'the market'. If talking to someone that you have bought or sold for in the past the question often arises as to what you think their property is now worth.
Herein lies a trap nowadays under the new Real Estate Agents Act 2008. Whereas in the past the salesperson would rattle off his/her best questimate, without the benefit of property analysis, now they need to tread more carefully as to the reason the inquirer is asking. If the property owner wishes to put the property on the market then the answer has ramifications to their decision to sell, however if they are just curious then the salesperson is best to make it clear that at this stage their answer is only an opinion, and not an appraisal.
Many salespeople, especially those who, like ourselves, are dealing with repeat and loyal clientele, have for years given their appraisals by phone or quick written/email reply, albeit done with the best of knowledge available to them. This is true also of many established residential salespeople who have been around long enough to be selling for the people they sold the house to in the first place. Sometimes many times over.
These days are gone. Under the new Act and its accompanying Code there is a strongly inferred requirement to provide an appraisal, in writing, for every property that is listed for sale. Upon first glance at the wording of the Code (of Professional Conduct) S9.5 it should be read that an appraisal must definitely be in writing although it makes no mention that there must be an appraisal for every listing. However, when read in conjunction with S9.8 where a salesperson must use the appraised price to show the likely commission on every listing it infers that there should be an appraisal each time there is a listing. Therefore it is as yet unclear what the REA Authority's interpretation of things will be if this is ever challenged in spite of a recent seminar run by REAL ITO, our Industry Training Organisation, who interpret it that all listings must definitely be appraised in writing.
This has major ramifications for the way some companies like to operate. If, as is being promoted, there is an expectation that every property that goes to market must have previously been appraised in writing with a market range and price accompanied by relevant and provable statistics, then we may no longer see the process of "letting the market decide the price". This has been a very useful tool for all who go to auction, for example.
In the industry some of us have been scratching our heads a little as to the harm that ever came from not appraising everything in writing but then again we have not been privy to the problems like the adjudicators have. One would have to assume from the change in legislation that there have been some problems with vendors going to market, using whatever method, when they are not 100% clear on the actual market value of their property. If this is all true it would seem in the future that no vendor's property will be marketed without that vendor firstly knowing the likely price before even choosing a method by which to market.
This changes things dramatically when salespeople suggest going on the market at no price, to let the feedback from buyers establish the price later. It also affects how preparation of Reserve Price is established for auctions as the likely price will have to be given long before the vendor even chooses the auction process, which as indicated above was the previously accepted way of establishing Reserve Prices.
Vendors will obviously remain free to go to market with No Price Marketing, Tender, Auction, Neg Over or traditional marketing with a price, etc but possibly only after they are fully aware of what their chosen salesperson actually expects they will achieve in the end.
One would have to assume, if this is their interpretation, then the REAA's intention is pure. To insist a vendor makes decisions on marketing process and price, with full knowledge of what the salesperson actually thinks their chances are of getting a particular price. This does away with any claims of enticement (to get unrealistic prices) by being left thinking that a price is achievable where it is not justifiable by facts.
It does not however allow the flexibility that has been available (in not pricing a property,) by using only current feedback that is available from the buyers in the market today. Appraisals work partly on historical data and markets can be shifting sands. Even valuers have to, at times, rely on information that is three months old.
Having said this, with prior knowledge as to a likely selling price, a vendor in still free to ignore the appraisal, choose their method and have a go anyway. I suppose the flip side of all this is that the salesperson is also protected from later being accused of over-pricing the property, being able to now go back and point to the original appraisal.
The transparency sought under the new Act is showing itself in different ways as we bed it in. None of us will be absolutely sure of the Authority's interpretation of issues like this until someone is challenged. Bags not, first.
Footnote:
Tony Brazier has worked in the property industry for 23 years and owns a real estate company selling and managing residential and investment properties.
This columns information is of a general nature only. Readers should seek professional advice before acting upon it.
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