REAL ESTATE AGENTS BILL

FIRST READING SPEECH

HON CLAYTON COSGROVE
ASSOCIATE MINISTER OF JUSTICE

DECEMBER 2007

CHECK AGAINST DELIVERY

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Madam Speaker, I move that the Real Estate Agents Bill be now read a first time.

Madam Speaker, at the appropriate time, I intend to move that the Real Estate Agents Bill be considered by the Justice and Electoral Committee.

Madam Speaker, this Bill will provide long overdue protection to people buying and selling their homes. It will support the vast majority of good, honest professionals working in the real estate industry, who are unfairly tarred with the same brush as the last land shark who ripped someone off.

There is a minority in the industry, the land sharks, who indulge in dubious business practices and have caused great financial hardship and anguish for consumers. This is undeniable.

The risks this minority pose to ordinary Kiwi consumers are considerable. The risks include mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, misuse of information and fraud.

And when things go wrong, it is ordinary Kiwis and their families who pay the price.

The cost to victims who have been ripped off by careless or rogue agents can run into hundreds of thousands of dollars.

For most New Zealanders, their greatest asset is their home. Buying or selling a house is, for most people, one of the biggest financial transactions of their life.

That is why this Bill - which is about protecting consumers and good honest real estate professionals - is so important.

We are all aware of the succession of cases that have raised serious concerns in the community and in the media.

Consumers have turned to the Real Estate Institute of New Zealand's complaints and disciplinary regime when things went wrong, yet many feel they have been deprived of a fair hearing.

It is clear to the public that the current system lacks transparency, openness, accountability and independence.

The media has picked up on the public's concerns:

- The Southland Times: “It is almost a test of stamina to see whether the community can muster any sense of actual outrage, rather than just weary sourness, over the alleged misdealings of yet more sharkish real estate agents.”

- The Dominion Post: “It is time for a system that focuses on the customer, rather than on protecting patches and quashing competition.”

- The Independent: “Public outrage has been sparked by cases involving agents seeking to buy properties themselves, serious undervaluations, and the concealing of vital information from buyers.”

- And, the New Zealand Herald: “It – the Institute – has regarded its duty of self-regulation for the industry as about just one of those two words, self.”

Members of the public and honest real estate agents alike have complained to me about the way the Institute handles complaints. For example, the long delays in processing complaints, the poor quality of investigations, and complainants not being adequately informed.

The industry’s actions, on occasion, have been inexplicable and inexcusable.

Remember the Ottaway case? Where an agent was formally warned by the Commerce Commission and fined a paltry $750 by the Real Estate Institute for marketing a house as being “out of the hustle and bustle” without disclosing that an apartment block was planned for next door. The buyers estimate they lost $35,000 on the house’s value.

Yet this same agent went on to win several awards for being a top real estate agent and was hailed as being an example that the community should be proud of.

Remember the Institute taking action earlier this year against ‘The Joneses’ real estate firm for publicly saying that “New Zealanders pay way too much money for a fairly indifferent sort of service”. The charge was that The Joneses had brought the industry into disrepute by saying consumers deserved a better deal.

The Real Estate Agents Act 1976 gives the Real Estate Institute the privilege of self-regulation and the power to act as the gatekeeper for complaints. In essence, the Institute determines at which level a complaint will be dealt with, if at all.

According to the Institute’s own figures, between 2004 and 2006, the Institute received 507 complaints from members of the public. But only 9 of these were referred to the independent Licensing Board.

But it gets worse. The Institute recently advised me that it has also received a number of other serious complaints from bodies such as the Police and insurance companies, of which 140 were referred to the Licensing Board. Who knows how many hundreds of complaints were actually made to the Institute – by Police and the insurance industry – but not acted upon?

The Institute’s own Journal (Dec 4) said these complaints “tend to be at the more serious end of the scale." The need for openness and transparency in this sector cannot be understated.
The industry is seen by many as a closed shop, and that is not good enough.

Last year, I offered the Real Estate Institute the opportunity to come back to me with solid proposals that would deliver a complaints and disciplinary system that was independent, accountable, open and transparent. I suggested that they look at the Banking Ombudsman model, for example, which achieves those outcomes and is funded by industry, not the taxpayer.

Sadly, their proposals amounted to tinkering. They asked me to increase fines and set up in-house Regional Disciplinary Committees. But their proposals would not deliver transparency, independence or increased accountability, nor restore public confidence in this sector.

At that point I instructed the Ministry of Justice to provide me with advice on options for reform to deliver what the community is demanding of this industry.

The result is the Bill we are debating today, which has, at its heart, the protection of the Kiwi consumer.

The Real Estate Agents Bill will provide a modern regulatory framework to protect the consumer when buying or selling property, and will restore consumer confidence in the real estate industry.

The Bill will make the day-to-day business conduct of real estate agents more open and transparent, will raise the standards of conduct by industry members, and will support honest real estate professionals in their work.

The Bill addresses the need for consumer compensation for losses. At present, the Real Estate Institute keeps fines against dodgy real estate agents. They can pass the fine on to the victim, if they want to. But this does not happen.

The Bill:

- removes the regulatory functions from the Real Estate Institute of New Zealand as well as the compulsory requirement for agents to become members of the Institute.

- abolishes the Real Estate Agents Licensing Board and creates a new body, independent of the industry, called the Real Estate Agents Authority, to oversee compulsory licensing as well as complaints, disciplinary and enforcement processes and to provide information for consumers.

- introduces a fit and proper person test for people entering the industry, and requires ongoing professional training.

- sets up a public register of real estate agents, branch managers and salespeople to record any breach of industry standards and any disciplinary matters upheld by the Authority and Disciplinary Tribunal against the names of those involved.

- strengthens mandatory disclosure requirements - including possible conflicts of interest – and introduces a cooling off period for sole agency agreements.

- requires Agents to provide buyers and sellers with mandatory standard information before they sign a sale and purchase agreement.

The new Authority will have wide investigative powers and will be able to order a wide range of penalties and remedies – including censuring or reprimanding an agent, requiring the agent to apologise to the consumer, ordering a reduction of estate agent’s fees and imposing fines.

The Bill also creates a fully independent Disciplinary Tribunal to deal with serious cases. The Tribunal will have the ability to order the cancellation of licences, award compensation and impose fines.

It will not cost consumers anything to lodge a complaint, and they will not be required to hire lawyers because the Authority – through its Complaints Assessment Committee - will represent their case if it is referred to the Disciplinary Tribunal.

Penalties for criminal offences under the Bill are greatly increased. Dishonest agents will now face fines of up to $40,000 for individuals and $100,000 for companies.

The Bill does not make any change to the employment status of salespeople within the industry. The Government will review this provision after 5 years, to consider whether there is any justification for the real estate industry not being subject to the same employment law as other industries.

These reforms will not be funded by the taxpayer, but by the industry from the over one billion dollars in commissions it collects each year, through licence fees and levies.

Madam Speaker, in conclusion, I will quote from just a handful of the letters I have received since I foreshadowed these reforms:

"On behalf of Bayleys Realty Group, I would like to extend and reiterate our support for the requirement for change and improvement in the regulation of the Real Estate industry. Both John Bayley and I believe this is an important opportunity to bring positive change to the industry, which will in turn elevate levels of consumer protection and confidence in our sector" - Mark Grant, CEO, Bayleys Realty Group.

" Hopefully legislation will bring this disreputable industry into line by making it transparent and accountable … we look forward to seeing the real estate industry cleaned up for the benefit of the public" - Mary and Kevin Anderson

"…. this type of action is desperately required. Please clean up the industry before more people get ripped off" - Milan and Angela Erceg.

"I am a solicitor of some 43 years experience. I have witnessed the deterioration in standards in the real estate industry. Members of the public will welcome a revision of the Act with a view to improving the lot of the consumer" - Peter Miller, Barrister and Solicitor.

Madam Speaker, the current regulatory framework that allows self regulation of the industry is no longer fit for purpose.

The Bill protects consumers and the honest real estate professionals working in the industry through a robust and effective complaints and disciplinary system, and by delivering genuine openness, transparency and accountability.

The Bill cleans up this industry, providing an environment in which the vast majority of reputable real estate professionals can thrive.

Madam Speaker, I commend the Bill to the House.

FOLLOWING DEBATE

Hon Clayton Cosgrove: Madam Speaker, I move that the Real Estate Agents Bill be considered by the Justice and Electoral Committee.

Madam Speaker: The Question is, That the motion be agreed to.

ENDS

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