Identify legal and ethical requirements of property sales to complete agency work CPPDSM4008A Part 1
Identify legal and ethical requirements of property sales to complete agency work CPPDSM4008A – CPPDSM4008A – Part Part 1 These materials were prepared by The Real Estate Institute of Queensland. © 2015 The Real Estate Institute of Queensland
Version Number: 16.1 Effective: 5 January 2014 This work is copyright. Apart from any use permitted under the Copyright legislation, no part may be reproduced without prior written permission from REIQ .
Disclaimer
No part of this material may be regarded or relied upon as legal advice. Although reasonable care has been taken in the preparation of this material, recipients:
must not alter their position or refrain from doing so in reliance upon this material; and should seek independent legal advice with respect to t he matters traversed in this material.
The Real Estate Institute of Queensland Limited (“REIQ”) does not accept or underta ke any duty of care relating to this
material. Further, REIQ shall not be liable in any respect to any recipient of this material for: (a) any loss of profit, loss of goodwill, goodwill, loss of production, loss of opportunity, opportunity, business interruption, interruption, loss of revenue, loss
of contract, loss of anticipated savings or revenue, loss or corruption of data or loss of privacy of communications; or (b) any consequential, special, special, indirect, exemplary or punitive damages, of any nature, arising out of or in connection
with this material, even if such loss or damage was reasonably foreseeable or the recipient had informed the REIQ of the possibility of the recipient incurring that loss or damage. This material has been prepared prepared based on information available at the time time of its publication. REIQ does not represent or warrant that the material is error free, complete or accurate.
Identify legal and ethical requirements of property sales to complete agency work CPPDSM4008A – CPPDSM4008A – Part Part 1 These materials were prepared by The Real Estate Institute of Queensland. © 2015 The Real Estate Institute of Queensland
Version Number: 16.1 Effective: 5 January 2014 This work is copyright. Apart from any use permitted under the Copyright legislation, no part may be reproduced without prior written permission from REIQ .
Disclaimer
No part of this material may be regarded or relied upon as legal advice. Although reasonable care has been taken in the preparation of this material, recipients:
must not alter their position or refrain from doing so in reliance upon this material; and should seek independent legal advice with respect to t he matters traversed in this material.
The Real Estate Institute of Queensland Limited (“REIQ”) does not accept or underta ke any duty of care relating to this
material. Further, REIQ shall not be liable in any respect to any recipient of this material for: (a) any loss of profit, loss of goodwill, goodwill, loss of production, loss of opportunity, opportunity, business interruption, interruption, loss of revenue, loss
of contract, loss of anticipated savings or revenue, loss or corruption of data or loss of privacy of communications; or (b) any consequential, special, special, indirect, exemplary or punitive damages, of any nature, arising out of or in connection
with this material, even if such loss or damage was reasonably foreseeable or the recipient had informed the REIQ of the possibility of the recipient incurring that loss or damage. This material has been prepared prepared based on information available at the time time of its publication. REIQ does not represent or warrant that the material is error free, complete or accurate.
CONTENTS PART 1 - REAL ESTATE AGENCY
16
UNIT 1 - AGENCY PRACTICE
16
[1.1] Contract of agency
16
[1.2] Other legal responsibilities of an agent
17
[1.3] Learning activity 1
17
PART 2 – PROPERTY OWNERSHIP
18
UNIT 2 - PROPERTY
18
[2.1] Tenure
18
[2.1.1] Fee Simple (Freehold)
18
[2.2] Old System Title
19
[2.3] Torrens System
19
[2.3.1] State guarantee of title [2.4] Community Title Scheme
20 21
[2.4.1] Types of developments
21
[2.4.2] Ownership of common property
22
[2.5] Foreign Ownership of Land Register Act 1988
22
[2.6] Learning activity 2
22
UNIT 3 - CERTIFICATE CERTIFICATE OF TITLE
23
[3.1] Titles registration and the land and water registries
23
[3.2] The title search
24
[3.3] Which matters affect title?
26
[3.3.1] Title encumbrances
26
[3.3.2] Covenants
26
[3.3.3] Easements
27
[3.3.4] Creation of an easement
27
[3.3.5] Caveats
28
[3.3.6] Mortgage
28
[3.4] Non-title searches
29
[3.5] Verifying ownership
29
[3.6] Learning activity 3
31
UNIT 4 - PROPERTY OWNERSHIP
32
[4.1] Real and personal property
32
[4.2] Real property rights
32
[4.3] Chattels and fixtures
33
[4.4] Doctrine of fixtures
33
[4.5] What are the different types of property ownership?
33
[4.5.1] Co-ownership of land
34
[4.5.2] Joint tenants or proprietors
34
[4.5.3] Creation of joint tenancy
34
[4.5.4] Tenants in common
35
[4.5.5] Creation of tenancy in common
35
[4.6] Subdivision of land
35
[4.7] Types of property
35
[4.7.1] Residential property
36
[4.7.2] Commercial property
36
[4.7.3] Industrial property
36
[4.7.4] Rural property
36
[4.7.5] Businesses
36
[4.7.6] Vacant land
37
[4.8] Learning activity 4
37
PART 3 – RESPONSIBILITIES OF SALES PERSONNEL
38
UNIT 5 - CONSUMER LEGISLATION
38
[5.1] Queensland legislation
38
[5.2] Real estate licensing
38
[5.3] Appointment of agent
42
[5.3.1] Requirements to be appointed to act as an agent [5.4] Representations to consumers
54 54
[5.4.1] Misrepresentation of property
54
[5.4.2] Agent’s silence of known information
57
[5.4.3] Representations in advertising
57
[5.4.4] Photographic representations
57
[5.5] Fair Trading Act 1989
58
[5.6] Commonwealth legislation
58
[5.6.1] Competition and Consumer Act (Australian Consumer Law) 2010
58
[5.6.2] Two-tier marketing
61
[5.7] Privacy Act 1988
62
[5.7.1] Australian Information Commissioner
63
[5.7.2] Rules of collecting information relevant to real estate transactions
63
[5.7.3] Use of fair, lawful and unobtrusive means to collect personal information
64
[5.8] Do Not Call Register Act 2006
64
[5.8.1] Do Not Call Register
64
[5.8.2] Telemarketing calls
64
[5.8.3] Exemptions
64
[5.8.4] Minimum standards for all telemarketing calls
64
[5.8.5] Specific information must be provided by telemarketers
65
[5.8.6] How to check if someone is on the register
65
[5.8.7] Administration List Washing Account
65
[5.8.8] Agency database
65
[5.8.9] Inferred consent
65
[5.8.10] Express consent
65
[5.8.11] Best practice recommendations
66
[5.9] Learning activity 5
66
PART 4 – PROPERTY SALES
68
UNIT 6 - INTERPERSONAL SKILLS
68
[6.1] Communication skills
68
[6.2] Questioning techniques
68
[6.3] Negotiation skills
69
UNIT 7 – METHODS OF SELLING
69
[7.1] Methods of selling property
69
[7.1.1] Private treaty
69
[7.1.2] Public auction
70
[7.1.3] Tender
70
[7.1.4] Criteria for deciding the best method of sale
70
[7.2] Best listing sources
71
[7.3] Open for inspection
71
[7.4] Private seller (for sale by owner)
71
[7.5] Private ‘For Sale’ signs
72
[7.6] Buyers
72
[7.7] Referrals
72
[7.8] Letterbox cards
72
[7.9] Door knocking
73
[7.10] Door knocking manners
73
[7.11] Buildings under construction
73
[7.12] Local Government building application
73
[7.13] Advertising for listings
74
[7.14] Being observant
74
[7.15] Letters to absentee landowners
74
[7.16] Neighbours
74
[7.17] Relatives and friends
74
[7.18] Schools
75
[7.19] Clubs
75
[7.20] Church
75
[7.21] Walk-ins
75
[7.22] Telephone enquiries
75
[7.23] Database usage
75
[7.24] Learning activity 6:
76
UNIT 8 - REAL ESTATE MARKET ANALYSIS
76
[8.1] Accessing market data
77
[8.2] Inspecting the property
77
[8.3] Where to obtain additional information
77
[8.4] Databases
78
[8.5] Marketing plan
78
[8.6] Market price of property
79
[8.7] Market value of property
79
[8.8] Legal definition of market value
80
[8.9] The role of the real estate agent
81
[8.10] Recommended pricing terminology
82
[8.11] Transactions that do not reflect market value
82
[8.12] Stigmatised property
83
[8.12.1] Dealing with stigmatised property
83
[8.12.2] Is the stigma a material fact?
84
[8.13] Permission to disclose
85
[8.14] Making a disclosure to a consumer
85
[8.15] Agency disclosure policies
86
[8.16] Learning activity 7
86
UNIT 9 - THE COMPARATIVE MARKET ANALYSIS (CMA)
87
[9.1] Comparative market analysis
87
[9.2] Advice about market sale price
88
[9.3] Representation of price of property
88
[9.4] What a quality CMA should include:
90
[9.5] Price ranging
90
[9.6] Over capitalised property
91
[9.7] When should a CMA be used?
92
[9.8] Research and property appraisal
112
[9.9] Recent sales or rentals of similar properties
112
[9.10] Information sources
113
[9.11] Data from these sources may include:
113
[9.12] Consequences of incorrect pricing
113
[9.13] Sellers with unrealistic expectations
113
[9.14] Agent’s duty to inform seller
114
[9.15] Highest and best use
114
[9.16] The importance of the title search
115
[9.17] The Registered Plan search
115
[9.18] Complete property description
116
[9.19] The Competition and Consumer Act (CCA) and property pricing
116
UNIT 10 - AGENCY LISTINGS
117
[10.1] Soliciting for listings
118
[10.2] Learning activity 8
120
PART 5: SALES PROCESS
121
UNIT 11 - THE SALES PROCESS
121
[11.1] Listing properties for sale
121
[11.2] Disclosure to buyer
122
[11.3] Agent’s duty of full disclosure
124
[11.4] The Law of Contract
124
[11.5] Deposit monies and the contract of sale
125
[11.6] Receiving and holding of deposit monies
125
[11.7] Receiving deposits
125
[11.8] Types of deposit
125
[11.9] Release of deposit money
126
[11.10] Agent’s entitlements
126
[11.11] Payments to the seller
126
[11.12] Disputes over deposit money
126
[11.13] Learning activity 9
127
UNIT 12 - AGENTS IN CONJUNCTION
128
[12.0] Introduction
128
[12.1] Learning activity 10
130
UNIT 13 - BENEFICIAL INTEREST
130
[13.0] Introduction
130
[13.1] What is beneficial interest?
130
[13.2] Associate
131
[13.3] Disclosure of beneficial interest to seller
132
[13.4] Learning activity 11
133
UNIT 14 - FEES, CHARGES AND EXPENSES
134
[14.1] Advertising costs
134
[14.2] Fees and expenses
134
[14.3] Commission
135
[14.4] Repayment of excess commissions
136
[14.5] Secret commissions
136
[14.6] Client bonuses
137
UNIT 15 – DOCUMENTATION REQUIRED PRIOR TO CONTRACT SIGNING
137
[15.1] Definition of property
137
[15.2] Residential property
137
[15.3] Non-residential property
137
[15.4] Agency practice issues
138
[15.6] Property Occupations Form 7
138
Disclosure of beneficial interest to seller by property agent or property auctioneer
138
[15.7] Property Occupations Form 8 Disclosure to prospective buyer
140
[15.8] Benefits received by any party associated with the transaction
142
[15.9] Contract Warning Statement
145
[15.10] Cooling –off period for residential sales
145
[15.11] Buyers may waive or shorten the cooling-off period
146
[15.12] Shortening the cooling-off period
146
[15.13] Termination of contract during the cooling-off period
146
APPENDIX A - Learning activity answers
147
FORMS Property Occupations Form 6 with REIQ Residential Sales Schedule and Essential Terms and Conditions Property Occupations Form 7 Disclosure of beneficial interest to the seller by a property agent or auctioneer Property Occupations Form 8 Disclosure to prospective buyer – What we must tell you before you sign Realworks form: EF072 Conjunction confirmation by fax or email Realworks form: EF082 Employment authority
Course Objectives The learning material of this unit is designed to assist the candidate to gain competency in the module, CPPDSM4008A – Identify legal and ethical requirements of property sales to complete agency work, and to:
Develop knowledge of property sales
Develop knowledge of the sales process
Identify the roles and responsibilities of sales personnel
Unit descriptor
This unit of competency specifies the outcomes required to meet the core legal and ethical requirements associated with property sales. This includes awareness of the legislation relating to property sales, the role and responsibility of agency personnel in property sales, the administration of sales transactions and the completion of sales documentation. The unit may form part of the licensing requirements for persons engaged in real estate activities in those States and Territories where these are regulated activities. Application of the unit
This unit of competency supports the work of licensed real estate agents and real estate representatives involved in property sales. It addresses the requirements for licensed real estate agents and real estate representatives to be able to identify and explain relevant legislation, roles, responsibility and documentation. Element
Performance Criteria
1 Develop knowledge of property sales.
1.1
Types and characteristics of land tenure systems are identified in line with legislation.
1.2
Legislation regulating the sale of properties is identified in line
with agency practice. 1.3 1.4
Information provided on the Certificate of Title is checked for accuracy against the agency agreement. Types of property ownership are identified in line with
legislation.
2 Develop knowledge of sales process.
1.5
Legal requirements relating to the sale of property are identified and interpreted in line with legislation and agency requirements.
1.6
Requirements of ethical and conduct standards and consumer protection and privacy legislation in relation to the sale of property are identified in line with legislative requirements and agency practice.
2.1
Need for demonstrating effective communication strategies in establishing rapport with clients, determining client needs, providing accurate advice, addressing client concerns and dealing with conflict is identified in line with agency practice.
2.2
Listing opportunities are identified and assessed in the context
of legislative requirements and agency practice. 2.3
Methods of selling property are identified and assessed in the
context of legislative requirements and agency practice.
2.4
Sale authority agreements are identified, completed and
stored in line with legislative requirements and agency practice. 2.5
Strategies for marketing property are identified and assessed in the context of legislative requirements and agency practice.
2.6
Purpose and terms of statutory statements required to be prepared by sellers for the sale of property and businesses are identified and interpreted in the context of legislative requirements and agency practice.
2.7
Contractual documents relating to the sale of property are
identified, interpreted, completed and stored in line with legislative requirements and agency practice.
3 Identify roles and responsibilities of sales personnel.
2.8
Process for settling the sale of property is identified in the context of legislative requirements and agency practice.
2.9
Processes for receipt, recording, banking and release of deposit moneys are identified in the context of legislative requirements and agency practice.
3.1
Relationship between salesperson and agency principal is identified in the context of legislative requirements and agency practice.
3.2
Roles and responsibilities of agent in sale of property
including general disclosure requirements are identified, interpreted and assessed in the context of legislative requirements and agency practice. 3.3
Restrictions on agents purchasing property and sanctions for
violations of restrictions are identified, interpreted and complied with in line with legislative requirements and agency practice. 3.4
Controls and sanctions on secret commissions are identified in the context of legislative requirements and agency practice.
3.5
Entitlements and commissions for agents are identified and calculated in the context of legislative requirements and agency practice.
Required skills and knowledge
This section describes the essential skills and knowledge and their level, required for this unit.
Required skills •
Ability to communicate with and relate to a range of people from diverse social, economic and cultural backgrounds and with varying physical and mental abilities
•
Analytical skills to interpret documents such as legislation, regulations, contracts, contract notes, sale authority documents and certificates of title
•
Computing skills to access agency and resource databases, use standard software packages, send and receive emails, access the internet and web pages, and complete and lodge standard documents online
•
Decision making and problem solving skills to analyse situations and make decisions associated with the sale of property
•
Literacy skills to access and interpret a variety of texts, including contracts; prepare general information and papers; prepare formal and informal letters, reports and applications; and complete prescribed forms
•
Negotiation skills required for interacting with sellers and buyers
•
Numeracy skills to calculate and interpret data, such as deposits, entitlements and commissions
•
Planning, organising and scheduling skills to undertake work-related tasks, such as preparing correspondence, organising deposits and arranging property inspections
•
Research skills to identify and locate documents and information relating to the sale of property
•
Risk management skills to identify risks associated with discussing sale and purchase options with sellers and buyers
•
Self-management skills to organise own work, deliver quality customer service and effectively manage competing demands
•
Teamwork skills to work effectively in and promote communication between sales, property management and administrative teams in an agency environment
•
Verbal communication skills required for face-to-face communication with real estate sellers and buyers.
Required knowledge and understanding •
Agent entitlements and commissions
•
Contract law in the real estate industry, including agent liability for breach of contract and negligence
•
Ethical and conduct standards relevant to licensed real estate agents and real estate representatives
•
Key principles of consumer protection and privacy legislation
•
Key principles and terminology of property law
•
Legislative limitations on agency practice
•
Offences and penalties under legislation
•
Relevant federal, and state or territory legislation and local government regulations relating to: •
Anti-discrimination and equal employment opportunity
•
Consumer protection, fair trading and trade practices
•
Employment and industrial relations
•
Financial services
•
OHS
•
Privacy
•
Property sales
•
Risk and risk management strategies
•
Roles and responsibilities of estate agency personnel in relation to the sale of property •
Sales process, including ways of obtaining listings, methods of selling property, strategies for marketing property, and the process for settling the sale of property
•
Trust funds and legislative controls on trust funds.
Range Statement
The range statement relates to the unit of competency as a whole. It allows for different work environments and situations that may affect performance. B o l d i t a l ic i s e d wording in the performance criteria is detailed below. L a n d t e n u r e s y s t e m s may
•
Freehold or fee simple
include:
•
Leasehold.
L e g i s l a t i o n may include:
•
Relevant federal, and state or territory legislation and local government regulations relating to:
•
Anti-discrimination and equal employment opportunity
•
Consumer protection, fair trading and trade practices
•
Employment and industrial relations
•
Financial services
•
OHS
•
Privacy
•
Property sales. A plan of the land
may Certificate of Title
•
include:
•
Details of caveats over the land, such as easements and covenants
•
Lot, plan and subdivision
•
Names of registered proprietors
•
Names of the mortgagees and dates of registration and discharge
•
Volume and folio numbers.
•
Company ownership
•
Joint tenants
•
Sole owner
•
Tenants in common.
Types of property o w n e r s h i p may include:
Effective communication strategies may include:
L i s t i n g s may include:
•
Active listening
•
Being non-judgmental
•
Exploring problems
•
Expressing an individual perspective
•
Providing sufficient time for questions and responses
•
Providing summarising and reflective responses in conflict situations
•
Using appropriate words, behaviour and posture
•
Using clarifying and summarising questions
•
Using clear and concise language
•
Using culturally appropriate communication
•
Using plain English
•
Using verbal and non-verbal communication.
•
Advertising
•
After-sales letters
•
Builders and developers
•
Callers to the office
•
Conjunctions and multiple listings
•
Farming
M e th o d s o f s e l l i n g p r o p e r t y may include:
•
Open for inspections
•
Owner boards and seller advertisements
•
Recommendations
•
Telemarketing.
•
Alternative sales methods, such as set sales
•
Auction
•
Conjunctional sales
•
Private sale or treaty
•
Sale by tender
•
Seller sale. Auction authority
Sale authority agreem ents
•
may include:
•
Exclusive sale authority
•
General sale authority
•
Sole sale authority,
Statutory statements r e q u i r ed t o b e p r e p a r ed b y sellers may include:
•
Additional seller’s statement
•
Seller’s statement
•
Statement for the sale of a small business.
C o n t r a c t u al d o c u m e n t s
•
Contract note
may include:
•
Contract of sale of real estate
•
Finance statement to buyers
•
Prescribed or permitted forms used by agents in property sales
•
Release of deposit moneys.
R o l e s a n d r e s p o n s i b i l i t i es of agent in sale of property
may include:
•
Agreement to sell
•
Communication
•
Completing contract documents
•
Ethical and conduct standards
•
General disclosure requirements
•
Legal responsibility
•
Listing
•
Marketing
•
Negotiating sale terms and conditions
•
Office procedures for presenting the property
•
Prospecting
•
Providing information to buyer
•
Sale settlement.
R e s t r i c t io n s o n a g e n t s p u r c h a s i n g p r o p e r t y may
•
Restrictions on licensed real estate agents and real estate representatives
include:
•
Restrictions on support staff
•
Restrictions on the spouse or domestic partner, parent, brother, sister or child of licensed real estate agents or real estate representatives.
Evidence guide
The evidence guide provides advice on assessment and must be read in conjunction with the performance criteria, required skills and knowledge, the range statement and the Assessment Guidelines for this Training Package.
Overview of assessment
This unit of competency could be assessed through case studies, demonstrations, practical exercises and targeted written (including alternative formats where necessary) or verbal questioning relating to the legal and ethical requirements of property sales. The case studies, demonstration and questioning would include collecting evidence of the candi date’s knowledge and application of ethical standards and relevant federal, and state or territory legislation and regulations. This assessment may be carried out in a simulated or workplace environment. Critical aspects for assessment and evidence required to demonstrate competency in this unit
A person who demonstrates competency in this unit must be able to provide evidence of: •
Ability to communicate effectively and accurately with clients
•
Application and knowledge of ethical and conduct standards and key principles of consumer protection and privacy in relation to the sale of property
•
Application and knowledge of the sales process, including ways of obtaining listings, methods of selling property, strategies for marketing property, and the process for settling the sale of property
•
Application and knowledge of accurately completing statutory and agency sales documentation, including authorities and contracts
•
Application and knowledge of the legislation and regulatory framework relevant to the sale of property
•
Application and knowledge of the role and responsibilities of the agent in the sale of property, including the legislative restrictions on agents purchasing property and the controls and sanctions associated with secret commissions.
Context of and specific resources for assessment Resource implications for assessment include: •
Access to suitable simulated or real opportunities and resources to demonstrate competence
•
Assessment instruments that may include personal planner and assessment record bo ok
•
Access to a registered provider of assessment services.
Where applicable, physical resources should include equipment modified for people with disabilities. Access must be provided to appropriate learning and/or assessment support when required. Assessment processes and techniques must be culturally appropriate, and appropriate to the language and literacy capacity of the candidate and the work being performed.
Validity and sufficiency of evidence require that: •
Competency will need to be demonstrated over a period of time reflecting the scope of the role and the practical requirements of the workplace
•
Where the assessment is part of a structured learning experience the evidence collected must relate to a number of performances assessed at different points in time and separated by further learning and practice with a decision of competence only taken at the point when the assessor has complete confidence in the person’s competence
•
All assessment that is part of a structured learning experience must include a combination of direct, indirect and supplementary evidence
•
Where assessment is for the purpose of recognition (RCC/RPL), the evidence provided will need to be current and show that it represents competency demonstrated over a period of time
•
Assessment can be through simulated project-based activity and must include evidence relating to each of the elements in this unit.
In all cases where practical assessment is used it will be combined with targeted questioning to assess the underpinning knowledge. Questioning will be undertaken in such a manner as is appropriate to the language and literacy levels of the candidate and any cultural issues that may affect responses to the questions, and will reflect the requirements of the competency and the work being performed.
UNIT CONTENT The learning material of this unit is designed to help the candidate attain the required awareness of the legislation and ethical requirements relating to property sales, the role and responsibility of agency personnel in property sales, the administration of sales transactions and the completion of sales documentation. Part 1: Real Estate Agency
This part presents the concept of the client/agency relationship. This concept of agency details the duties imposed on agents, and their staff, to both the seller and the buyer, as a consequence of the agency relationship. This part also shows other responsibilities of all sales personnel within an agency practice.
Part 2: Property Ownership
This part will assist to understand the principles of land tenure and the different types of property. It focuses on the ownership of land and the registration of title.
Part 3: Responsibilities of Sales Personnel
The legal and ethical responsibilities of sales personnel are discussed with a focus on consumer protection and professional honesty. The legislation is highlighted to ensure the candidate has a thorough knowledge of the ethical and moral responsibilities of the profession. Part 4: Property Sales
This part includes informati on about an agent’s interpersonal communication skills and methods to obtain sources for listings. Real estate analysis is discussed with respect to the market value and market price of property. The ethical and legal responsibility to disclose information is highlighted. The importance of the comparative market analysis is examined to ensure consumer protection and adherence to legislative requirements.
Part 5: Sales Process
This part covers information such as the statutory requirements to be appointed as an agent for a seller, the agents duty of disclosure including beneficial interest, deposits and payments to the seller, working in conjunction with other agents, fees, charges and expenses and documentation required to be signed prior to a contract being signed.
PART 1 - REAL ESTATE AGENCY UNIT 1 - AGENCY PRACTICE [1.1] Contract of agency
Real estate agency practice exists because of the need to bring together two parties whose opposing motives need to be matched and satisfied. Through the efforts of real estate practitioners, buyers (customers) are brought together with sellers (clients) with the objective of bringing about a sales contract or rental agreement where the real estate agents are remunerated for their services as an intermediary. It is important to briefly review the agent’s role in a transaction and the legal balancing act
they perform between the client and a customer. The client is the person who legally appoints the agent and who will pay the agent commission and fees as agreed by the appointment, commonly the seller, except in a buyer’s agent situation where the client will be the buyer. The contract of agency in real estate is the legal relationship evidenced by a written authority between two or more persons whereby one, the agent, is authorised to act on behalf of another, the client, to perform a specified service which affect the client’s rights and duties in relation to the third parties. The agent-client relationship authorises the agent to find a third party (customer) who is willing to agree to the client’s terms. The client and the third party then enter into a binding contract between themselves. For some, the concept of agency may be foreign. This concept may be refer red to as ‘third party selling’. This is because, unlike most other business transactions, an agent acts as an intermediary and has legal duties and responsibilities towards the two separate parties in a transaction. The agent’s ultimate role is to bring t hose two parties together at a mutually agreed outcome. This role will become clearer once we have defined the legal responsibilities of all parties in a real estate transaction. A fiduciary, at law, is a person in a position of trust, who must take all care to ensure that the trust relationship is not breached in any way. Should an agent not perform with skill, care and diligence in carrying out these tasks, the client can sue the agent in a court of law. The client can sue to recover any financial loss or damages suffered as a result of the agent’s failure to exercise a duty of care. The two types of duties imposed on agents, and their representatives, as a consequence of the agency relationship:
Contractual duties which both parties agree to perform in terms of their contract; and oblige the agent to perform the contract of agency in accordance with its terms and conditions. Fiduciary obligations, which are implied into the agency contract by common and equity law; and which arises out of a relationship based on confidence and trust, such as the relationship between an agent and their client.
There are generally three parties in a real estate transaction; the seller, the real estate agent and the buyer. The agent’s duti es and responsibilities are prescribed by both common law and legislation. Common law is law derived from custom or judicial precedent such as decisions handed down previously in cases appearing before a court. Legislation, which is also referred to as statute law, is written law enacted through a legislative or statutory body such as a State/Territory or the Commonwealth Government.
The main common law requirements of the agent’s fiduciary duties are reiterated in statute, under the Property Occupations Act 2014 (POA).
[1.2] Other legal responsibilities of an agent
Other that with the client, an agent does not have a legal relationship with other parties involved in a transaction. However, common law and State and Commonwealth consumer legislation impose a duty of care with respect to all consumers in respect of any real estate transaction. Consumer legislation dictates that all third parties in real estate transactions are consumers and have a right to be treated fairly. This requires real estate agents, in addition to having a clear obligation to act in the best interest of their client, to be aware of the rights of the other party, and act accordingly. For example, statements made by agents to prospective buyers must be truthful and accurate. An agent must also not mislead a customer even where t heir client has instructed them to. For instance, where an agent is asked a question in relation to a property they are offering for sale or rental, there is a duty for the agent to seek out the information requested by the prospective buyer. [1.3] Learning activity 1 Question 1: In the concept of agency, who is the client?
__________________________________________________________________________ __________________________________________________________________________ Question 2: What are the two types of duties imposed on agents, and their staff, as a
consequence of the agency relationship? __________________________________________________________________________ __________________________________________________________________________ Question 3: In what circumstances does an agent have to seek out information required by
the prospective buyer of a property offered for sale? __________________________________________________________________________ __________________________________________________________________________
PART 2 – PROPERTY OWNERSHIP UNIT 2 - PROPERTY [2.1] Tenure
There are various types of interest in land and different interests exist in particular circumstances. Each of these interests has different characteristics. Ownership is only one type of interest in land, and the most important. There are also other types of interest such as life interest (life estate), easements, restrictive covenants and adverse possession and those of mortgagees and leaseholder. These interests fall short of ownership, but have rights attached to them that are recognised in law. Agents need to be able to identify the rights associated with different types of interests in land and to identify where there are rights such as easements, restrictive covenants and adverse possession, claimed by other parties. Ownership of real estate falls under a number of forms, each of which offers proof that the property is owned by a particular person or persons. An exception is Crown Leasehold, where ownership is retained by the government and a long-term lease is granted to private individuals or a company. In Australia all land rests with the Crown and the highest form of individual ownership is called ‘fee simple’ or ‘freehold’ . Land in Queensland may be divided into several categories, such as:
Freehold land or land to be granted in fee-simple by the State A road or reserve, including a national park, conservation park, state f orest or timber reserve Land subject to lease, licence or permit issued by the State Unallocated State land which is all other land not subject to grant, preserve or lease stated above
Generally there are two major forms of landholding:
Fee simple, also described as freehold land An interest in freeholding or perpetual lease, also described a s Crown leasehold land.
[2.1.1] Fee Simple (Freehold)
Almost all land is held in fee simple, which conveys exclusive rights to the holder. This is as close as one can get to absolute ownership at common law. In Queensland, land held in fee simple can be disposed of by sale, gift, or will. Although the fee simple estate confers almost absolute ownership, it is subject to rights reserved to the Crown, such as, rights to minerals, petroleum and gas, but apart from that it is freely transferable without any restrictions or conditions. Freehold ownership of land is of unlimited duration, where ownership passes to heirs or beneficiaries upon the death of the owner. Fundamental to ownership is having ‘title’. ‘Title’ is simply the status of ownership . The land
title system protects the ownership of freehold land in Australia. Titles are the method used to prove land ownership. There are two separate systems of title to land that exist in Australia. Some land is governed by the general law system, whilst other land is governed by the Torrens system.
In Queensland, the Torrens System of land tenure is used. This system, which also incorporates Community Titles Schemes, considers other land tenure systems used by other Australian States and Territories.
[2.2] Old System Title
This was the first system of land ownership in Australia and dates from 1792 when a land grant register was commenced. Properties still under Old System Title can trace ownership back to this time. This system of title of land was evidenced by the production of deeds which traced the chain of title by reference to various owners who were parties to the deeds. Each time there is any activity on the property (such as the property being sold, transferred or mortgaged), the deed which was the document that records the transaction, is added to an existing collection of documents to form an unbroken chain of title dating from when the grant was registered. Proof of ownership depends on being able to substantiate that each document is valid. If one document is faulty, then it is likely that all the documents that follow are faulty as well. Unlike Torrens Title, the government does not guarantee title based upon information held at the Land Titles Office. However, most documents are now registered by the Land Titles Office as sworn copies of the original, although this is not compulsory. These documents are given a book and page number, while the originals are retained by the owner or mortgagee (lender). When the property is sold, ownership needs only to be validated for a minimum of 30 years, but it is common to search back 100 years to establish clear ownership. Consequently, legal costs are expensive in the sale of property under this system. A small percentage of properties in NSW are still held under this system, although when a change of ownership occurs, government policy is to change the property from Old System Title to Torrens Title. In 1861, Queensland Parliament enacted the Real Property Act 1861, which is now replaced by the Land Title Act 1994 . Under the Real Property Act 1861, all lands in the colony of Queensland remaining unalienated from the Crown on that date, when alienated in fee simple, were subject to the provisions of the Act. All freehold title in Queensland is now protected and dealt with under the provisions of the Land Title Act 1994. [2.3] Torrens System
The Torrens system of land title registration was introduced into Queensland in 1861 and took effect on 1 January 1862. The Torrens system of land registration operates to guarantee the security of the title for all persons dealing with registered interests. This is not strictly a legal term for title, but is commonly used to describe the main system of land ownership in Australia. The correct legal term for this type of title is Real Property Act Title. The inherent difficulties associated with conveying old title land, particularly the uncertainties associated with general law priority rule, encouraged law reformers to introduce a new more efficient and absolute conveyancing system. What eventually emerged was the system known today as the Torrens system of land registration. The founder of the system was Sir Robert Torrens, and it was first introduced in South Australia in 1858. The statutory system was introduced into Queensland and its provisions are now codified in the Land Title Act 1994. Robert Torrens sought to rectify the problem of dependant titles under general law. He noted that the main difficulty with general law title was that the new grantor received the title which
was dependent upon the title of chain of predecessors. Proving the validity of such a chain was often expensive and never certain. Registration under the Torrens System has three basic objectives: 1. To provide a register from which persons who propose to deal with land can discover all the facts relevant to the title 2. To ensure that a person dealing with land which is registered is not adversely affected by any defects in the seller ’s title which do not appear on the register 3. To guarantee the conclusiveness of the register and to provide adequate compensation to any person who suffers loss as a result of this guarantee. Its main feature is the division of land into lots on a plan that has been deposited with the Land Titles Office at the Registrar General. The Deposited Plan (DP) is given a number and the lot is also numbered. In order to be able to identify the huge number of lots, each lot is given a folio number (folio simply means page) and kept with others in a numbered volume. The street address of the property may be different to the title details because, generally, the house numbers and street names are allocated after the DP has been lodged. [2.3.1] State guarantee of title
Torrens legislation in most states enables persons suffering loss as a result of the operation of the Torrens system to seek compensation. The rationale underlying the introduction of a state guarantee of title is to ensure that any unfair or mistaken loss of title is properly compensated. In all states except the Northern Territory, a person who is deprived of all or part of his or her interest in land and who suffers loss or damage may acquire a right to seek compensation from the state. In all states, except for Victoria and Queensland, the deprivation must be of actual estate or interest in the land. In Victoria and Queensland, the deprivation is not expressly confined to an estate or interest in land and has been interpreted broadly. In all states, the loss will only be compensable where it fits within one of the express statutory criteria, which vary according to the legislation in each state. Queensland’s Land Title Act 1994 requires that the Registrar of Titles must keep a register of
all freehold land, which is called the freehold land register. The registrar must record in the freehold land register the particulars necessary to identify:
Every lot brought under this Act
Every interest registered in the register
The name of the person who holds, and the name of each person who has held, a registered interest If the person who holds a registered interest is a minor ; the minor’s date of birth All instruments registered in the register and when they were lodged a nd registered.
The registrar must also record in the freehold land register anything else required to be recorded by this or another Act. By recording the particulars of the lot of land in the freehold land register, an indefeasible title for the lot is created. This indefeasible title for the lot is described as the current particulars in the freehold register about the lot.
On payment of the prescribed fee, a person can search and obtain a copy of the indefeasible title of a lot; or a registered instrument; or an instrument that has been lodged but is not registered (whether or not it has been cancelled); or information kept under the Land Title Act 1994. A person can also obtain, for a fee, a copy of the indefeasible title of a lot, or a registered instrument, certified by the registrar to be an accurate copy. [2.4] Community Title Scheme
The community title concept has been used successfully in New South Wales and Queensland for some time. Other State Governments recognise the need for a more flexible type of subdivision that will provide greater opportunities for property development and growth. In Queensland, the Body Corporate and Community Management Act 1997 (BCCM Act) repealed previous legislation and established a new system of management of Community Titles Schemes. Previously, these were known as building units and group titles. This legislation sets out the rights and responsibilities of certain persons associated with bodies corporate, particularly lot owners and tenants. A community title scheme can only exist over freehold land pursuant to Section 9(2) of the BCCM Act. The purpose of the legislation is to impose different levels of requirements on developers and owners depending on the type of development. A body corporate is the legal entity created when land is subdivided and registered under the Land Title Act 1994 to establish a community titles scheme. The scheme can be a duplex, a residential unit block, a high rise accommodation complex, a shopping complex or a business park. Every owner of a lot in a community titles scheme is automatically a member of the body corporate. Owners do not have a choice as to whether or not they will be a body corporate member. [2.4.1] Types of developments
Any person assigned to establish a Community Title Scheme must select a management module that best suits the particular project. There are five modules of the Community Title Scheme:
Standard Module Regulation which is intended to be generic, and are suitable for most residential projects. Small Schemes Module Regulation which covers smaller buildings (six lots or less) and allow for informal management by the proprietors. Commercial Module Regulation which covers retail and office developments, and business and industrial parks. Accommodation Module Regulation which is appropriate for holiday lettings, hotels and similar developments Two-lot schemes regulation 2011 (the Two-Lot Module) the objective of this module is to make the day-to-day management of two-lot community titles schemes less complex for owners
[2.4.2] Ownership of common property
When a community titles scheme is established, the Registrar of Titles must create an indefeasible title for the common property for the scheme. The indefeasible title for common property is the current particulars in the freehold land register about the common property. Common property for a community titles scheme is owned by the owners of the lots included in the scheme, as tenants in common, in shares proportionate to the interest schedule lot entitlements of their respective lots. An owner’s interest in a lot is inseparable from the owner’s interest in the common property. [2.5] Foreign Ownership of Land Register Act 1988
The main purpose of this legislation is to establish and maintain a register of all land in Queensland which is owned by foreign persons, corporations and trusts. The legislation requires all such foreigners, as defined by Section 4(1) of the Foreign Ownership of Land Register Act 1988, who acquire land in Queensland to notify the Registrar of Dealings of their acquisition. Foreign Ownership of Land Register Act 1988 Schedule 1 Dictionary section 2 for eign per son means:
(a)
A foreign natural person; and
(b)
A foreign corporation; and
(c)
A corporation in which, on its last accounting date, a foreign natural person or a foreign corporation holds a controlling interest; and
(d)
A corporation in which, on its last accounting date, 2 or more persons, each of whom is either a foreign natural person, or a foreign corporation, hold an aggregate controlling interest.
If the relevant notices, pursuant to sections 17, 18, and 20 of this Act, are not delivered, the person may be charged with a prescribed offence, resulting in a show cause action that may prevent the person from obtaining title to the land. [2.6] Learning activity 2 Question 1: What are the two main forms of landholding in Queensland?
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ Question 2: What are the two types of land title used in Australia? Indicate which type is
used in Queensland. _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
UNIT 3 - CERTIFICATE OF TITLE [3.0] Before selling a property, the seller must be able to prove a ‘good and sound’ title to the
prospective buyer and is required to produce a title before the sale of the property. This means the seller must prove registered ownership of the property for sale. When a property is offered for sale in the Torrens system, it is a simple matter of showing the prospective buyer the certificate of title. This document can be checked by obtaining a copy from the Titles Office for a fee. Agents should ensure the persons recorded on the title are the persons with whom they are dealing. Whenever a prospective buyer has a query concerning proof of title, the agent should refer to the title, and advise the buyer that legal advice should be obtained from a qualified lawyer. The certificate of title (title deed) is a document that provides proof of ownership. The certificate of title today is simply a computerised transaction notice. It is always a good idea to sight a copy of the title search as well as undertake a title search to gather as much information as possible about a property. The certificate of title number, always located on the top right hand side of the title document, is essential for the agent to use when completing all listing and selling documentation. The title deed is an example of a Transaction Notification. This is the official computerised document that has replaced the old deeds. [3.1] Titles registration and the land and w ater registries Queensland’s Departmen t of Natural Resources and Mines Titles Registration provides
accurate, secure and accessible registries for the ownership and other transactions in freehold and State tenure land and water allocations. Because ownership searches do not always contain up-to-date ownership information, a title search is deemed the only reliable source of current ownership information. The state's land and water registries maintained by Titles Registration include:
Freehold land register
Leasehold land register
Power of attorney register
Register of reserves and trustees of trust land (e.g. reserves and deeds of grant in trust)
Register of licences and permits
Register of easements over unallocated State land (easements over freehold, leasehold and reserves land are recorded within those registers mentioned above)
Register of State housing leases
Register of foreign ownership of land
Register of deeds (part 18 of the Property Law Act 1974, for dealings affecting any estate in land)
Register of Harbour Board leases
Register of Water Allocations.
A search of the Titles Register can provide the following information:
Title Search
Image of Plan of Survey
Image of a Lease or Permit to Occupy
Image of all other Instruments
Image of a Title
Community Title Scheme Statement
Dealing Statement
Power of Attorney Search
Historical Title Search
Agents can search the registers and obtain copies of the title of a block of land, and any dealing lodged or registered in the Registry. Searches can be conducted either electronically or at the Department of Natural Resources and Mines offices during office hours and pay the pay the required fee. [3.2] The title search
A title search is considered the most reliable of all searches, because it provides critical information essential for a contract that cannot always be revealed in a general ownership search. A title search for instance will reveal:
The full and correct names of the owners – The Property occupations (PO) Form 6 (appointment of an agent form) must be signed by all registered owners for it to be valid. The correct Real Property Description (RPD) – A Real Property Description is the manner a property is described on a plan of subdivision An RPD will provide a lot number and a plan number. For instan ce, Lot 2 on RP 456 stands for Lot 2 on registered plan number 456 An RPD also describes the type of subdivision. For instance, Lot 2 on BUP stands for Lot 2 in a Building Units Plan. Lot 2 on GTP stands for Lot 2 in a Group Titles Plan. More modern subdivisions use the terminology SP that stands for Subdivision Plan. If the RPD is incorrect the appointment may be invalid, or the agent could be sued for negligence for failing to provide the customer with correct information Encumbrances on the title of the property e.g., easements, caveats, covenants, mortgages. (The law requires the client to disclose all encumbrances to a buyer on the contract of sale) Registered Dealings over the land e.g., demolition notices, heritage listings, contamination etc. Whether the land is Freehold or Leasehold. If the search reads ‘Fee Simple’, this is t he
common term for Freehold
Title Reference number. This is the number that must be inserted on all listing and sales documentation. It is usually found on the top right hand corner of a title certificate.
A title search will not reveal:
The sales history of the property
The legal use of the land (zoning)
Council rates and services provided to the land
A plan of subdivision for the area, including dimensions and measurements of the land.
Agents should conduct a title search to establish whether there are any matters relating to the property that will have a negative impact on price or the desirability of a property. Basically, if there is a matter that makes the property less attractive to a customer, or poses a health or safety risk, then it should be identified. Title Search, Department of Natural Resources and Min es, Queensland
[3.3] Which matters affect title? A person’s title registration (certificate of title) may reveal a number of issues. The following
are examples of matters that will impact negatively on a real estate transaction. [3.3.1] Title encumbrances encumbrances
A title encumbrance is any restriction or registered dealing over the title. It is an interest or right that someone has over the land and can in some cases reduce the value, but does not necessarily prevent the transfer or leasing of the land by the owner. If an encumbrance is to be inherited by the new buyer, then it must be declared on the contract of sale. An encumbrance can be a covenant, easement or caveat. Agents should question the seller as to awareness of any encumbrances affecting the land, such as an easement, whether there may be a statutory charge registered against it for local authority works or unpaid land tax. As a matter of practice, the agent should obtain a title search prior to the parties entering into the Property occupations Form 6, which will reveal not only the complete details of the seller/s, but also outline any encumbrances affecting the land that the seller may be unaware of. In cases of doubt, a legal practitioner engaged by the seller should be consulted to explain any issues raised in connection with the certificate of title. Any existing encumbrances which can be discharged from the purchase money at settlement, such as a mortgage, need not be set out as encumbrances on the contract. Under any contract for the sale of any land there is an implied term imposing an obligation on the seller to execute and deliver a conveyance of the subject land, or instruments of title to the land, free of any encumbrances. This obligation will be satisfied if the seller will, upon completion of the contract be able to, and does in fact discharge any existing encumbrance (again, such as a mortgage) out of the purchase money payable under the contract by the buyer. It may be prudent for the agent to ask the seller, if the property is subject to mortgage and whether the price of the land being sold is sufficient to discharge the outstanding debt registered by the mortgagee. As stated above, the only safe method for an agent to ensure that the description in the Property occupations Form 6, and any subsequent sale contract, conforms to the description on the title is to undertake an up-to-date title search prior to the parties entering into the Property occupations Form 6. [3.3.2] Covenants
A covenant is a promise or agreement given g iven whereby whereb y one party promises p romises to do or not to do certain things, and that ‘promise’ is (usually) (usually) registered on the certificate of t itle . For example: ‘I will not build a two -storey building in front of your house and block your view’ . Restrictive covenants are similar to negative easements, as both operate to restrict the use for some specific benefit. Initially, restrictive covenants were used by property owners to control the use of adjoining properties or neighbouring land. Restrictive covenants merely prevent the possessors of the land from doing things that would otherwise be permissible. Today, town-planning legislation largely serves the same function, although many restrictive covenants remain. For instance, property owners in certain housing estates must agree to have certain types of housing styles, constructed with designated building materials such as brick. Some local authorities have covenants against people keeping cats if they are considered a threat to local wildlife.
Agents need to make sure that they know if there is a restrictive covenant on the property because the covenant runs with the title of the property. The covenant is usually included in the certificate of title as noted in section 97A of the Land Title Act 1994, however some restrictive covenants (such as those relating to certain housing estates) may be contained in other documentation. Along with conducting the certificate of title search, agents should confirm with any seller whether they are obligation under any other restrictive covenants not listed on the title. Agents must ensure to declare any restrictive covenants on contracts that they prepare and make full disclosure to a prospective buyer. [3.3.3] Easements
An easement is a right, owned by a landowner, to use the land of a neighbour in a defined manner. A common situation in which an easement would be required is when land is subdivided in such a manner that the allotment is ‘landlocked”, or has no access to the street. In this situation the landowner would need the right to cross a neighbour’s land to gain access to the street. Easements are an encumbrance on a property and belong to the land irrespective of its ownership. Easements running through a property are regarded as a defect on the title of the property. In some instances an easement can materially disadvantage the property. In these circumstances, where a buyer is unaware of the existence of an easement, the buyer may seek to terminate a contract and receive a refund of their deposit. It is essential that a real estate agent ask the property owner, at the point of listing a property, if they are aware of any easements. If this information is not disclosed, it could jeopardise the completion of any sale of their land. Easements can create:
Rights of access
Rights of water drainage
Rights of support of adjoining building, such as when two building share a party wall
Rights to air
Rights to light
Some common easements are sewerage, drainage, and power lines. It is now common in new subdivisions for the local authority to hold easement rights over the property. The local authority in turn can give authorisation to other entities such as utility companies to use these easements. The relevant authorities may require the easement to prevent landowners from erecting buildings or pipes or underground cables. Such an easement is likely to be created pursuant to a statutory power; known as statutory easements. Easements may be classified as ‘positive’, when they allow a person to do a particular act on the land of another. Easements may also be termed ‘negative’ when they give a person the right to prevent a landowner from doing something on the landowner’s land.
[3.3.4] Creation of an easement
An easement must be created by grant. In the case of registered land, section 82(2) of the Land Title Act 1994 requires that the instrument must state the nature of the easement and its terms; and the land to be benefited, and the land to be burdened by the easement.
Section 83 of the Land Title Act 1994 also requires the instrument creating the easement to be signed by the grantor and grantee. The interest is noted on the certificates of title of both the grantor and grantee. Agents should make inquiries about easements with the sellers. Unusual easements have been recognised by the courts. Not all easements are obvious so agents need to exercise care if they suspect an unregistered easement exists. If this is the case, the agent’s full disclosure obligations to the prospective buyer would dictate the buyer be referred to a qualified lawyer for the appropriate legal advice. [3.3.5] Caveats
The term caveat literally means ‘beware’. In real estate a caveat warns a person, such as prospective buyers or mortgagees, that another party already has an interest registered in the land. No further transactions can be registered until the matter has been dealt with first. A person claiming an interest in a property may lodge a caveat forbidding the registration of any dealing affecting the land. This gives notice to not only those who already have a registered interest in the land but to the ‘world at large’ that the register is ‘frozen’ and there can be no dealings on the land until the caveat is removed, either by agreement or by court action. To lodge a caveat, the caveator (a person who enters a caveat) must have a recognised interest in the land. For instance, a person, who is owed money by the landowner, does not have an interest in the land and cannot lodge a caveat. For example, a real estate agent who is owed commission does not have the right to lodge a caveat. The agent has a right of action for damages, but not an interest in the land. Examples of situations where caveats may be applied include:
Interests of a buyer after signing a valid and binding contract of sale. This could be particularly applicable if it is a long-term contract such as commercial or industrial sales Interests of an equitable mortgagee who advances money on the security of an unregistered mortgage Interests of a grantee of an easement prior to the registration of the easement Interests in an instalment contract. In this situation the buyer cannot have clear title to the property until they have paid the equivalent of one third of the price of the property. To protect their interest, they will lodge a caveat to prevent the owner from mortgaging the property or selling to someone else Interests in an ownership dispute, especially relating to divorce, partnership dissolutions or disputes amongst beneficiaries of a deceased estate.
Caveats are lodged through a legal process. If the owner of the property disputes the caveat, the matter will be heard in court. If a caveat is removed after being lodged without reasonable cause, then the person who was adversely affected or who may have suffered any loss because of the caveat can claim compensation for the damage. [3.3.6] Mortgage
A mortgage created under the Land Title Act operates as a charge and not as a transfer of the estate of the mortgagor (the borrower) and is created for the securing of the repayment of the loan. Upon registration of a mortgage, under the Land Title Act, the interest created is said to be a legal interest. The nature of the interest acquired by the mortgagee is called a
charge’. While this is not equivalent to ownership of the land, the chargee can have the land
sold or take possession if the mortgagor defaults on the loan. Even though a title search will reveal a mortgage registered on a property, a mortgage is not considered an encumbrance because it can be lifted at settlement so that the property can be transferred with a clear title. Upon the sale of any mortgaged property, the mortgagee (finance lender) would execute an appropriate discharge of the mortgage, and produce the discharge together with the certificate of title (which is held by the mortgagee) at the settlement of the transaction. The buyer will lodge the discharge of mortgage documentation, preceding the title transfer, in the Land Titles Office. This will ensure the buyer’s t itle will be issued free of that encumbrance and transfer will registered. [3.4] Non-title searches
The following matters should also be fully investigated. Most information can be obtained from either conducting a Title search, or undertaking special searches available on the Department of Natural Resources and Mines website. These searches can be accessed through independent search providers.
Check whether the property is a declared contaminated site. (Department of Natural Resources and Mines – special information search) Check whether the property has an environmental or vegetation protection order lodged over it. (Department of Natural Resources and Mines – special information search) Check whether it has been Heritage listed with a state or local authority. (Local Council and Department of Environment and Heritage Protection) Is the property subjected to flooding? (Council search) Does the property have a registered notice over it for structural unsoundness or a demolition order? (council search) What is the zoning or legal use of the land? (Council search, ownership search)
[3.5] Verifying ownership
When an agent is appointed by a client to sell their property; the agent is required as per Section 19 of the Property Occupations Regulation 2014 to take reasonable steps to find out or verify the property’s ownership and property description. Property Occupations Regulation 2014 Section 19 Finding out or verifying property ownership and description
(1) Before auctioning property, an auctioneer appointed to sell the property must take reasonable steps to find out or verify the ownership of the property and property description. (2) Before listing property for sale, lease or exchange, a real estate agent or real estate salesperson must take reasonable steps to find out or verify the o wnership of the property and property description.
It is strongly recommended that agents carry out title searches at the time of listing the property. Some agents in the past have only carried out ownership searches (using a property data base such as CoreLogic RP Data) – however prudent agents today conduct title searches to ensure that the appropriate verification of ownership is made. Commercial search providers such as CoreLogic RP Data play an invaluable role in modern real estate practice. Agents can access a vast range of information about properties that they are listing. For instance, an ownership search will reveal:
The names and addresses of the current owners (be cautious with this information as there are delays in ownership information by as much as 3-4 months)
The legal land use or zoning of the land
Whether the property has services such as sewerage and water connected
When the property was purchased and for how much
Its unimproved capital value (the vacant land value for rating purposes)
A plan of subdivision including dimensions
A wide range of research data including average and median selling prices of property in an area Radius searches for CMAs
Please refer to the ownership search example on the following page. Please note: In Queensland, agents subscribing to property databases from the Department
of Natural Resources and Mines are not permitted to use ownership information for any purposes other than to check ownership and provide market analysis in independently prepared reports. Searches, or the information contained within them, cannot be given in its original form to a third party (for instance, to a customer) or used for any form of direct marketing, including telemarketing, bulk mail merges, postal canvassing and list brokering. However an ownership search is not a title search and the courts only recognise a title search as proof of ownership. For risk management purposes, it is recommended that agents conduct title searches when listing property for sale and prior to completing contract documentation. When agents complete the Property occupations Form 6 it is vital they complete the client’s details exactly as they appear on the title search. Agents also need to always be mindful of the need to verify material facts about the property. This should be done before they list a property and afterwards as the occasion arises. This is in accordance with section 20 of the Property Occupations Regulation 2014 (PO Regulation). Property Occupations Regulation 2014 Part 5 Conduct standards Section 20 Finding out or verifying facts material to the sale of property
(1) An auctioneer appointed to sell property must take reasonable steps to find out or verify the facts material to the sale that a prudent auctioneer would have found out or verified to avoid error, omission, exaggeration or misrepresentation. (2) The steps must be taken before the auctioneer auctions the property and afterwards as the occasion arises. (3) A real estate agent appointed to sell, purchase, exchange or lease property must take reasonable steps to find out or verify the facts material to the sale, purchase, exchange or lease that a prudent real estate agent would have found out or verified to avoid error, omission, exaggeration or misrepresentation. (4) The steps mentioned in subsection (3) must be taken before the agent lists the property and afterwards as the occasion arises
[3.6] Learning activity 3 Question 1: Name six types of information which can be obtained through a search of the
Titles Register. 1.___________________________________4.____________________________________ 2.___________________________________5.____________________________________ 3.___________________________________6.____________________________________
Question 2: There are a number of issues will impact negatively on a real estate transaction. Name four matters that may affect a person’s land title registration.
1. ________________________________________________________________________ 2. ________________________________________________________________________ 3. ________________________________________________________________________ 4. ________________________________________________________________________
UNIT 4 - PROPERTY OWNERSHIP [4.0] There are two basic types of property. Land is considered real property and all other
belongings are personal property. The term ‘real property’ refers to the land and improvements to the land. A building or home is an improvement. The term ‘estate’ refers to a person’s interests in t hat land and property
as estate is merely another word for status. [4.1] Real and personal property
Each type of property has specific characteristics:
Real property includes land and everything affixed to the land; sometimes referred to as immovables. This includes physical things such as trees, ponds and soil, and intangibles such as easements Personal property is also known as chattels and describes all property other than land. Chattels are movable objects. Examples of chattels may include fixed floor covering, curtains and blinds, and light fittings.
Real property is a term used to describe interests in land other than leases. Personal property is a term used to describe all property other than interests in land. Personal property is divided into two classifications: 1. Choses in possession (the legal term meaning tangibles), which means items with physical substance. This covers property because it is tangible, which may be under physical control, such as a car 2. Choses in action, which means that is it intangible and cannot be under physical control, for example, the copyright of literature. [4.2] Real property rights
Property rights describe the rights people have in respect to land. Real property rights can be conceptualised as having a bundle of rights, privileges, powers and control. The right to land can have the following attributes:
The right to exclude its use by other people
The right to live on the land and use it to harvest and sell produce
The right to make modifications and improvements to the land
The right to grant a license to use the land or to lease the land to another person
The right to sell the land or leave it at will
Proprietary interests do not always allow all the rights listed above. The specific nature of the rights will depend on the nature of proprietary interest and will be subject to the area’s zoning, planning, and environmental restrictions. It is important to note that land may revert back to the Crown or Crown instrumentality exercising its power as a public authority to resume for public purposes any freehold land or land being purchased as a freeholding lease under the Land Act 1994. [4.3] Chattels and fixtures
A contract of sale of real property will include a list of chattels that are included in the sale. Fixtures automatically come with the land but chattels are required to be specified in the contract in order to become the property of the buyer. The seller can remove chattels from the property that are not mentioned in the contract. It is important that the agent ensures there is a clear understanding about which chattels pass with the property, as there is potential for disputes to arise between the seller and buyer. [4.4] Doctrine of fixtures
Chattels become an integral part of property if they are used in the construction of the property or are attached to the property so as to become fixtures. The doctrine of fixtures determines when and in which circumstances goods attached to land lose their identity as goods and merge with the land. The modern test of whether a chattel has become a fixture is based on the judgment of Blackburn J in Holland v. Hodgson (1872) LR 7 CP 328 where he said at 334: 'There is no doubt that the general maxim of the law is, that what is annexed to the land becomes part of the land; but it is very difficult, if not impossible, to say with precision what constitutes an annexation sufficient for this purpose. It is a question which must depend on the circumstances of each case, and mainly on two circumstances, as indicating the intention, viz., the degree of annexation and the object of the annexation.'
In looking at the degree of attachment there are two relevant legal presumptions. Firstly, a chattel attached to the land other than by its own weight (for example, by screws or bolts) is prima facie a fixture. This presumption applies even if the degree of attachment is very slight. The greater the degree of attachment, the stronger the presumption appears to be. When listing a property in which there is a tenant, agents should always check which fixtures belong to the tenant. [4.5] What are the different types of property ownership?
There are different types of interest in property. These interests allow the holder of the interest rights to certain uses of the land, which are legally recognised and enforceable. Ownership of the land is the most important of these interests. These rights allow the owner the full enjoyment of the property and can involve excluding others from using or interfering with the land. There are also other types of interest that fall short of ownership but have rights attached to them that are recognised by law. Agents need to have an understanding of the nature of
different types of interest in land when selling property by private treaty and be able to recognise where there are other interests such as mortgage, covenants and easements. [4.5.1] Co-ownership of land
Land can have more than one owner. There are two common types of co-ownership of land: 1. joint tenancy 2. tenancy in common The legal meaning of the word ‘tenant’ is quite precise: a tenant is a person who has an interest in real property. In common or non-professional usage the word means the occupant of the premises. [4.5.2] Joint tenants or proprietors
Joint tenancy occurs when two or more persons hold the rights to the whole of the property, meaning each owns the whole rather than a share of the whole property. Having an interest in title, whether legal or equitable, should be distinguished from having the right of possession. In the case of joint tenancy, the parties each have the rights of ownership of the whole and each has the right to possession of the whole. A common example of joint tenancy is when two owners are a married couple, or domestic partners. The ‘rule of survivorship’, from old English law, states where a joint tenant dies, the other joint tenant is automatically entitled to t he deceased person’s share of the land. [4.5.3] Creation of joint tenancy
There are four requirements for joint tenancy, known as the four unities: 1. unity of title which is the interest of each joint tenancy must be created by the same deed or instrument (or the same will) 2. unity of time which is the interests of the tenants must be acquired simultaneously 3. unity of possession which is each co-owner must have an equal right to possession of the whole 4. unity of interest which is each co-owner must have the same type of interest, for example, both must have a fee simple interest Joint tenancy is created when land is transferred (or conveyed where there is general law title) and certain words are not used. These words are called words of severance and say that the intention of the parties is that there is shared ownership and not joint ownership. Examples of the words used are “equally”, “in equal shares”, or “between” . When such words are not included, it is assumed there is joint tenancy. A joint tenancy can be changed to a tenancy in common in certain circumstances, including alienation, partition, or by committing a crime. A joint tenancy can be changed to a tenancy in common:
by mutual agreement, if one co-owner sells an interest (note that it is not necessary for the other co-owner to agree to sever the joint tenancy) the tenants all agree to sever the joint tenancy (there are no required formalities, but the most prudent method is by the execution of a deed)
[4.5.4] Tenants in common
Tenancy in common refers to tenants who hold defined shares in an estate. A tenancy in common is created when land is sold or devised to two or more persons. The words of severance are used, for example, in equal shares. Tenants in common can own equal or unequal shares of the property. Unlike joint tenancy, there is no right of survivorship. This means when a tenant in common dies, that share does not automatically pass to the surviving parties. The interest is instead disposed of by the will or by the intestacy provisions of the Succession Act 1981.
[4.5.5] Creation of tenancy in common
This occurs when land is sold or devised to two or more persons and words of severance are used, for example ‘in equal shares’, ‘share and share alike’, ‘to be divided between’, or ‘equally’ . When a joint tenant sells to a third party, a tenancy in common is created. [4.6] Subdivision of land
A subdivision is the legally-recognised division of one parcel of land into multiple parcels. Subdivision approval is required for almost all residential housing tracts and also for some commercial developments. The land use would govern the type of development allowed. The zones will vary from council to council, but in general subdivisions by type of land use may include:
commercial
industrial
urban
residential
rural
With each category there will be a number of options which refer to the available density of development usually categorised as:
Single unit
Low density
Medium density
High density.
[4.7] Types of property The definition of ‘residential’ relies heavily on the use or function of the property rather than
its permitted uses or council property zoning. The onus is upon the agent to determine the type of transaction and this will impact directly on the statutory cooling-off period as well as commission payable and any limitation on sole or exclusive agency. Areas where real estate agents should show particular caution are:
Home offices and small businesses being run legally, or otherwise, from a residential property. The use is not defined as ‘residential’ only if the use of the premises is
substantially for commerce or business. Also an agent should consider if a home office/business is permissible under the relevant local government ordinances
Land where primary production is still occurring at the time of sale Mixed use complexes with a residential and business component being sold on the one title Bulk project and land sales (certain projects and subdivisions could previously be treated as a commercial transaction) Boarding houses and flats on one parcel of land are considered a residential transaction.
[4.7.1] Residential property
Under section 21 of the POA residential property is considered to be real property that is used, or is intended to be used, for residential purposes but does not include real property that is used primarily for the purposes of industry, commerce or primary production. [4.7.2] Commercial property
Commercial property is property intended for use by all types of retail and wholesale stores, office buildings, hotel, and service establishments. In many property circles commercial property refers specifically to office property. This category also includes singular or multiple properties used for a shop or shop/dwelling, shopping group, drive in shopping centre, restaurant, motel, special tourist attraction, marina, residential institution, car park, retail warehouse, sales area outdoor (dealers, boats, cars), office (professional offices, finance, banks, lending agents and brokers), funeral parlour, hospital, convalescent home, predominantly medical care, child care, hotels/tavern, plant nursery, theatre/cinema, drive in cinema, licensed club, sporting facilities/club, caravan park, and advertising hoarding and display area. [4.7.3] Industrial property
Industrial property is real estate used and/or capable of being used for the purpose of manufacturing, processing or warehousing goods. This category also includes singular and multiple properties used for general industry, light industry, noxious/offensive industry, harbour industry, extractive purposes and may include the following where not used for retail purposes: warehouses, bulk stores, transport terminals, service stations, oil depots, wharves, builders yards and cold stores. [4.7.4] Rural property
Rural property is land used for grazing stock or cultivating crops on a commercial basis. It is used for the business or industry of grazing, dairying, pig farming, poultry farming, viticulture, orcharding, apiculture, horticulture, aquaculture, vegetable growing, the growing of crops of any kind, forestry or any other business or industry involving the cultivation of soils, the gathering in of crops or the rearing of livestock. [4.7.5] Businesses
Businesses may include companies and organisations sold or leased as a going concern. Selling a business usually involves a price paid for goodwill, plant, stock and equipment. The real estate sales representative is selling to the buyer the right to continue operating a
business (e.g. a delicatessen) on the business premises in the same way the seller of the business has previously operated. The seller of the business typically assigns the lease on the premises (building) to the buyer. This usually requires the agreement of the owner of the premises. [4.7.6] Vacant land
Vacant land is land upon which there are no structural improvements, other than fencing.
[4.8] Learning activity 4 Question 1: What relevant state legislation imposes requirements on the sale of land in
Queensland? Explain the effects of that legislation. __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 2: What is the difference between chattels and fixtures in a contract for sale of a
residential home? __________________________________________________________________________
___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________
PART 3 – RESPONSIBILITIES OF SALES PERSONNEL UNIT 5 - CONSUMER LEGISLATION
Real estate agents work with an extensive legislative framework comprising Acts of Parliament, regulations, professional standards and codes of conduct. It is essential that agents gain a significant understanding of the legal requirements and appreciate the need for complying with legislation. Knowledge of legislative requirements enables agents to understand their responsibilities and the consequences of breaching the law. The laws mentioned in this document are relevant to property sales. [5.1] Queensland legislation
The POA regulates real estate agency practice in Queensland. The Act sets out who may own, manage and work in a real estate agency, and the required qualifications, functions and conduct of real estate practitioners. This legislation is extensive and agents must be familiar with all various parts and sections. [5.2] Real estate licensing
All persons working as a salesperson or a property manager must have a full real estate licence or certificate of registration. However a person does not act as a real estate agent or real estate salesperson only because the person, while performing duties as an employee of a real estate agent at the real estate agent’s registered office or other place of business:
Collects, and issues receipts for, rents Gives a person a list, prepared by or for the real estate agent, of premises available for rent Does something of an administrative nature in relation to a thing the real estate agent does as a real estate agent.
Section 26 of the POA states that a real estate agent’s licence authorises an agent to undertake the following activities for others for reward: Property Occupations Act 2014 Part 2 Licensing Section 26 What a real estate agent licence authorises
(1) A real estate agent licence authorises the holder of the licence to perform the following activities as an agent for others for reward — (a) to buy, sell (other than by auction), exchange or let real property or interests in real property; (b) to buy, sell (other than by auction), exchange, or let businesses or interests in businesses; (c) to negotiate for the b uying, selling, exchanging, or letting of something mentioned in paragraph (a) or (b); (d) to collect rents. (2) A real estate agent may perform the activities mentioned in subsection (1) in the carrying on of a business, either alone or with others, or as an employee of someone else.
Section 115(1) of the POA authorises the holder of a real estate salesperson certificate to perform any activity that may be performed by the real estate agent who employs the holder.
A real estate agent who is a principal licensee or an employed licensee in charge of a licensee’s business at a place of business must take reasonable steps to ensure each real estate salesperson employed by the agent is properly supervised, acts only within the scope of the person’s employme nt agreement. Immediately after a real estate salesperson commences employment at a real estate agency, the licensee must give the salesperson an employment agreement, clearly specifying the activities of a real estate agent the agent authorises the salesperson to perform for the agent during the salesperson’s employment by the agent . This employment agreement should note:
Expected standards of behaviour when dealing with consumers
A defined job description
Authorisation to receive and bank monies on behalf of the agency and its clients
Authorisation and limitations regarding preparing of contra cts and statutory documentations Procedures for dispute resolution.
A salesperson should ensure that they always seek advice from their licensee on matters that they may be uncertain about, matters that further guidance may be required or matters that they feel that the licensee should be made aware of. Some matters are urgent which must be brought to the licensee’s attention immediately; these include if the sal esperson becomes aware that the seller does not hold public liability insurance, or if a customer (or client) makes allegations against the salesperson that could result in the agency being sued. Other matters that are not as urgent, but are still important include ideas on how to improve the business, any concerns within the business that the salesperson feels should be brought to the licensee’s attention and any concerns about alleged or known unethical practice form fellow colleagues. These issues are studied in detail in other subjects.
[5.3] Appointment of agent
Agents should ensure that agreements regarding real estate transactions are in writing in clear and understandable language, expressing the specific terms, conditions, obligations and commitments of the parties to the agreement. A copy of each final agreement shall be furnished to each party upon their signing or initialling, and shall be dealt with in accordance with the instructions of the parties involved. Legislation requires the agent to provide to the client certain information about the commission payable for services. The agent must inform the prospective client, who could be either the seller or a buyer, as the occasion arises, that the commission is negotiable prior to signing the appointment of agent form. The agent must specifically bring to the client’s notice the information in the form of the
appointment about the effect of each of an open listing; an exclusive agency; and a sole agency; and the difference between each type of listing. If the agent fails to do so before the appointment is signed, such appointment of agent is rendered ineffective. Also, if the appointment is not in the correct form (as per legislative requirements) it is considered ineffective from the time it is made. The Property Occupations Form 6 (PO Form 6) is the approved government form which is required to be completed when listing a property for sale with a seller. The statutory document PO Form 6 is a ‘core document’, containing the basic range of information required for appointment. It is somewhat lacking in vital information to permit the agent to carry out the services for which it is designed. Accordingly, the REIQ have created a Residential Sales Schedule and Terms and Conditions that outline services an agent may provide and this schedule, when listed within the PO Form 6 and attached to it, form part of the formal contractual agreement between the agent and client.
[5.3.1] Requirements to be appointed to act as an agent
Legislation is specific as to what the appointment and reappointment of agent must contain. The agent must be appointed before the agent performs any services for the client. An informal letter written to the agent from the prospective client giving the particulars of the property, listing price and agreed commission rate does not constitute sufficient evidence of the appointment to establish the client-agent relationship. If an agent performs any ‘service’ without firstly being properly appointed on the app roved
form, will not be entitled to obtain, retain, or sue for any commission. This stance is based upon the provisions of section 104(1) of the POA where it clearly states “An appointment of a property agent or resident letting agent must include the following in the approved form”. The term service, with respect to these provisions, could refer to any act of which is required to meet the specific conditions of the appointment; that is the client’s written instructions. Any action that could be interpreted as marketing the property, carrying out inspections, introducing prospective buyers, would be taken to be a service, which requires the agent to obtain a written appointment of agent in the approved form. The agent is required to be appointed by the client to perform the activity authorised by the client in accordance with provisions of section 104 of the POA: Property Occupations Act 2014 Division 2 Content of appointment Subdivision 1 Property agents and resident letting agents Section 104 General content of appointment
(1) An appointment of a property agent or resident letting agent must include the following in the approved form — (a) a prominent statement that the client should seek independent legal advice before signing the appointment; (b) a statement about whether it is a single appointment or a continuing appointment; (c) for each service, provision for the inclusion of a statement about the following — (i) the service to be performed by the property agent or resident letting agent; (ii) the fees, charges and any commission payable for the service; (iii) when the fees, charges and any commission for the service become payable; (iv) the expenses, including advertising and marketing expenses, the agent is authorised to incur in connection with the performance of each service or category of service; (v) the source and the estimated amount or value of any rebate, discount, commission or benefit that the agent may receive for any expenses that the agent may incur in connection with the performance of the service; (vi) any condition, limitation or restriction on the perfor mance of the service. (2) In this section — see section 102(5)(b). continui ng appointment sin gle appointm ent see section 102(5)(a).
[5.4] Representations to consumers [5.4.1] Misrepresentation of property
Before any discussion with a client or customer, an agent must ensure they are suitably qualified and licensed, if applicable. For example, if agents give investment advice they are required to be licensed by Australian Securities and Investment Commission (ASIC) as
financial advisors, or if they provide an opinion or arranging insurance on behalf of their client, they are required to either hold an Australian Financial Services licence; be appointed in writing as a distributor; or be an authorised representative, or corporate authorised representative, of a licence holder. Agents should pay particular attention and be very careful when discussing:
Value of the land
Land’s income producing potential
Sales history of the land
Income tax benefits of buying the land.
Agents are required by legislation, and by the REIQ Standards of Business Practice, to take all reasonable steps to be informed regarding the essential facts which affect current market conditions in order to be in a position to advise their clients and, or, to assist customers in a responsible manner. It is recommended that in specialised areas, which fall outside the scope of the duty of a real estate agent, that agents advise the client or customer to seek more specialised advice. (Best practice suggests that this recommendation be provided in writing to the seller.) If agents provide appraisals or market forecasts in a volatile market, they should identify the volatility to the relevant consumer and warn the consumer to keep that volatility in mind when evaluating their appraisals or market forecasts. Agents must make accurate representations about properties, including the reasonable values of those properties, the features of those properties or any other matter that is material to the sale, purchase or lease of the property by a consumer. As per section 209 of the POA, a licensee or registered employee must not, in connection with the sale, or the possible sale, of an interest in land or in connection with the promotion in any way of the sale of an interest in land, represent in any way to someone else anything that is false or misleading in relation to the value of the land at the date of sale; or the potential income from the leasing of the land; or if the land has been previously sold, the date of the sale and the consideration for the sale; or how the purchase of the land may affect the incidence of income taxation on the buyer. Property Occupations Act 2014 Part 11 General contraventions and evidentiary maters Section 209 False representations and other misleading conduct relating to residential property
(1) A marketeer must not, in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of residential property in Queensland, represent in any way to someone else anything that is false or misleading. Note — For remedies for a contravention, see part 9 (QCAT proceedings).
(2) Without limiting subsection (1), a marketeer must not, in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of residential property, or the possible sale of residential property, in Queensland — (a) represent that the person has a sponsorship, approval or affiliation the person does not have; or (b) make a false or misleading representation about the following — (i)
the nature of the interest in the property;
(ii) the price payable for the property; (iii) the location of the property; (iv) the characteristics of the property;
(v) the use to which the property is capable of being put or may lawfully be put; (vi) the existence or availability of facilities associated with the property; (vii) the value of the property at the date of the sale; (viii) the potential income from the leasing of the property; (ix) if the property has been previously sold, the date of the sale and the consideration for the sale; (x) how the purchase of the property may affect the incidence of income taxation on the buyer; or (c) offer gifts, prizes or other free items with the intention of not providing them or of not providing them as offered. Note — For remedies for a contravention, see part 9 (Proceedings).
(3) Without limiting subsection (1) or (2), a representation is taken, for the subsection, to be false or misleading if it would reasonably tend to lead to a belief in the existence of a state of affairs that does not in fact exist, whether or not the representation indicates that state o f affairs does exist. (4) Also, if a person makes a representation relating to a matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading. (5) The onus of establishing the person had reasonable grounds for making the representation is on the person. (6) It is not a defence to a proceeding for a contravention of subsection (1) or (2) for the marketeer to prove that an agreement with the person was terminated or that the person did not enter into an agreement because of the representation. (7) In this section — fal se or mi sleading , for a representation, includes the wilful concealment of a material fact in the
representation. Note — A person may make a claim, under the Administration Act, against the fund if the person suffers financial loss because of a contravention of this section.
A representation is taken to be false or misleading if it would reasonably lead to a belief in the existence of a certain state of affairs that does not in fact exist, whether or not the representation indicates that that state of affairs does exist. If a person makes a representation in relation to a matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading. False or misleading, in relation to a representation includes the wilful concealment of a material fact in the representation. Put simply, an agent may liable for engaging in false or misleading conduct or misrepresentation if the agent:
Leads a consumer into believing a fact regardless of whether the agent intended to mislead them or not (innocent or negligent misrepresentation) Knowingly permits a consumer to draw incorrect conclusions (fraudulent misrepresentation) Remains silent when there was a duty to disclose a fact.
[5.4.2] Agent’s silence of known information
Silence may constitute misleading or deceptive conduct where there is a duty to reveal relevant facts. Whilst there is no general duty of disclosure in commercial dealings, the failure to disclose a fact regarding a particular characteristic of a property may be regarded as being misleading or deceptive, particularly where the recipient of a representation is entitled to believe that the relevant matter would be communicated. Most importantly, an agent may be prosecuted regardless of whether a consumer has entered into a transaction or not, and regardless of whether losses have been sustained. [5.4.3] Representations in advertising
All representations made regarding the agent’s description of a property, including the property’s features, fixtures and characteristics, must be true and must not amount to express or implied representations that are false. These representations of the description of a property and its characteristics must be made accurately and without any embellishment. Real estate agents must not make false or misleading representations about investment properties, including the reasonable values of those properties, the features of those properties, the likely rental returns, the nature or effect of long term management contracts, or any other matter that is material to the sale, purchase or lease of the property by the consumer concerned. [5.4.4] Photographic representations
More consumers are using the internet as their primary source of information about a product. Industry regulators are concerned that photographs of properties which have been touched up to hide undesirable characteristics or enhance other features could mislead consumers. Whether an agent’s conduct is misleading or deceptive, including portraying photographic images can depend upon the overall impression, or the implied representation, produced by that conduct. Therefore, the agent must ensure that photographic images and other market devices are not used in a manner that can give rise to implied representations that are false or otherwise amount to misleading or deceptive conduct. A real estate agent must not alter or permit to be altered photographic images of properties, digitally or by other means, such that the images no longer truthfully and fairly represent that property. Whether the alteration of a photographic representation is misleading or deceptive will depend upon all of the circumstances. For example, digitally adjusting the exposure of a photograph so as to brighten the lighting of the photograph taken on a dull day may be legitimate. However, removing television aerials or power poles adjacent to the property; brightening up paint work on a house or over-stating the views that might be achieved from the property may amount to misleading or deceptive conduct. An agent may be liable for misleading representations contained in photographs that have originated from external sources such as an advertising sub-contractor or the seller. The passing on of such photographs by agents to potential buyers can amount to misleading or deceptive conduct by the agent. Agents should ensure that their contracts with advertising sub-contractors include provisions to ensure that the sub-contractors do not engage in misleading and deceptive conduct, including in connection with marketing representations contained in photographs.
Agents should also bear in mind that it is generally no defence to an action for misleading or deceptive conduct for a real estate agent to claim that the consumer concerned should have checked the information provided by the agent or for the agent to claim that the consumer has failed to make reasonable enquiries. [5.5] Fair Trading Act 1989
Whilst the Commonwealth’s Competition and Consumer Act (CCA) applies primarily to companies, all states and territories have enacted their own legislation to regulate dealings and transactions within their jurisdiction. Queensland’s Fair Trading Act (FTA) has similar provisions to the CCA and applies to individuals, as well as companies, engaging in trade or commerce in Queensland. The FTA makes it an offence to make false and misleading statements about:
The nature of the interest in land
The price payable for the land
The location of the land
The characteristics of the land
The use to which the land is capable of being put or may lawfully be put
The existence or availability of facilities associated with the land.
The Fair Trading Act imposes civil and criminal penalties and can also enforce the payment of fines. [5.6] Commonwealth legislation [5.6.1] Competition and Consumer Act (Australian Consumer Law) 2010
The Competition and Consumer Act applies throughout Australia to protect consumers against misleading or deceptive conduct in trade and commerce generally. The Act is primarily directed towards the activities of companies (corporations). However, specific sections draw into the net any person who “… aided and abetted, counselled or procured the contravention” or have been in “… any way directly or indirectly concerned in, or party to, the contravention” . The Competition and Consumer Act encourages a fair and competitive environment and applies to almost every aspect of business. The sections relating to Australian Consumer Law can be found in Volume 3 Schedule 2 of the CCA. When listing a property the agent should ensure agreements conform to the requirements of the POA and are written in plain English and use terms that are standard throughout Australia. The appointment authority includes the following:
Fee structure
Period of agreement
Advertising and schedule of costs Other expenses to be incurred
The CCA prohibits unconscionable conduct in both consumer and commercial contracts. Unconscionable conduct includes:
Harsh contractual terms
Stronger party unfairly exploiting the weaker party’s disadvantage, such as :
The weaker party does not have the ability to understands the effects of a transaction
Information is not disclosed
Stronger party benefits unfairly
A misrepresentation is relied on by the weaker party
Section 21 of the CCA applies to all commercial situations where unconscionable conduct may arise. It states: “ A corporation must not, in trade or commerce, engage in conduct that is unconscionable w ithin the meaning of the written law”.
Section 22 of the CCA prohibits one business dealing unconscionably with another when negotiating the purchase or sale of goods and services. It applies to any transaction with a private company valued under $3 million. The CCA contains provisions that protect consumers and other businesses when they enter contracts to purchase goods or services; such as:
Prohibition of misleading or deceptive conduct
False and misleading representations
Unfair trading practices
Section 18 of the CCA prohibits misleading and deceptive conduct and sections 30 and 152 of the Act prohibit making false and misleading representations. Agents can breach these sections if they over-appraise a property. When appraising properties, it is important for agents to be realistic and base appraisals on a sound understanding of the market. If the purpose for suggesting an unachievable price to get the property listed with the agency, it will be deemed to be misleading and deceptive. Section 30 and Section 152 of the CCA focuses on the activities of any company involved in real estate transaction, regardless of whether the company is a real estate agency, seller, or landlord. It covers sales and property management transaction, and makes it an offence to make false and misleading statements about:
The nature of an interest in land
The price payable for the land
The characteristics of the land
The use of the land
Agents should take care in designing and writing property sale advertisements. The advertisements may be read by potential customers from interstate or even overseas, especially if the agent advertises on the Internet. These potential customers may not wish to inspect the property. An agent’s standards of diligence and integrity are al ways regarded as high. The
advertisements must make only valid statements and contain no information which cannot stand up to the rigours of scrutiny. The statements made must be able to be substantiated by the physical search of the property or by other legitimate inquiries made prior to the
purchase. The real estate industry and the regulators place great emphasis upon proper disclosures during the negotiation of the property sale. Examples of how section 35 and section 157 of the CCA apply to real estate advertising include:
When advertising the availability of a number of units or blocks of land, it is more informative to state the price of each; however if a price range is used, it is desirable to also state the price at which the majority are available. Advertisements providing information on the location of the land or distance from facilities are less likely to mislead if they are factual; for example, ‘shops approximately 1.5kms’ rather than the subjective ‘walking distance to shops’ . Care should be taken to ensure that any factual statements about the characteristics of a property are correct.
Real estate agents should bear in mind that the application of the misleading or deceptive conduct provisions of the CCA to specific instances of conduct can be complex. If agents have any doubts regarding any issues under this legislation they should immediately seek legal advice. Nevertheless, some general principles regarding the application of the misleading and deceptive conduct provisions of the CCA can be stipulated when:
Determining liability for misleading or deceptive conduct, the intent of a person is usually not relevant. The issue is whether conduct, tested objectively, has been misleading or deceptive. It is not necessary for a person to have intended to mislead or deceive in order for liability to arise under the CCA. Real estate agents may be liable in civil actions for passing on false information even if they have received that information from others and reasonably believe the information to be true, particularly if they appear to have adopted that information. Assessing whether conduct is misleading or deceptive, a Court will have regard to the overall impression created by the conduct. Consequently, for example, the Courts will often look at what has been implied by particular conduct in determining liability. This can be particularly relevant when considering whether advertisements and other forms of marketing are misleading or deceptive. Silence may constitute misleading or deceptive conduct where there is a duty to reveal relevant facts. Whilst the Courts have stated that there is no general duty of disclosure in commercial dealings, the failure to disclose a fact may be regarded as being misleading or deceptive, particularly where the recipient of a representation is entitled to believe that a relevant matter affecting him or her would be communicated. The stating of predictions or opinions can give rise to a liability for misleading or deceptive conduct, particularly when those predictions or opinions are not based on reasonable grounds. Disclaimers and exclusion clauses do not, in themselves, absolve a person engaging in misleading or deceptive conduct from liability. The ability of intermediaries, such as real estate agents, to avoid liability when they have merely passed on information without adopting it is unclear, agents maximise their chances of avoiding liability for representations that have not originated from them when they make that fact clear to the recipient of the information. The High Court has suggested that a person who does no more than pass on information supplied to him or her, making it clear that he or she is merely passing it on for what it is worth and disclaiming its truth or falsity, may not have engaged in misleading conduct if the information proves to be incorrect. However a real estate agent is unlikely to escape liability if they are aware or have cause to believe the representations are false or misleading.
It is generally no defence to an action for misleading or deceptive conduct for a real estate agent to claim that the consumer concerned should have checked the information provided or for the agent to claim that the consumer has failed to make reasonable enquiries.
The CCA imposes civil and criminal penalties and can also enforce the payment of fines. [5.6.2] Two-tier marketing
The Australian Competition and Consumer Commission ( ACCC) have publicly expressed concern about the practice of misleading two-tier pricing, or two-tier marketing. Two-tier marketing refers to the practice of having two prices or tiers in a real estate market, one for the locals who know the market values in that area and one price for other buyers, often from interstate, who are not aware of the local market prices. The ACCC believes the practice is a form of misleading or deceptive conduct. Real estate agents should not engage in two-tier marketing, which is the practice of setting different tiers of pricing, with higher prices being charged to consumers who are, for example, resident outside the particular area of the property or who are otherwise unaware of material facts such that they are prepared to pay prices for the property that are higher than the prices that those who are aware of those facts would be prepared to pay. Potential buyers of property must not be induced to believe that the stated price of a property is a fair market value when the price has been inflated by matters irrelevant to the value of the property, such as marketing fees, commissions and profits. Also, consumers should not be provided with estimates of market values of properties that are misleading or deceptive. False or misleading representations about investment properties include the reasonable values of those properties, the features of those properties, the likely rental returns, the nature or effect of long term management contracts, or any other matter that is material to the sale, purchase or lease of the property by the consumer concerned. Valuations and market appraisals provided by real estate agents must be realistic and based on a sound understanding of the relevant market. By providing valuations, appraisals or market forecasts in a volatile market, agents shall identify that volatility to the relevant consumer and shall warn the consumer to keep that volatility in mind when evaluating the agent’s valuations, appraisals or market forecasts. Agents shall ensure that they do not participate in any harsh or unconscionable conduct with respect to the marketing or sale of properties. Real estate agents must advise consumers of any significant beneficial relationships that they have with any service providers to whom the consumer is referred by the agent and any commissions, money or other benefits that the agent may receive as a result of that referral. The offering of gifts or items as being “free” when the true costs are disguised in the selling price of the property is prohibited. The offering properties at discounted prices in a land development when the properties have in fact not been discounted at all or where the properties will not be available at that discounted price in reasonable quantities or for a reasonable time is considered to be bait advertising. If the purpose of the advertising properties at discounted prices is to in fact lure potential buyers to purchase more expensive properties, the conduct of the agent may amount to bait-advertising.
[5.7] Privacy Act 1988
The Privacy Act 1988 (Privacy Act) is an Australian Law which regulates the handling of personal information about individuals. This includes the collection, use, storage and disclosure of personal information, and the access to and correction of that information. It contains a unified set of Australian Privacy Principals (APP’s) that apply to both private sector and the Commonwealth public sector. The real estate industry is required to comply with privacy laws covering information and opinions processed by them about individuals whose identity is apparent or can be ascertained. The privacy legislation applies to all businesses who derive a ‘benefit, service or advantage’ by the collection or disclosure of such information. The terms, ‘benefit, service or advantage’, are not limited to situations where information is
traded for money. It covers not only businesses which buy or sell personal information, but also any other businesses which get some real return from either the collection or disclosure of information, even if that return is not a payment of money. Agents who use tenancy databases, for example, rely on a flow of personal information to and from the organisations maintaining the databases. If this flow of information occurs for a ‘benefit, service or advantage’ the organisations and agents must comply with the law. Legislation requires the quality and security of personal information is maintained, that where requested and possible, organisations deal with people anonymously or via a pseudonym, that information is not exported from Australia in an unprotected manner and that Commonwealth government identifiers are not used or disclosed. Agents, who obtain and store personal information, have stringent obligations imposed on them as to how this information can be gathered, used, disclosed, destroyed, accessed and corrected under the Act, which protects the rights to maintain personal information at a private level. Pursuant to the provisions of Privacy Act 1988 , agencies are required to:
Have a readily available privacy policy which must contain the following information; 1. The kinds of information that the business collects and holds 2. How the business collects and holds personal information. This includes data storage and cloud computing 3. The purposes for which the business collects, holds, uses and discloses personal information 4. How an individual may access their personal information 5. How an individual may seek the correction of their personal information 6. How an individual may complain about a breach of the APPs or an applicable APP Code, and how the business will deal with the complaint 7. Whether the business is likely to disclose personal information to overseas recipients, and if so, the countries in which such recipients are located
Ensure the policy is being complied with Ensure all personal information is stored securely and destroyed or de-identified once it is no longer required. security systems are adequate Review the types of solicited and unsolicited personal information gathered during the course of their business and if it is really necessary Assess how this personal information is used
Recognise when disclosures of privacy matters must be made to tenants, sellers, buyers, lessors, consultancy clients, contractors and agency staff
Regularly review and audit privacy practices and procedures
Pay particular attention to direct marketing campaigns
Take care in the way notes of personal information are recorded
Understand when solicited and unsolicited personal information should not be disclosed
[5.7.1] Australian Information Commissioner
To help business and consumers understand their rights and responsibilities the Office of the Australian Information Commissioner has developed a broad range of information resources to provide guidance. For information access the Office of the Australian Information Commissioner website, www.oaic.gov.au
Under the Privacy Act Commonwealth and private sector organisations should have measures in place to comply with the thirteen Australian Privacy Principles when processing personal information in, or for inclusion in, a record. The Privacy Act deals with privacy information, which relates to what real estate agents do with information and how they process and store information. Real estate agents must be very careful about how they collect information and what they use it for. For instance, the information that an agent includes on the PO Form 6 may appear innocent when a listing is first processed; but if that information is later inserted in a Tenancy Agreement or Contract of Sale, this information could unwittingly be used by ano ther party. When listing properties for sale or rent, it is recommended all agents provide the client with a privacy statement, informing them how the information being gathered shall be stored and who may have access to details such as sales and rental prices, telephone numbers etc. [5.7.2] Rules of collecting information relevant to real estate transactions
Agents should only collect information necessary for their function or activities. However, agents need to collect a large amount of data when completing sale and property management transactions, such as:
Bank account details
Name, address and telephone numbers
Credit and personal references
Drivers licence
Financial details
[5.7.3] Use of fair, lawful and unobtrusive means to collect personal information
An agent should at all times be open and honest with the consumer and make clear that any information being given to them is being recorded. The agent should always source the information directly from the party concerned where possible and not rely on hearsay or third party information. Always verify information first hand before storing it on a database, and obtain consent before storing a person’s information on a database . [5.8] Do Not Call Register Act 2006 [5.8.1] Do Not Call Register
The Do Not Call Register Act 2006 is Commonwealth legislation that came into effect on 31 May 2007. The legislation applies to anyone making a telemarketing call to a private Australian phone number (including private mobile phones) regardless of where the call is being made from, and any organisation commissioning such calls to be made on their behalf. [5.8.2] Telemarketing calls
Telemarketing calls are defined as a voice call which is made for the purpose to offer, supply, provide, advertise or promote:
Goods or services
Land or an interest in land
A business or investment opportunity Solicitation of donations.
[5.8.3] Exemptions
While it is generally unlawful for telemarketing calls to be made to numbers listed on the register, there are some exemptions. Certain public interest entities are allowed to make specific types of calls to numbers on the register. These include:
Charities
Educational or religious organisations
Registered political parties and independent members of parliament
Electoral candidates
Government bodies.
Market and social researchers conducting opinion polling and standard questionnaire-based research calls are also permitted to call. However, these calls will be subject to the industry standard for telemarketing and research calls [5.8.4] Minimum standards for all telemarketing calls
Telemarketing calls can only be made between 9 am and 8 pm Monday to Friday Telemarketing calls can only be made between 9 am and 5 pm on Saturdays and not at any time on Sundays or public holidays which are gazetted Anyone making a telemarketing call must provide specific information to the consumer.
[5.8.5] Specific information must be provided by telemarketers
The contact details and the purpose of the phone call (this is defined as the caller’s business phone number and either mail, street or email address) The caller must terminate the call by either direct or inferred request or when it is determined that the call contravenes the minimum standards described above. Telemarketers must ensure that they have caller id displayed and cannot use a private or withheld number to make a telemarketing call.
[5.8.6] How to check if someone is on the register
Consumers can very easily add their name and number to the Do Not Call Register, meaning they have registered to NOT be contacted by any telemarketers. Agents will need to check the ‘register’ through a process referred to as list washing. This process will be available 24 hours a day, 7 days a week. The agency will need to set up a list washing account. There are 2 types of accounts – an administration account and a washing account. The administration account is considered best suited to most businesses. [5.8.7] Administration List Washing Account
Once the agency has set up the account (visit www.acma.gov.au) the agency can then upload the numbers they wish to call. The list washing process will then check the numbers the agency wishes to call and will validate whether the numbers being washed are registered. Most agents will utilise the Quick Check option due to the convenience, practicality and ease. All numbers submitted must be in a prescribed format. They must be 10 digit numbers and must start with a zero. Agents can insert brackets, hyphens and spaces. For example: 07 3242 2587 accepted 3242 2587 not accepted When the list has been washed, it will identify the numbers the agency is able to call, and the ones that the agency is unable to call. For the fee for list washing, refer to the ACMA website for price details. [5.8.8] Agency database
Agents may call people listed on the agency database even if they are on the Do Not Call Register. However, the agency will need to ensure they have their express or inferred consent to do so. No agent should make a call to a person on the register without their consent. [5.8.9] Inferred consent
Inferred consent is taken when a business relationship exists between the caller and the individual. Based on this business relationship, there is a reasonable expectation by the caller that the agency will be calling and contacting them. [5.8.10] Express consent
Express consent is where an individual has provided a clear directive they would like to receive phone calls from the agency. It is important to note if there is express consent, it only lasts for three months, unless otherwise specified.
[5.8.11] Best practice recommendations
Add in a statement providing express consent for the ag ency to make contact on all relevant documentation such as the open for inspection registers, auction bidding registration forms, tenancy applications, etc. Insert a timeframe for making contact e.g. indefinite period (the agent should have a mechanism for the person to remove their consent).
The agency may wish to add the following clause to appropriate agency paperwork to obtain express consent for telephone marketing calls to ensure compliance with the Do Not Call Register Act: I agree that I am the telephone account holder or a person nominated by the account holder, and understand that (INSERT YOUR AGENCY NAME) may use the phone details provided here to contact me for marketing purposes until I advise otherwise.
If the clause is provided at the top of a form, it should be amended as follows, and a box included for the client to tick: By ticking the box marked ‘marketing consent’ next to my name below, I agree that I am the telephone account holder or a person nominated by the account holder and understand that (INSERT YOUR AGENCY NAME) may use the phone details provided here to contact me for marketing purposes until I advise otherwise.
These clauses should be used in addition to collection notices already being used for the Privacy Act. It is very important to understand that to establish express consent of telemarketing calls, it must be clear the consent is for that purpose, and not for other purposes such as security reasons or complying with the Privacy Act. The best practice recommendation when it comes to making telemarketing calls (and for direct marketing purposes as well), is to always be cautious, ethical, respect people’s privacy and only contact people when the agent has their consent. Refer to the websites www.acma.gov.au or www.donotcall.gov.au for additional information and fact sheets. [5.9] Learning activity 5 Question 1: Name four circumstances where it is an offence against section 40a(1) of the Fair Trading Act 1989 to make false and misleading statements
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
Question 2: What are some of the risks involved in providing specialist advice to clients?
__________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 3: What agency systems and processes should be in place to ensure compliance
with the Privacy Act? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 4:
What is the procedure to check if someone is listed on the Do Not Call
Register? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________
PART 4 – PROPERTY SALES UNIT 6 - INTERPERSONAL SKILLS [6.0] Agents do not only need product knowledge in order to secure listings, they also need
interpersonal skills when dealing with their clients. Their property appraisal materials can be presented well, but if they don't know how to use appropriate interpersonal skills with their clients, they will not proceed very far. Interpersonal skills take into account the following:
communication skills – including listening and speaking
questioning techniques
negotiation skills
[6.1] Communication skills The purpose of communication is to get the agents’ message across to their client. It involves
agents sending the message to the client so that it can be interpreted correctly. It consists of sender, message, channel, receiver, feedback and context. By successfully getting their message across, they convey their thoughts and ideas efficiently and effectively.
Sender – To establish yourself as an effective sender/communicator, you must first
establish credibility. This involves using your knowledge of real estate, your client and listing properties for sale or rent. It is important that you know the needs and motivation of your clients to make sure that you have not misunderstood their requirements.
Message – Written, oral and nonverbal communications are effected by your tone,
method of organisation, what is communicated and what is left out, as well as your individual style of communicating. If your message is too lengthy, disorganised, or contains errors, you can expect the message to be misunderstood and misinterpreted. Use of poor verbal and body language can also confuse the message.
Channel – Messages are sent through channels, using verbal including face-to-face
meetings and telephone; and written including letters, emails, memos and reports.
Receiver – Your receiver is your client. Your client also enters into the communication
process with ideas and feelings that will undoubtedly influence their understanding of your message and their response.
Feedback – Your client will provide you with feedback, e.g. verbal and nonverbal
reactions to what you say. This feedback will help you check that what you are saying is understood.
Context – The context for your message is real estate and in this situation, securing a
listing of the property. [6.2] Questioning techniques
At the initial interview with the client, information on the specific motives for selling can be gained by asking questions. Asking the correct questions in the correct manner is important because this will determine the quantity and quality of the information obtained. The questions should be relevant and focus on the information which is required. There are a number of different types of questions which can be used. These include:
Closed questions – are structured to be answered by a simple, brief response. These are often answered with a 'Yes' or 'No'. For example, "Did you know that your home presents well in comparison to other properties in the area?"
Open questions – are designed to draw out more complex explanations or opinions.
They allow for a variety of answers and allow the client to explain something in more detail. They usually start with What, Where, When, Why, How . For example, "How do you think the presentation of your property compares with other properties in the area?"
Probing questions – are designed to stimulate further information to a question already asked. For example, after the client has answered a question by saying, "I think the presentation of my property is better than other properties in the area." , questions can be used to probe further by asking them, "What is it about your property presentation that makes it better?". Structured questions – all clients are asked the same questions for agents to gather the
same information. For example you will need to know:
the names of the owners and if they are the same as those on the Certificate of Title
details of family members
their likes and dislikes of the house
their reason for selling
Unstructured questions – these are general questions that are used during the
interview to gain more information. They may not be asked of all clients. [6.3] Negotiation skills
To maintain a good working relationship with the client, negotiation should be a win-win situation so the agent and the client have positive feelings about the situation. Displays of emotion are inappropriate when negotiating because they undermine the rational basis of the negotiation and bring a manipulative aspect to them. However, people's emotional needs must be met otherwise the agreement reached can be unsatisfactory and temporary. Agents should not discuss their own emotions; however, they could discuss them as if they belong to someone else. UNIT 7 – METHODS OF SELLING [7.1] Methods of selling property
There are several ways a client may sell their property including the following. [7.1.1] Private treaty
Private treaty is used for all non-auction and tender transactions. The agent accepts an appointment to present the property for sale to interested parties attracted as a result of advertising. The property is offered at a price and should a prospective buyer express interest, negotiations commence. The seller sets a price for the property (in consultation with the agent) and places the property on the market. The seller retains control of the selling process and is at liberty to accept or refuse any offer. Private treaty is a common method of sale and is good for properties where there is plenty of competition from other properties. Commonly, a private treaty method will be referred to as an open listing, sole agency listing or exclusive listing.
[7.1.2] Public auction
Public auction is where a licensed auctioneer offers a property for sale to the public and sells to the highest bidder at the reserve price (if any) or higher. Or if the reserve price is not reached, the auctioneer will “pass in” the property and negotiations may continue with the highest, or any bidder under private treaty terms. [7.1.3] Tender
The tender process involves properties and land being sold without the seller disclosing a price. Owners of these properties (generally commercial) or land will engage a salesperson to offer the property for sale by tender. This enables interested buyers to submit a tender for a nominated amount for the property by a specified closing date. Suitable properties to sell through tender are ones that are:
not suited to private treaty, or auction - this can be decided by the limitations of the seller, such as a government agency, or by the unusual nature of the property
commercial, retail or industrial
special interest properties
highly priced
difficult to price – e.g. The first property in a brand new block may be put out to for tender just to see what people are willing to offer.
[7.1.4] Criteria for deciding the best method of sale As well as looking at the type of property and the seller’s motivations when deciding on the method of sale, agents always need to be aware of what’s going on in the market place.
There are times when one particular method of sale is more effective than others. (a) The property
Does the property suit one method of sale?
Can market price be easily established?
Does the property have alternative uses?
Does the property have much competition?
(b) The seller
Is the seller motivated to sell?
Is the seller realistic about price?
Will the seller pay for the marketing campaign?
(c) The market
Is the timing right for selling?
What are the current levels of results for each method of sale?
Where is the market heading?
What are buyers’ current attitudes?
(d) Effectiveness
Knowing the market conditions helps agents to determine the effectiveness of each method of sale.
Which methods get the best results?
Which methods best suit buyer habits?
Which methods get unrealistic sellers quickly conditioned?
[7.2] Best listing sources
There is a wide variety of listing sources available and these generally fall into the following categories.
The personal approach
Pounding the streets
Making use of current contacts
Research
[7.3] Open for inspection
Open for Inspection is an excellent place to meet prospective sellers. In most cases a home open provides contacts with buyers and potential sellers – people looking and checking the market before selling their own home. It is important to communicate with visitors to the home open to find out the nature of their interest in the home open property. Questions need to be asked and attention paid to the responses. For example, the answer "we live down the street" indicates general interest rather than committed buyer behaviour. [7.4] Private seller (for sale by owner)
It is standard procedure for all successful real estate practitioners to scan the newspapers daily for privately placed real estate ‘For Sale' advertisements. This can be a good source of listings. Private ‘For Sale' advertisements are found under the suburb headings with Agent's advertisements. It is a good idea to clip out any relevant ads for private sellers in the area and paste them in a clippings book. Before making a call to a private seller, the agent should abide by the Do Not Call Register legislation and ‘wash’ the private number to ensure the person has not included their number on the Do Not Call Register. When making a call to a private seller, the representative must respect their right to sell privately and offer services carefully and tactfully. It is best to try to make a time to visit the home and offer to do an appraisal. It is unwise to negotiate terms and conditions or selling fees over the phone. Where possible an agent should insist on a face to face meeting. It is unethical for an agent to say that they have a buyer unless it is true. How does one list from private advertisements? Good opening questions are:
If a new advertisement: "Is your property still available for sale?"
If ringing after a few ads: "Have you sold your property?"
This may not get an immediate appointment to list, but possibly in a week or two the sellers may begin to realise that they may be better off in the hands of a good agent. This is why it is necessary to keep a record of private classified advertisements over time. [7.5] Private ‘For Sale’ signs Stop and visit the owner when sighting a private ‘For Sale’ sign in the farming area. If there
happens to be a buyer in the car at this time a representative should simply note the address and phone number and be sure to return or ring on the same day. [7.6] Buyers
People who already own a property and wish to upgrade or make a change, often enquire about other property for sale. Generally, they first want to see what their money can buy before they make a move to sell. Sellers usually have some firm motivation to move, such as the need for a larger lounge, a fourth bedroom or a better location or retirement, etc. Whilst it is important to assist sellers, who have a house to sell, with finding another property so that they don't purchase and ultimately list with another agent, this must be balanced against always offering the correct advice. After the sellers have had an initial look for a property and are better informed as to what they can expect to find or afford, it is the agent's responsibility to provide advice that provides them with the best net outcome. Unless they are in a position to obtain bridging finance when making a subject sale offer, they will usually be paying more than a cash or finance buyer would be. It is important to offer unbiased assistance and sincerely demonstrate that the agent will only act in their best interests. [7.7] Referrals
Whether listing, selling or appraising property, an agent should ask "Of all the people you know, who do you think is likely to be making a move in the near future? " It is important to remember that people often associate with others in a similar financial position to themselves and are therefore quite often considering, or making real estate plans, at the same time. [7.8] Letterbox cards
Essential items in a letter box card include:
salesperson’s name, agency name, address and telephone number and an afterhours or mobile phone number a message that states listings are being sought, such as: "We are in urgent need of properties for genuine cash buyers. If considering selling, please call ..." Letterbox cards can also include a calendar, recipe or useful information that will make people want to keep it. Fridge magnets included on the flyer are very popular.
Ensure that you have an ethical statement on all letters and marketing such as “ If your property is currently listed solely or exclusively with another agent, please disregard this notice”. If employing a ‘letterbox dropper’' the agent should consider that pamphlets will probably be
lost among other catalogues and letter drops. The response will be greater if the agent personally delivered them, giving the agent an opportunity to learn more about their area.
[7.9] Door knocking
This is one of the best ways to become established in the area. People are also more likely to open up about their real estate plans when they see the agent’s genuine good intentions. When communicating with people it is necessary to realise that spoken words contribute only 7% of the meaning. Body language and the voice tone used make up 55% and 38% of the meaning, respectively. Therefore people will have buyers wanting a specific type of house or a house in a specific area. They may even give boundaries on streets and other good reasons for wanting property in that area, such as location of their church, school, or shire boundaries. Door knocking is a good source of listings that should not be restricted to trying to satisfy specific requests but used as part of the daily and weekly prospecting and marketing activity. [7.10] Door knocking manners
Consider the following strategies when door knocking in potential sales areas.
Ring doorbell for only 2 - 3 seconds. Longer could annoy the occupant. If chimes sound, ring only one full course of the chimes. If knocking, do so gently. If confronted with a heavy, soundproofed front door, tap gently on the window. Listen for sounds that indicate a knock or ring is heard. If nothing is heard, wait a minute or so before ringing or knocking again. Take three steps back. Don't stand right in the doorway. This often intimidates the person opening the door and will put them on the defensive rather than leaning forward - a better body position for a conversation. Smile - this helps to remove the occupier's anxiety or annoyance. Give personal Identification and that of the office distinctly. Offer a business card, and state the reason for the call. For example: "Good afternoon, my name is Edward Guthrie of Edward Guthrie Real Estate in Beenleigh. I have a buyer interested in buying a house such as yours in this area. Would you be interested in selling? "
Prospecting like this often brings good results. It is a case of being in the right place at the right time, and it is surprising how often a homeowner will be encountered who is considering selling. [7.11] Buildings under construction
Watch for houses, blocks of units or commercial or industrial buildings under construction. The name and address of the owner can usually be obtained from the site supervisor or council records. Contact the owners by phone or by letter and attempt to obtain a listing. If it is for lease, then it is a potential management opportunity for the agency or it may be a future investment sale. (Remember, it is unethical to try to solicit a listing on properties displaying another agent's 'For Sale' or 'To Let' signboard). [7.12] Local Government building application
Many enterprising agents make it a practice to obtain copies of the minutes of the local council meetings for details of building or development applications and approvals. This is another good source of listings.
[7.13] Advertising for listings
Many agents find it profitable to look at their prospects' requirements and then advertise in the local newspaper under `Property for Sale'. This is an expensive way to prospect but if the employer approves, it does show the wider community that listings are actively being sought Examples are:
'Bank Officer, finance arranged, seeks four bedroom brick home in Holland Park, up to $280,000.' 'Young working couple seek 2-3 bedroom cottage within walking distance to Coorparoo railway Station, up to $365,000.'
Agents should not advertise in this way unless the buyers are genuine and qualified. It is unethical to do otherwise and is a Competition and Consumer Act (Australian Consumer Law) offence. [7.14] Being observant
When driving around use as many different routes as possible. Keep a lookout for signs of potential listings, for example:
neglected properties
properties being painted or renovated
properties being demolished (what is going to take their place?)
[7.15] Letters to absentee landowners
People who own vacant or developmental land often do not live in the area and may not know the local agents. The names and addresses of absentee landowners can be obtained from the local council (there is usually a cost involved to obtain this information). Remember it is unlawful to use owner’s information sourced from commercial databases such as Core Logic RP Data. Write to the owner and ask for a listing; once you have lawfully obtained their details. Remember to enclose all the listing documents requiring a signature. [7.16] Neighbours
Representatives must ensure that the neighbours are aware that they are in real estate and be as friendly as possible. Often neighbours are good source of referrals. To enhance your real estate standing amongst neighbours, become the real estate expert in the neighbourhood. [7.17] Relatives and friends
Relatives and friends can be difficult because they may expect preferred treatment, and sometimes fail to appreciate a representative's experience. However, they can be good sources of listings and referrals. If relatives and friends live outside the farming area, try to ensure that they know their real estate interests can still be looked after by you.
[7.18] Schools
If you have children at school, ensure that other parents at the children's school, along with their friends and teachers know that you are in real estate. The school's Parent/Teacher Association is another good source of business. It is surprising just how much business can come from these sources. [7.19] Clubs
Many real estate salespersons are members of civic, social or business clubs, such as Apex, Jaycees, Lions, Rotary, a businessmen's or veterans' club. When the opportunity arises, club members should be advised of their involvement in real estate. They are often a good source of listings and referrals. Business from fellow members can make a big difference to a Representative's income. [7.20] Church
Buyers and sellers like to work with people they know and trust. A representative should not hide their occupation from fellow church members. Be aware of their buying and selling needs and be of service to them. [7.21] Walk-ins
Once a salesperson is established in an area, potential clients will walk in off the street to ask about selling. Handle this type of enquiry immediately. Go with the seller to view and list the property. Otherwise, he or she may find a more interested salesperson in a competitor's office. [7.22] Telephone enquiries
Be prepared to receive telephone enquiries about property sales in the area. Do not give unconsidered opinions over the phone - offer to complete an appraisal and make an appointment to view the property immediately, before the seller phones another agent. Without an appointment an opportunity has been lost to view the property, meet the seller and obtain a listing. A market sales opinion over the phone is soon forgotten, but a written appraisal is a permanent record and is the first step to getting the listing. Remember you must give a written sales opinion when providing a seller or prospective seller an opinion about a sales price. There are many other sources of listings, limited only by the salesperson's imagination. Remain alert for any potential listing and act on it immediately. Look for subtle hints. A seller may think a person is too successful or too busy to be interested in his small property. A remark such as: "What's the market like today ?" could well indicate a desire to list and should be followed up in conversation. [7.23] Database usage
An agent will often add potential sellers to their database so that they can keep in touch with them on a regular basis about current market trends and conditions. Keeping in regular contact with people on your database and using your database to its full potential is a great way of keeping your name and profile at the forefront of a potential sellers mind. Whilst they
may not be ready to list straight away, regular and consistent updates about current market trends help educate someone who is preparing to sell their property. An agent must always always ensure that there is a record record of the consumer’s permission permission to add their their
details to a database or mailing list. This can often be through records kept of attendees of open homes or emails sent to an agency asking for information about the market or industry. Strict guidelines apply in relation to using personal information on a database that agents need to be mindful of; including the requirements if asked by a consumer to remove their personal details from a database or mailing mailing list. An agent must, within 30 days, if requested, remove a person’s details from their database or mailing list. [7.24] Learning activity 6: Question 1: Your client asks you for advice concerning the best method of selling the client’s property . List six criteria you should consider before preparing a response as to the
most appropriate selling method. 1. ________________________________________________________________________ 2. ________________________________________________________________________ 3. ________________________________________________________________________ 4. ________________________________________________________________________ 5. ________________________________________________________________________ 6. ________________________________________________________________________
UNIT 8 - REAL ESTATE MARKET ANALYSIS [8.0] A real estate market analysis (or better known as a Comparative Market Analysis or
CMA) is an analysis of the market over periods of time. It can be done within the State or on a National basis. It compares prices which have occurred, and forecasts trends and patterns which may occur in the future. Market conditions are reviewed in regard to the social, economic and political environment as the market value of the property is affected by these factors. Market analysis information can be obtained from the Real Estate Institute of Queensland (REIQ), the Real Estate Institute of Australia (REIA), and publications and brochures on property for sale. A real estate market analysis compares sales which have occurred and forecasts trends and patterns which may occur in the future. This will provide the agent with information on:
median house prices
residential property market indicators
dwelling and land sales review
rental markets and vacancy rates
commercial properties
[8.1] Accessing market data
Every state real estate institute produces a market update every quarter which shows the following information:
market summary, including a National Roundup of median house prices and vacancy rates residential property market indicators median sale price of established house sales for capital city suburbs and State Regional areas
dwelling sales review
land sales review
capital city rental markets
commercial property report
This information is useful for the market appraisal presentation to clients as it provides information on market conditions. [8.2] Inspecting the property
A physical inspection must be conducted to identify possible building defects and their remedies. Agents should take note of:
details of the land, contours, the style and condition and age of the home
floor plan
features of the property such as gardens, pergolas
other improvements, out buildings, fencing, etc.
soft furnishings
any other potential defects
Information should be physically checked during the inspection and results confirmed with the client to ensure that it is a correct record. Advise the client to consult specialist advice when necessary. Also ensure you always remain within the boundaries of your qualifications and proceed with caution so as to not be seen to cross the line of giving inappropriate advice. [8.3] Where to obtain additional information
Additional information may be gained from the following areas area s to help the agent to complete an appraisal:
local government provide details of municipal management, zoning information, rates, ownership of properties, building by-laws The Department of Natural Resources and Mines www.dnrm.qld.gov.au maintains the land register and can provide a current certificate of title showing the title details and land ownership. periodicals provide current properties for sale and property news agent's property management and sales reports, and proprietary database will provide sales evidence in the area
newspapers can provide current information concerning properties for sale and comments on recent sales commercial property databases such as CoreLogic RP Data (www.rpdata.com)
[8.4] Databases
The REIQ Property Search website at reiq.com contains pertinent information which will assist in analysing current market trends when conducting a property appraisal. Information includes:
homes for sale
homes for rent
commercial properties
business for sale
land for sale
rural properties
Real estate agencies commonly have their own client and customer database. It is an extremely important and vital part of any agency. Proprietary commercial databases are also available by subscription and may provide detailed information which was obtained, under license, from the Department of Natural Resources and Mines, on properties in all areas. [8.5] Marketing plan
A marketing plan is a planned, documented program which outlines how the property will be exposed for either sale or rent. Good presentation is important when marketing a property and the agent may be asked for recommendations for improvements which will enhance the property's sale potential. Commonwealth and State consumer legislation, State real estate legislation incorporating codes of conduct, govern advertising in the real estate industry. It is desirable that a marketing plan be prepared prior to visiting the seller as this can be used for discussion and agreement gained on the methods to be used. The agent should involve the seller in describing the positive aspects of the property. When planning the promotion, it is wise to decide the steps to be taken each week during the period of agency in order to market the property to its full potential. Advertising a property is the most effective way to make potential buyers aware of the property. There are a variety of ways that a property can be advertised. When selecting marketing methods, the agent must be aware of regulatory requirements to avoid misleading or false misrepresentation. When a marketing plan has been designed, the costs need to be calculated and decided which may result in removing or adding marketing activities to fit the budget. Normally the seller will give instructions concerning the agency’s advertising budget, and costs should be watched and controlled within the set budget. A record of all relevant details about the progress of the sale can be presented in a Marketing Activity Log and will assist in the constant liaison with the sellers. It can also be used to review the marketing activities and support any changes to marketing strategies.
[8.6] Market price of property
The market price of a property is the most likely price that a customer will pay for a property at a specific point in time. Determining the market price of a property involves a high degree of market knowledge, research, an understanding of pricing methods and most importantly, a great deal of common sense. The price that a customer is willing to pay for a property can be influenced by:
the price that a valuer working for the financier thinks the property is worth
the price that the agent thinks the property is worth
the price that the client thinks their property is worth
[8.7] Market value of property
The market value of land and its improvements, like most commodities, is governed by the law of supply and demand. This law is greatly influenced by economic or man-made factors. For instance, demand for land usually occurs in cycles driven by periods of high demand followed by periods of low demand. Obviously, the worth of land is higher in a period of high demand rather than a period of low demand. Likewise, some land is in more demand than others. This is driven again by economical as well as psychological factors. For instance, there is often a greater demand for a block of land with an ocean view, rather than one without the view. A developer may prefer land on a main road close to services, while a homemaker may prefer land that is quiet and away from business and commercial activity. Generally, the purchase of land represents a long-term investment, and the amount paid for it, encompasses factors such as its legal use and the buyer’s expectations of benefits that will be derived from owning it. This may include having the satisfaction of ownership or the privilege of residing, or working in the chosen location. In common with most material possessions, this ownership has a price tag and this is expressed as the value of the land. The market value of a property refers to the relationship between a subject property and other comparative properties. The market value of property is also determined by the number of willing buyers and sellers in the marketplace. For example, if there are many buyers and only a few sellers, then it could be assumed that the value will be higher than if there are fewer buyers and many more sellers. Likewise, if there is an oversupply of rental listings in the market, and a reduced volume of prospective rental customers, the rental price of a property could fall dramatically. The value of a property is its current standing in the marketplace because the value is constantly changing and can only be representative of the timeframe during which the appraisal is conducted. If an agent appraises a property on today’s date, the appraisal price refers to the amount of money that can reasonably be expected to be paid for the property on today’s market. For this reason, a valuer must always date a valuation and ensure that there is clear reference to the circumstances that apply to the valuation. Most valuers will provide a clause stating that the valuation is valid for a three-month period, assuming there are no significant changes in market conditions during that time. Likewise, agents need to be sure they insert a date on any written market analysis report for a client.
To summarise – the market price of a property is a value that is subject to change. It is not constant, nor is it necessarily predictable. A valuer is qualified to provide valuations. A real estate agent or salesperson is not qualified to value. An agent provides estimated selling prices. [8.8] Legal definition of market value
The concept of market value was ruled on by the High Court of Australia in 1907 in a landmark hearing that is now known as the Spencer Case. ( Spencer v Commonwealth of Australia, 5 CLR at 418 ). Chief Justice Griffiths ruled: “In my judgment the test of the value of land is to be determined, not by enquiring what price a man desiring to sell could actually have obtained for it on a given day, but whether by enquiring what would a man desiring to buy the land would have had to pay for it on that day to a seller willing to sell it for a fair price but not desirous to sell.” The High Court of Australia today recognises market value as: “
The price which a property co uld be expected to realise if sold by a willing bu t not anxiou s seller to a willing but no t anxious bu yer at the date at which th e value is required to b e ascertained. ”
This definition has been interpreted to include the following provisions:
There is only one value for all purposes. That is, the price at which a property will sell at any given time is determined between a willing buyer and a willing seller. It is assumed that these parties are aware of all the facts relevant to the current marketplace, and therefore capable of making a rational decision as to a fair market price. The market value of a property for sale or for rent should always indicate a price that the property would achieve if it was offered for sale or for rent in the open market, allowing a reasonable time for a customer to become fully informed of the attributes of the property and the prevailing market conditions.
For this reason, market value is often referred to as the price at which a willing client would sell or rent and a willing customer would buy or rent neither party being subject to any abnormal pressure or circumstances. Other more recent court decisions have ruled that the market price of a property is a price expected if a reasonable time is allowed to find a customer. In addition, the customer and the client must also be fully informed of all pertinent facts regarding the property and the current market. It becomes apparent that when we look at the strict legal definition of market value, auction is deemed one of the most reliable means of determining the true worth of a property at a given time and place. When a property is offered for sale by auction, there is a reasonable amount of lead-up time (for residential sales, usually 30 days) before the property is put to bidding. In that time it can be assumed that the buyers and sellers have become conversant with current market conditions. Buyers in particular will, in the 30 days, have had the opportunity to fully investigate the property (including arranging finance and conducting building and pest inspections) to ensure that the price they bid reflects an informed market decision. For this reason a court of law will usually nominate auction as the fairest method of sale for determining the worth of real property in matters concerning the distribution of proceeds of a sale of property under dispute. This is especially important in matters relating to deceased estates, divorce, receivership, insolvency and the winding up of companies.
[8.9] The role of the real estate agent
An agent is often asked to perform a similar task of assessing the worth of a property as a valuer. The major difference between the agent and the valuer, however, is that a Queensland agent is not, by law, entitled to charge a fee for this service, and an agent does not actually ‘value’ a property because they don’t hold the required qualification. A licensed agent is bound by the legislation and statutes set out in the POA. Part of the Act includes a schedule of transactions (First Schedule) that an agent can perform and the prescribed commissions an agent can lawfully charge for those services. The POA relates the payment of commission for services the agent provides on behalf of a client during a transaction. A transaction is deemed to be:
a sale or purchase (seller’s agent or buyer’s agent) a rental – where an agent finds a tenant for the client and collects rent on behalf of that client
All activities that are normally associated with a transaction are paid for, upon completion of the service, by way of commission. Therefore, if the agent is pricing a property for a transaction, they are not permitted to charge an additional professional fee. This is because professional fees only apply to the provision of a service that is not a transaction. Therefore, if an agent is providing a market price for a client that does not relate to a transaction (e.g. a market appraisal for a client who is not selling or renting, but needs to know what price their property might attract in the current market), then a professional fee may be charged. (It is important to note that this is not common.) However, if an agent charges a fee for conducting an appraisal, they may be considered accountable by law and may carry the same legal responsibility for their actions as a valuer. Under such circumstances, they would be required to carry adequate professional indemnity insurance. Agents should also seek their own legal and professional advice before undertaking such duties. On the occasions where agents are required to undertake a written assessment of the worth of a property they are advised to use a form similar to the REIQ Estimate of selling price and to have a separate indemnity notice signed by the party requesting the Opinion of Price before completing the appraisal. Occasions where an agent may be required to give a written opinion of price include:
Internal transfer of property between family members, or family companies such as a Family Trust
Deceased estates where an executor requires an estimate of worth of an asset
Stamp duty purposes when an individual or company is reassessing their assets
Insurance appraisals - these are particularly important for property managers who need to ensure that adequate insurance cover is kept on properties in their care
Listing property for sale
Keeping clients up-to-date as part of after-sales service
If an agent is asked to supply a written appraisal on a property for any of the parties or purposes of the following list, it would be best to advise them to refer the matter to a registered valuer.
Tax purposes – especially matters pertaining to Capital Gains and Goods and Services Tax
Public company or a private company with more than ten shareholders
Government Departments – Local, State and Federal
Insurance claims for loss or damage to a property
Exchange of properties
Mortgage purposes
Marriage dissolution or partnership dissolution
Dissolution of a business partnership
Resumption of land
Legal or court proceedings, including those involving the Land Court, a valuation or general property dispute
[8.10] Recommended pricing terminology
Because an agent is not qualified to conduct a valuation on real property, they are not entitled to use the term ‘value’. It is advisable for agents to become familiar with and use other terminology that has the same or similar meaning and application as ‘value’ . Such items are:
current market estimate
current market opinion
an estimate of price
current market price
probable selling price
current market appraisal
comparative market appraisal
comparative market analysis
[8.11] Transactions that do not reflect market value
When an agent or valuer is required to price a property for sale or for rent, they must by law, base an anticipated price range for a property upon the following assumptions:
the price can be achieved by offering the property to an open, competitive market
a reasonable time is allowed to find a customer
the customer enters into an agreement in t he full knowledge of the property’s market potential and liabilities (such as zoning and legal use) the client is educated to current market conditions and is not under any undue pressure to sell
There are however, some circumstances when an agent, or valuer, must disregard market facts even though they represent a current sale or rental transaction. Special circumstances surrounding a sales transaction can affect the sale price. It is therefore important that the agent or valuer ascertains what the specific circumstances are for each sale.
Sometimes a property has a special appeal to a particular buyer who, in turn, is willing to pay a premium for it. Under these circumstances, the selling price may not be a true indication of market value. Prices above current market levels may be paid in the following circumstances:
Purchase by an adjoining owner
Buyer influenced by family or sentimental reasons
Compulsory acquisitions by statutory authorities (premium price paid can include compensation) Tenant purchasing the freehold of premises where they currently carry on the business in order to preserve the goodwill of the business Uneducated buyers, particularly interstate or overseas buyers not familiar with local values. However, if a trend emerges where over a period of time a high volume of property continues to be sold to interstate or overseas buyers, especially in a preferred location such as gold coast beach or canal front land, then a recognisable trend emerges and this becomes an undeniable market fact which must be considered when pricing real estate Sales that are leaseback. In this situation the owner sells the property subject to the buyer granting the owner favourable leaseback arrangements over the property. Usually a higher selling price is offset by lower rental rates that are more favourable to raising capital, thus helping cash flow.
[8.12] Stigmatised property
A property may become ‘stigmatised’ if it has been associated with an unsavoury event that has occurred (or which is suspected to have occurred) on the property or in the immediate vicinity of the property. While having no physical impact on the property itself, stigmas can affect the way certain persons feel about the property psychologically . Examples of psychological stigma types that might relate to a property or the surrounding area may include (but are not limited to):
deaths (e.g. murder, suicide and natural causes)
crime (e.g. assault, theft, drug dealing, sexual crimes)
health related issues (e.g. contagious diseases)
troublesome neighbours (e.g. presence of sex offender, aggressive/offensive behaviour)
environmental conditions (e.g. soil contamination, aircraft noise, industrial aromas)
other psychological factors of significance to the buyer (e.g. the rumoured presence of ghosts)
Stigmas may be current and persistent; however, most stigmas will eventually dissipate over time. The important thing to remember about stigmas is that they are subjective and may be dependent upon the particular cultural or religious background of the beholder, including any particular beliefs, superstitions, experiences or idiosyncrasies they may have. [8.12.1] Dealing with stigmatised property
Under the Commonwealth Competition and Consumer Act 2010 (CCA), agents are prohibited from engaging in conduct that may be misleading or deceptive, or that is likely to mislead or deceive, including via the omission of relevant material facts. The Fair Trading Act 1989 (FTA) and the Property Occupations Act 2014 (POA) have similar requirements.
Property owners are generally not subject to the CCA, FTA or POA as they are neither a corporation, nor engaged in trade or commerce, per se. The sale, or letting, of stigmatised property is an emerging issue in Australia that has not yet been fully dealt with; thus, common sense needs to prevail. At present, it appears that caveat emptor (buyer beware) generally applies and there is no specific obligation for an agent to disclose the presence of a stigma to a consumer. However, in circumstances where a stigma is considered to be a material fact, non-disclosure would be considered misleading under the CCA, FTA or POA. Agents may not simply reply on having no knowledge of a particular stigma and it is therefore prudent that agents ask the property owner about the possible existence of any stigmas affecting the property - so as to determine whether or not these are likely to constitute a material fact for the purposes of the relevant legislation. To facilitate this process, agents should include a clause in selling or letting agreements requiring the property owner to disclose all material facts, including those relating to potential stigmas. If the property owner has any doubt about the presence of a stigma, they should seek their own legal advice. Agents are not obliged to conduct their own research into the existence or otherwise of stigmas but may be aware of potential stigmas through local knowledge or media reports. Agents should inform the property owner if the presence of a stigma is suspected. The property owner and agent may subsequently come to an arrangement on any role the agent may play in verifying the presence or otherwise of the stigma. [8.12.2] Is the stigma a material fact? In real estate, a material fact is any fact that may have a bearing on a reasonable person’s
decision to proceed with a property transaction. Conversely, an immaterial fact is one that is irrelevant to the transaction. In determining whether or not a perceived stigma is a material fact, the agent should ask interested consumers if they bring any particular sensitivity to the transaction, and then carefully consider the following questions:
Does the stigma relate directly to the property itself (as opposed to the surrounding area)? Note: while some stigmas may relate the surrounding area, they may also relate directly to the property itself; e.g. an unpleasant industrial odour. Does the stigma currently impact on the market value of the property? Is it likely that knowledge of the stigma would affect a consumer’s decision to proceed with the transaction? Could consumers reasonably expect that disclosure ought to have been made (particularly in circumstances where it is unlikely that the consumer could become aware of the stigma of their own accord)?
If the stigma relates directly to the property itself and the answer to any of the remaining questions is “yes”, then the agent is obliged to make a full di sclosure on an up-front basis. In other circumstances, caveat emptor is likely to apply and disclosure will only be required in response to a direct consumer enquiry. When dealing with stigmas that relate to race, religion, disability, gender or political viewpoint, agents should have regard for Commonwealth and State and Territory antidiscrimination laws that may be applicable. Generally speaking, agents should avoid perpetuating stigmas relating to these matters. If any doubt remains as to whether or not disclosure is required in a particular circumstance, the agent should err on the side of caution and make a disclosure (subject to the considerations contained in the sections to follow).
[8.13] Permission to disclose
Making a disclosure about a particular stigma will often affect the saleability of the property and ultimately the likely market price. Even if the particular stigma is of little or no concern to a particular consumer, it is likely that the consumer may attempt to use the stigma as the basis for price negotiation in their favour. This should be considered a normal part of the sale process in these circumstances and a judgement will need to be made as to whether or not any proposed price reduction is reflective of actual market conditions. Understandably, property owners will sometimes be reluctant to disclose the presence of potential stigmas to consumers. Agents have a duty to act in accordance with the instructions given by their client, however, where a conflict between these instructions and the law is evident, the law prevails. While disclosure is required by law in the circumstances outlined above, agents who disclose the presence of a stigma without the permission of the property owner may be exposed to a claim for civil damages. For this reason, the agent should first obtain written permission from the property owner prior to disclosing the presence of a stigma and, if the owner refuses permission, the agent should consider whether or not to take any further part in the transaction. Consistency in this approach by agents will both protect the reputation of the real estate industry and help educate sellers that deliberate non-disclosure of material facts is unacceptable. Once permission to disclose has been granted, the agent and the seller should agree on the words that will be used by the agent when making the disclosure, and the agreed words are recorded in writing as an attachment to the selling agreement. [8.14] Making a disclosure to a consumer
Disclosures may be made to consumers orally, however, disclosures should be made in writing to protect the agent against any later claim that disclosure was not made. Disclosures must be made in full, not in part, in the form agreed between the agent and the property owner. In making the disclosure, the agent should not go into unnecessary detail or express a personal opinion about the stigma. Where disclosure concerning a stigma is to be made on an up-front basis, the agent should make this disclosure at the point where the consumer has expressed more than a passing interest in the property. While the agent may first point out the more positive aspects of the property, disclosure should be made early in the sale negotiation process and certainly before an offer is communicated to the property owner or the consumer incurs a significant expense as part of the negotiation process (e.g. through commissioning a building compliance inspection). Disclosure in response to a direct enquiry should be made immediately, or as soon as possible. In the case of auctions, the auctioneer should make a direct reference to the stigma before the auction is conducted. Again, disclosures should be made in writing to protect the auctioneer against any later claim that disclosure was not made. For instance, written notices concerning the stigma could be displayed prior to the auction. It is not a requirement that the presence of stigmas be disclosed within advertising materials. However, agents must be mindful to ensure that the advertisement does not mislead consumers by including information that contradicts the presence of the stigma. For example, an advertisement relating to the sale of a rural property should not include a reference to ‘fresh air ’ if a disclosure relating to the periodic presence of unpleasant industrial odours may later be made.
[8.15] Agency disclosure policies
The licensee should consider establishing a policy on the disclosure of certain stigmas. To avoid any potential conflict of interest, this policy should be available in writing to provide to sellers that may engage the services of an agent, prior to any arrangement to do so being entered into. In addition, agents have a number of disclosure requirements which must be made to both sellers and buyers. These include disclosure to all relevant parties if the agent has referred a buyer or seller to a service provider (such as a finance company) will receive a rebate, discount, commission from a service provider (such as a finance company) These issues, and other requirements will be studied in later units. [8.16] Learning activity 7 Question 1: What is the meaning of market value as used in the real estate industry?
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ Question 2: What is considered to be the market price of a property for sale?
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
UNIT 9 - THE COMPARATIVE MARKET ANALYSIS (CMA) [9.1] Comparative market analysis
Real estate agents and auctioneers are required to substantiate any residential property price quotation they provide with a comparative market analysis (CMA), for an offered property, which is legally defined a document comparing the offered property with at least three properties sold within the previous six months that are of a similar standard or condition to the offered property and are within five kilometres of that property. However, if the CMA cannot be prepared due to being unable to meet the legislative requirements, a written explanation must be provided, explaining how the agent decided the market sales price. The agent’s role is to provide recent res earch, including comparative sales, if possible, which enables the agent’s client to make an informed decision when putting a price on their
property for sale, rather than the agent just giving the client a price. It is a sensible precaution for agents to document any advice given to the agent’s client; and the CMA or written explanation formalises this process for the benefit of both the agent and the seller. The applicable sections of the POA are sections 213 and 215. Property Occupations Act 2014 Part 11 General contraventions and evidentiary matters Section 213 Representation of price of property to seller — auctioneer
(1) This section applies if a person wanting to sell residential property (a seller) asks an auctioneer for information about the price at which the residential property that is to be, or may be, offered for sale by auction (the offered property) is likely to be sold if it is sold by auction. (2) The auctioneer must give the seller a written notice stating that if the seller does not set a price at which the seller agrees to sell the offered property (a reserve price), the offered property will be sold for the price offered by the highest of any bids made when the property is auctioned. Maximum penalty — 200 penalty units. (3) If the seller appoints the auctioneer to sell the offered property, the auctioneer must obtain from the seller before the offered property is auctioned a written notice stating — (a) if the seller sets a reserve p rice — the reserve price; or (b) if the seller does not set a reserve price — that the seller understands the offered property will be sold for the highest of any bids made when the offered property is auctioned. Maximum penalty — 200 penalty units. (4) An auctioneer must not help a seller decide the reserve price for offered property unless, before the seller decides the price, the auctioneer gives the seller — (a) a copy of a comparative market analysis for the offered property; or (b) if a comparative market analysis cannot be prepared for the offered property, a written explanation showing how the auctioneer decided the market value of the property. Maximum penalty — 540 penalty units. Property Occupations Act 2014 Part 11 General contraventions and evidentiary matters Section 215 Representation of price of property — real estate agent
(1) This section applies if a person wanting to sell residential property asks a real estate agent for information about the price at which residential property that is to be, or may be, offered for sale, whether or not by auction, (offered property) is li kely to be sold. (2) If the real estate agent decides to give the person the information, the real estate agent must, when giving the person the information, give the person — (a) a copy of a comparative market analysis for the offered property; or
(b) if a comparative market analysis can not be prepared for the offered property, a written explanation showing how the real estate agent decided the market value of the property. Maximum penalty — 540 540 penalty units.
[9.2] Advice about market sale price
A real estate agent, in attempting to obtain an appointment to sell, buy, exchange or lease property, must not knowingly mislead a person about the property’s market price. If a real estate agent gives a person an opinion about the market price or market rent for property, the agent must not accept instructions from the person to act as a real estate agent for the property unless the agent has given the person a written statement of the material facts that the agent has taken into account in forming an opinion about the property’s market price or market rent. An agent ag ent must take all reasonable reasonab le steps to be informed regarding the essential facts, fa cts, which affect current market conditions in order to be in a position to advise their clients and/or to assist customers in a responsible manner. If agents provide appraisals or market forecasts in a volatile market, they shall identify that volatility to the relevant consumer and shall warn the consumer to keep that volatility in mind when evaluating their appraisals or market forecasts. Property managers must provide to the prospective lessor a written statement of the material facts that they have taken into account when providing a rental appraisal. Agents must not engage e ngage in the practice p ractice of setting different differen t tiers of pricing, with higher prices being charged to consumers who are, for example, reside outside the particular area of the property or who are otherwise unaware of material facts such that they are prepared to pay prices for the property that are higher than the prices that those who are aware of those facts would be prepared to pay. [9.3] Representation of price of property
When asked about the estimated sale price of the property, sections 213 and 215 of the POA (studied earlier in this unit) requires the agent to provide a seller or a prospective seller with a comparative marketing analysis or a written explanation of the agent’s price advice. It is an offence for an agent to make a false representation as to the true estimated selling price of the property. There are also restrictions placed upon the agent who is asked by prospective buyers to reveal the comparative marketing analysis or written explanation given to the seller, without the seller’s written authorisation to release such informat ion. There are similar restrictions placed upon auctioneers and agents pertaining to the existence of, or the amount of, the reserve price of a property being sold by auction to any potential bidder or buyer. Section 213 of the POA refers to the representation of the price of property if a person wanting to sell residential property asks an auctioneer for information about the price at which residential property that is to be, or may be, offered for sale by auction (offered property) is likely to be sold if it is sold by auction. The auctioneer must give the seller a written notice stating that if the seller does not set a price at which the seller agrees to sell the offered property (reserve price), the offered property will be sold for the price offered by the highest of any bids made when the property is auctioned. If the seller appoints the auctioneer to sell the offered property, the auctioneer must obtain from the seller before the offered property is auctioned a written notice stating the following:
if the seller sets a reserve price—the reserve price
if the seller does not set a reserve price—that the seller understands that the offered property will be sold for the highest of any bids made when the offered property is auctioned
An auctioneer must not help a seller decide the reserve price for offered property unless, before the seller decides the price, the auctioneer gives the seller a copy of a comparative market analysis for the offered property; or if a comparative market analysis cannot be prepared for the offered property, a written explanation showing how the auctioneer decided the market value of the property. Section 214 of the POA requires an auctioneer not to indicate reserve or other price to bidder if a person (the bidder) wanting to bid for residential property that is to be, or may be, offered for sale by auction (offered property) asks an auctioneer for information about the price at which the offered property is likely to be sold when it is auctioned. The auctioneer must not in any way disclose to the bidder:
the reserve price set under section 213 for the offered property an amount the auctioneer considers is a price likely to result in a successful or acceptable bid for the offered property
However, the auctioneer does not commit an offence if, on the seller’s written instructions, the auctioneer gives the bidder the comparative market analysis for the offered property; or the written explanation showing how the auctioneer decided the market value of the property, which the auctioneer had given the seller. Section 215 of the Property Occupations Act refers to the representation of the price of property by a real estate agent if a person wanting to sell residential property asks a real estate agent for information about the price at which residential property that is to be, or may be, offered for sale, whether or not by auction, (offered property ) is likely to be sold. If the real estate agent decides to give the person the information, the real estate agent must, when giving the person the information, give the person a copy of a comparative market analysis for the offered property; or if a comparative market analysis cannot be prepared for the offered property, a written explanation showing how the real estate agent decided the market value of the property. Section 216 of the POA requires a real estate agent not to indicate reserve price to potential buyer if a person wanting to buy residential property ( potential potential buyer ) asks a real estate agent for information about the price at which residential property that is to be, or may be, offered for sale, whether or not by auction, (offered property ) is likely to be sold or is, or is likely to be, offered for sale. If the offered property is to be offered for sale by auction, the real estate agent must not disclose to the potential buyer:
the reserve price set for the offered property an amount the real estate agent considers is a price likely to result in a successful or acceptable bid for the offered property
If the property is not to be offered for sale by auction and the seller has instructed the real estate agent not to disclose the price at which the seller is willing to sell the offered property, the real estate agent must not disclose to the potential buyer the price at which the seller is willing to sell the offered property. However, the real estate agent does not commit an offence if, on the seller’s written
instructions, the real estate agent gives the potential buyer a copy of the comparative market analysis for the offered property, or the written explanation showing how the real estate agent decided the market value of the property, which was given to the seller.
Legislation requires an auctioneer or agent to provide a CMA or written statement when called upon by a seller to give information about the price at which their property is likely to be sold for. The requirement by law for a CMA is three comparable properties within a five kilometre range of the property to be appraised, that have sold within the past six months. The above is the minimum legal requirement, however a well prepared CMA containing more than is legally required is one of the most important tools an agent will use as a real estate professional. Whereas the legal requirement focuses on past sales only, there is other data available to the real estate agent that when compiled into a more extensive CMA, provides far more information to assist the seller to make an informed decision about the selling price of their property. Remember, if a CMA cannot be completed, agents must provide a written statement to the client. [9.4] What a quality CMA should include:
three or more recent sales of comparable property as per ownership database research
any recent sales which the agent knows are not yet recorded in databases
a list of comparable properties presently on the market in the same area
a report compiled by the agent describing current market conditions including:
the average time a property is on the market before it sells
selling price compared to list price
any market conditions that could impact on the sale
For agents to be able to competently prepare a CMA they need to have good quality records of all the real estate activity in their area. They need to drive the area at least once a week to check out any new listings with other agents, read the local and regional newspapers and constantly check the real estate websites and proprietary databases.
[9.5] Price ranging
Agents are at a high risk of misleading consumers if they provide misleading estimates on the likely selling prices of particular properties. The Australian Competition and Consumer Commission (ACCC) who regulates the Competition and Consumer Act (CCA) has in the past expressed concern by reports that properties have been listed with a price range where the reserve price is at the higher end of the price range and at no stage is the seller likely to sell the property at the lower end of the range. The ACCC have also expressed concern about agents who have understated the likely selling price of a property in order to generate interest from potential buyers. There have also been various reports about agents overstating the likely selling price to the property owners which enables the agent to obtain further listings or even to entice the sale by auction. The marketing of properties for sale with reference to a range of prices carries with it a substantial risk that there will be misleading or deceptive conduct. This is particularly the case when the range of prices the subject of the marketing includes amounts that are below those that the seller is reasonably likely to consider accepting.
Real estate agents must be aware that:
The Competition and Consumer Act requires adequate and appropriate disclosure at all times of all relevant price information, so that prospective buyers and the general public can make informed pricing decisions. Advertising or quoting a property at a price significantly less than the agent’s estimated
selling price, the reasonable market appraisal or the prices that the seller has indicated he or she is likely to accept constitutes misleading or deceptive conduct.
Agents must ensure that the use of price range marketing does not mislead or deceive consumers as to the price at which the sellers of the property are actually prepared to sell the property; the price at which the sellers of the property have instructed the agent to sell the property; or the price which the agent believes the property will be sold for or the estimated market price of the property. When an agent markets a property using a price range, the agent should obtain written confirmation from the seller before the property is advertised that the seller will seriously consider all prices within the advertising range, including the price at the lower end of the range. Price ranges advertised by an agent should not include any price that is less than a price used in a previously rejected offer unless evidence exists that the seller has now changed his or her mind and would accept that lower price. Over-quoting by a real estate agent of the estimated market price of a property in order to obtain a listing from a seller amounts to misleading or deceptive conduct. Further, underquoting the potential selling price of a property so as to attract the interest of buyers also amounts to misleading or deceptive conduct.
And consequently:
Real estate agents, in attempting to obtain an appointment to sell, auction, buy, exchange or lease property, must not mislead or deceive a person about the estimated market price of the property. A real estate agent must only express an opinion about t he estimated market price of freehold or leasehold property based on reasonable grounds. A real estate agent must tell his or her client immediately if the agent considers tha t the freehold or leasehold estimated market price of the property has substantially altered from any estimated market price that the agent has previously placed upon that property. A real estate agent may only advertise or market a property at price that the agent has been instructed by the seller in writing to so advertise or market that property. A real estate agent must not mislead or deceive potential buyer as to the amount or terms of offers that a seller may consider accepting. Agents must not engage in bait-advertising.
[9.6] Over capitalised property
There are situations when appraising a property where there is very little direct relationship between cost and value. When an agent prices a property there can be a discrepancy between what the property has cost the owner and what the CMA research says it is worth in the current market. This occurs when owners overcapitalises their property. An example of this is when buyers purchase a home for $365,000 in a suburb where houses sell for around $300,000 to $400,000. They then renovate the house with top of the range kitchen, bathrooms and appliances. Then they add a media room and put in a lap pool. They also spend another $20,000 on fencing and
landscaping. By the time they have finished the property owes them around $580,000. Now the couple decide they want to return interstate for family reasons and decide to sell the house just 8 months after they bought it. If the property comes on the market at what the property actually cost it would be considered by the buyers to be overpriced compared to others in the area. Buyers are usually very reluctant to buy the most expensive house in an area. If a buyer has $500,000 to $600,000 they prefer to be surrounded with other houses of the same or higher value. It is the client who ultimately determines the price the property is listed for. Likewise the buyer is free to make an ‘offer to purchase’ at the price they believe the property is worth. It is the agent’s role to negotiate between the seller and the b uyer and guide them to a mutual agreement in the form of a contract. [9.7] When should a CMA be used?
A CMA (or a written statement) must always be used when listing and pricing a property for sale. However, a CMA has many other important uses. It is very useful:
as a backup when canvassing for listings for following up private sales – remember a good CMA can arouse the curiosity of even the most difficult private seller
when sent out as a periodic report to landlords
used in curb side appraisals for bank managers, valuers, finance companies etc.
convincing a potential buyer of a property’s fair market price
relating the effectiveness of specialised marketing campaigns, highlighting time on market and selling price
See the following page for an example CMA.
Example of a CMA
0 0 0 , 0 0 5 $
[9.8] Research and property appraisal
An appraisal is a supportable estimate of the worth of a property. It is an estimate of a property’s monetary value on the open mar ket at a given date. Most appraisals are undertaken as part of the listing process. For instance, an agent will be asked to inspect the property and report back to the owners with a market appraisal. In other words, the agent has to provide a realistic selling range for the property in the current marketplace. Not all market appraisals result in a listing. Some appraisals are simply a fact-finding exercise for the property owner who is keen for one reason or another to ascertain the current worth of their property. A market appraisal is a supportable estimate of the worth of a property, therefore the agent must by law, be able to substantiate how they arrived at that price. A real estate agent’s appraisal must be based on data obtained from the marketpla ce. This
data is obtained by researching:
recent sales or rentals of similar properties
current competition from similar properties in the market
current market conditions
assessing the market appeal of a particular property
[9.9] Recent sales or rentals of similar properties
Agents know that it is the customers (buyers and tenants) who ultimately decide the market price of a property. This is facilitated through an education process of comparing the prices of similar properties currently on the market or properties that have recently sold or rented. People who are in the market to buy or rent property usually spend a lot of time researching before they even enter the market. Much of this is done through the internet and the local newspapers. Many also visit “open for inspections” on a regular basis. They are educating themselves about market conditions and researching prices. They constantly compare properties to determine what sort of property they should expect to buy or rent for the amount they are able to spend. Comparison is by far the most common method adopted by both agents and valuers to price residential property, and underlies all formal valuation methods. The direct comparison or comparable sales approach establishes the price of a property by comparing it with the sale or rental of a similar or comparable property. Once an agent has isolated recent sales or rentals into a comparable price range, they must then ascertain all the facts regarding each property to determine its suitability as a direct comparison. This is a fairly objective process that involves factors such as:
the features of the land including area, frontage, aspect and general topography and zoning
the size and quality of improvements on the land
the style, age and method of construction of the buildings
the analysed yield or income from the property
the future development potential of the property
depreciation and obsolescence of improvements, plant and equipment
By objectively isolating all this information from the sales or rentals of other properties in the area, an agent is able to more accurately determine market price. The best transactions to use for a direct comparison are:
most similar to the subject property
in the same or a similar region to the subject property
recent transactions
[9.10] Information sources
Basic sales data can be sourced from a number of suppliers. Agents can access records of all sales using the internet based proprietary databases from companies such as Pricefinder or CoreLogic RP Data (there is a subscription fee to access this information). Both of these companies source their information directly from the Department of Natural Resources and Mines (DNRM). [9.11] Data from these sources may include:
the dates of all previous sales transactions in a given area
the selling price and the names of the sellers
the names and addresses of the new owners
the real property description
land area and zoning
department of natural resources unimproved capital value of the land
properties that are presently on the market
Legislation in July 2003 made it illegal for real estate agents in Queensland to use information obtained from the Department of Natural Resources and Mines in directmarketing (telemarketing, mass-mailing of unsolicited letters etc.) When an agency signs a contract with a commercial search company, they agree not to use the information for directmarketing purposes. [9.12] Consequences of incorrect pricing
Property Occupations Act (sections 213, 214, 215 and 216) which was studied earlier were introduced in an attempt to stop agents from misleading sellers by overpricing their property in order to win the business. It is an agent’s legal duty to act according to the POA and to behave in a professional manner. The public rely on real estate agents to provide them with research and to tell them the truth which will enable them to make informed decisions when selling their properties. [9.13] Sellers with unrealistic expectations
In some instances, no matter how much research an agent provides, some sellers will still believe their home is worth a lot more than the market value and will argue with the agent. However, if the agent has provided a CMA or written statement as required by law, the situation does not become one of, whose opinion is the correct opinion. The agent is not
providing an opinion of price; the agent is providing research that will enable the seller to make an informed decision about the price of their property. If the sellers do not want to make their pricing decision based on the research provided, they can instruct the agent to market the property at whatever price they choose. If the agent agrees with the seller and lists the property at the inflated price then the agent is compelled to market the property at that price. The price will be entered into the PO Form 6 and that will be the only price the agent can advertise the property at otherwise they would be breaking the law. [9.14] Agent’s duty to inform seller
If the agent knows that the price the sellers are asking for their property is unrealistically inflated or (on some very rare occasions) under-priced, then the agent has an obligation to inform them. If the agent has complied with the law and done all that is possible to inform the seller regarding the market value of the property and the seller remains unrealistic about price, then the agent must make the decision as to whether or not they want the listing. The agent must decide whether they want to spend the next few weeks (or months), putting a lot of effort into a property that is not likely to sell. An agent should also advise a client of any occurrences or circumstance that could impact on the price of a property while it is on the market. If for instance, a similar property sells for considerably more or less than the asking price of the subject property the client must be informed. When appraising a property an agent also has a duty to find out or verify facts material to the sale, before pricing the property and afterwards as the occasion arises. Property Occupations Regulation 2014 Part 5 Conduct standards Section 20 Finding out or verifying facts material to the sale of property
(1) An auctioneer appointed to sell property must take reasonable steps to find out or verify the facts material to the sale that a prudent auctioneer would have found out or verified to avoid error, omission, exaggeration or misrepresentation. (2) The steps must be taken before the auctioneer auctions the property and afterwards as the occasion arises. (3) A real estate agent appointed to sell, purchase, exchange or lease property must take reasonable steps to find out or verify the facts material to the sale, purchase, exchange or lease that a prudent real estate agent would have found out or verified to avoid error, omission, exaggeration or misrepresentation. (4) The steps mentioned in subsection (3) must b e taken before the agent lists the prop erty and afterwards as the occasion arises.
[9.15] Highest and best use
When an agent is called upon to appraise a property it is vitally important that the agent conducts research necessary to ascertain exactly what the property can be used for, it’s ‘highest and best use’. This means that the agent must conduct a search to discover the legal zoning of the property and to discover whether the property is zoned for a better legal use than the one for which it is presently being used. If this is the case it will consequently attract a higher price than if it was sold under its present use. An example of this is where a family home is located in an area that has been recently zoned for unit development. If an agent neglects to carry out this research and advise the seller
accordingly and the client loses money due to the agent’s negligence, a court of law is unlikely to accept as a defence that the agent did not know that the local authority had changed the zoning. The agent cannot claim to be ignorant of the change of zoning and not being in a position to assess the impact of these changes on the value of a property. It is an agent’s duty to be well informed about real estate, and events and circumstances that could impact on the value of the real estate, in the agent’s area of expertise . It is therefore essential that an agent should not complete an appraisal and give a seller advice on the price of their property until they have conducted all the necessary research, and discovered all the pertinent facts relating to the property, in order to provide the seller with the information they need to make an informed decision. [9.16] The importance of the title search
As studied at the beginning of this unit, an agent should ensure that they conduct a title search before they finalise the market price of a property. A title search is the only search recognised by a court of law as being a reliable indicator as to whether there are any easements or covenants on the title that could affect the value of the property. Sometimes sellers are not aware of, or have forgotten that there are easements on their property titles. There are also sellers who are aware there are easements and hope that the buyer will not discover the fact. Easements can affect the value of land enormously and if an easement is not disclosed on a contract of sale, the buyer on discovering the undisclosed easement can terminate the contract at any time up until two business days before the settlement date. Some sellers do not realise this and it is the agent’s duty to inform them of the seriousness of not disclosing encumbrances on the title when they are selling their property. [9.17] The Registered Plan search
A Registered Plan is the only truly reliable source of the land size. If a seller is unable to show the agent the boundary pegs and it is not obvious where the boundaries are, it is probably wise to conduct a Registered Plan search. A prudent agent would firstly ask the sellers if they have a copy as they may have one in their records from when they bought the property. Agents need to be aware that people often encroach into council land with their gardens and landscaping and this can place an agent in the position of inadvertently making false and misleading statements regarding the property when showing it to a buyer. If a buyer goes to contract on a property and has a survey done prior to settlement and discovers there is in fact less land than they were lead to believe they may terminate the contract. An agent should never indicate to a buyer where boundaries are unless they have actually sighted the survey pegs. When an agent is appraising a property it is important that boundaries are discussed and if there is any doubt where they are then a Registered Plan search should be conducted.
[9.18] Complete property description
The street number should form part of the address of the property. If this is not possible, the agent should ensure the correct postal address is used. If there is no defined postal address, inquiries should be made with the relevant local authority to ensure an accurate location can be determined. When describing the property in forms and contracts, the full and correct real property description is to be used. The description should include the lot number, registered plan number, parish and the area of the land. It should also include the Certificate of Title (or the registered number of the Crown lease if applicable). Where possible the information should be copied directly from the Certificate of Title (or lease); but if this is not possible, it is often set out in a brief form on the property’s rates notice. If the seller is in any doubt as to the exact property description the seller should ensure that a full and proper description is written into the contract. [9.19] The Competition and Consumer Act (CCA) and property pricing
The CCA provides strict guidelines on an agent’s duty of care when pricing property . The areas of the CCA that impact most strongly on an agent are summarised as follows:
The CCA states clearly that an agent may be liable for a false statement even if the statement was made innocently and with no intention to mislead the property owner An agent must be able to prove that they had a reasonable basis for making a prediction or opinion of price Experts, such as agents, will be taken to have verified information that they provide to a seller. This means that an agent must have up-to-date information when considering the price of a property. This includes the current zoning and future development potential, legal use and its capacity to be put to a higher and better use, and whether or not it complies with the law Agents have a legal duty to be an expert (agents are deemed to be experts when called upon to price property), then the agent must also ensure they do not create a false impression by what has been left unsaid. For instance, if an agent knows that a comparable property sold for $40,000 less than the subject property and does not reveal that fact to the seller and the seller subsequently suffers a loss, then the agent may be liable. A loss in this case could be income lost due to time on the market or losses incurred as a result of missing out on another opportunity while waiting for the property to sell.
An agent is considered to be an expert in their field and the law stipulates that a seller should be able to rely on the agent to provide research, advice, and information to assist them to make the right pricing decisions and to achieve the maximum price for their property.
UNIT 10 - AGENCY LISTINGS [10.0] In real estate, there are three distinct types of agency listings in which the client and
agent can enter; namely:
open listing
sole agency listing
exclusive agency listing
An open listing is a written agreement entered into between a person (‘seller ’) and a real estate agent (‘selling agent’) under which the seller appoints the selling agent, in accordance with the terms of the agreement, to sell stated property. Under the agreement, the seller retains a right to sell the seller’s property during t he term of the agreement; or to appoint additional real estate agents and pastoral houses as selling agents to sell the property on terms similar to those under the agreement; and the appointed selling agent is entitled to remuneration only if he or she is the effective cause of sale. The appointment of the selling agent can be ended by either the seller or the selling agent at any time. Basically, an open listing can be ‘anyone’s listing’.
The only difference between an exclusive agency and a sole agency is the extent of the entitlement of a selling agent to receive an agreed commission or other reward on the sale of particular property. Under an exclusive agency, a selling agent is entitled, on the sale of particular property and in accordance with the terms of an agreement with the seller of the property (the Property occupations Form 6), to receive an agreed commission or other reward, whether or not the selling agent is the effective cause of the sale. An exclusive listing means the listing is exclusively listed with one real estate agent. However, if the sale were subject to a sole agency listing, the selling agent would not themselves be entitled to the commission or other reward if the seller were the effective cause of the sale. A sole listing is still exclusively with one real estate agent however, the seller can sell the property privately without paying the agent commission. Prior to the appointment to sell residential property, where such appointment is either an exclusive or sole agency listing, the agent is required to clearly bring to the attention of the client the differences between an open, sole or exclusive agency listing before the appointment of agent is signed. If the agent fails to bring the explicit differences of the three types of agency listings to the client, the agent commits an offence for failing to do so; and will result in the loss of all commission pursuant to the provisions of the Property Occupations Act. It is prudent for the agent to obtain written acknowledgement, of the agent’s pre -appointment advice concerning the differences between the open, sole and exclusive agency listings, from the client at the same time as signing the appointment. Best practice would dictate to, at a minimum, have the client initial and date next to the agency provisions to indicate that the agent has brought this to the client’s attention when discussing the appointment. The REIQ Schedules and essential terms and conditions to be attached to the Property occupations Form 6, include specific provisions relating to seller’s acknowledgements in this regard. It is important to note that before the client signs the Property occupations Form 6, the agent must give the client a genuine opportunity to obtain independent professional advice of the appointment. The main issue raised is that the opportunity to seek advice must be genuine and withstand the test of scrutiny. Similarly, the agent has an obligation to both the seller and the prospective buyer of a property, before requiring them to sign any contract for the sale or purchase of that property. A sole or exclusive appointment can be no more than 90 days, as per section 103 of the POA. However, the 90 day limit does not apply if the appointment is for the sale of 3 or more
residential properties; or is for the sale of a lot in a community titles scheme as part of the sale of management rights to the person who is to become the letting agent for the community titles scheme. Should the client (or agent) wish to terminate an appointment of agent (for sole agency or exclusive agency listings), a minimum of 30 days’ notice must be given unless both parties agree to an earlier day for the appointment to end. However the appointment must be for at least 60 days, unless both parties agree, in writing, to an earlier day for the appointment to end. For example, if a client wishes to terminate an appointment in the first week of a sole or exclusive agency appointment, they may give 30 days’ notice to the seller, but will be required to wait until at least 60 days after the appointment commenced before the appointment will terminate. An agent can be reappointed for a further term if the property hasn’t sold during the original
appointment time frame. Meaning that a maximum time frame for a sole or exclusive is 90 days in length, that is 90 calendar days and starts from the time the client has a copy of the PO Form 6 (it is then the agent can legally begin ‘working’ for the client). If the client receives a copy of the PO Form 6 at 10 pm on the day they signed the document, day one is that day and there are now 59 days left of the exclusive or sole appointment. It is important to note that although an exclusive or sole appointment has a maximum time frame of 90 days, the client may choose to reappoint the agent for a further 14, 30 or 45 days or any other time frame agreed providing it does not exceed 90 days. It doesn’t have to be the maximum 9 0 day time frame. If the property doesn’t sell during the listing time frame, the client can reappoint the agent fo r
a further sole or exclusive term. The PO Form 6 can be used. A reappointment can only be made if:
the reappointment of the agent is made on the approved form (Part 10 of the PO Form 6) the reappointment is not made earlier than 14 days before the current appointment ends (it is crucial that agents comply with this measure as significant penalties apply if an agent seeks reappointment prior to 14 days before the then current appointment expires).
the original appointment has not expired
there are no changes to the terms of the original appointment
If the original appointment has expired, or the parties wish to make changes to an existing appointment, a new Property Occupations Form 6 must be completed.
[10.1] Soliciting for listings
REIQ ethical standards (Article 9) of the REIQ Standards of Business Practice states: Members shall not solicit a listing which is currently listed solely or exclusively with another Member. However, if the listing agent, when asked by the inquiring agent refuses to disclose the expiration date and nature of such listing the inquiring agent may contact the owner to secure such information and, in any case may discuss the terms upon which the inquiring agent might take a future listing or, alternatively, may take a listing to become effective upon expiration of any existing exclusive listing. Members shall not harass the public by attempting to obtain appointments to act resulting from information published in death or funeral notices.
Notes: When Members are contacted by the client of another real estate agent regarding the creation of an exclusive relationship to provide the same type of service, and Members have not directly or indirectly initiated such discussions, they may discuss the terms upon which they might enter into a future agreement or, alternatively, may enter into an agreement which becomes effective upon or after expiration of any existing exclusive agreement. The fact that an exclusive agreement agreement has been entered into with another real estate agent shall not preclude or inhibit any Member from entering into a similar agreement to become effective after the expiration of the prior agreement. agreement.
Article 10 - Interfering with another agent’s appointment
Members shall not engage in any practice or take any action inconsistent with the agency or other exclusive relationship recognised by law that other real estate agents have with clients. Notes: This Article is not intended to prohibit aggressive or innovative business practices which are otherwise ethical and does not prohibit disagreements with other real estate agents involving commission, fees, compensation or other forms of payment or expenses. This Article does not preclude Members from making general announcements to prospective clients describing describing their services and the terms of their availability even though some recipients may have entered into agency agreements or other exclusive relationships relationshi ps with another real estate agent. A general telephone canvass, general mailing or distribution addressed to all prospective clients in a given geographical area or in a given profession, business, club, or organisation, or other classification or group is deemed “general” for purposes purposes of this standard. This Article is intended to recognise r ecognise as unethical two basic types of solicitations: •
First, telephone or personal solicitations of property owners who have been identified by a real estate sign or information service as having exclusively listed their property with another real estate agent and
• Second, electronic, mail or other forms of written solicitations of prospective clients whose properties are exclusively listed with another real estate agent when such solicitations are not part of a general mailing but are directed specifically to property owners identified through compilations of current listings, “for sale” or “for rent” signs, or other such sources of information. This Article does not preclude Members from contacting the client of another agent for the purpose of offering to provide, provide, or entering into a contract contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to agency). However, information received through any offer of conjunction may not be used to target clients of other real estate agents to whom such offers to provide services may be made.
The REIQ articles (ethical standards) apply to members of the Institute, and through their membership, accredited agencies agree to uphold and value the ethical standards.
[10.2] Learning activity 8 Question 1: Name the distinct types of property listings which a client can enter with the
agent. ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________
Question 2: What are the differences between each type of listing?
________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________ ________________________________ _______________ ________________________________ ________________________________ __________________________ _________
PART 5: SALES PROCESS UNIT 11 - THE SALES PROCESS [11.0] The main tasks for a real estate salesperson are:
prospecting for properties to sell
listing properties for sale
obtaining an authorised agreement to sell a property (sales agency agreement) – PO Form 6
marketing properties for sale
presenting properties to prospective buyers
negotiating the terms of sale with buyers and sellers
monitoring the contract completion
monitoring the settlement of the transaction
[11.1] Listing properties for sale The primary purpose the agent’s gathering of pertinent information concerning a property is
to ensure that the property is listed at a price that reflects the true state of the market. Most agencies use proprietary listing form which is used to record all property details. Whilst the forms used may differ from office to office, they are all designed to record basically the same information. The listing form is something for the agent’s personal use and the agency office. It will not necessarily be seen by sellers or buyers. The type of information an agent will need to know includes:
the type of property
the features of the property
price and terms of sale
existing mortgage details
when the owner wishes to sell
location
method of sale
The listing form is not the same as the listing (or selling) authority (the PO Form 6). It is the internal documentation the agent uses when preparing advertisements and when trying to match properties to prospective buyers. One of the essential facts to obtain is the reason why the property owner wants to sell. The seller’s motivation for selling will influence their eagerness to sell and their consideration of offers. If they have a genuine and important reason for selling, they will probably be more likely to set a reasonable price for the property, making the sales process easier for the agent. Some of the reasons people may have for selling include:
being forced to sell by a bank or financial institution
executing a will
family settlements
have bought another property
financial need, income, investment, superannuation
need a larger or smaller home
wish to move to another area
starting a family
moving for work
There are many more reasons for people wishing to sell their property and finding out the dominant motive for selling can greatly influence many factors involved in the selling process. [11.2] Disclosure to buyer
Section 157 of the POA requires that the agent for the sale of residential property must disclose the following to any prospective buyer of the property of any relationship, and the nature of the relationship (whether personal or commercial), the agent has with anyone to whom the agent refers the buyer for professional services associated with the sale; such as:
a family relationship
a business relationship, other than a casual business relationship
a fiduciary relationship
a relationship in which one person is accustomed, or obliged, to act in accordance with the directions, instructions, or wishes of the other
The agent must also disclose whether the agent derives or expects to derive any benefit from a person to whom the agent has referred the buyer and, if so, the amount or value of the benefit; the amount, value or nature of any benefit any person has received, receives, or expects to receive in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of the property. Examples of persons who may receive a benefit may be:
finance broker
financial adviser
financier
property valuer
residential property agent
seller
solicitor
The disclosure is effective only if it is given to the prospective buyer in the approved form Property Occupations Form 8; and acknowledged by the prospective buyer in writing on the approved form; and given and acknowledged before a contract for the sale of the residential property is entered into. The Property Occupations (PO) Form 8 Disclosure to prospective buyer applies only to residential property sales. The PO Form 8 is a statutory form and the agent must only provide it in the approved format. The agent must sign the disclosure and provide it to the
buyer; and have it signed by the buyer, before a contract can be entered into. The detailed instructions at the end of the form will help to determine what must be disclosed and what does not have to be disclosed to buyers. The PO Form 8 must be completed in relation to any benefit the agent or any other person derives or expects to derive from the sale, promotion of the sale or service in connection with the sale. However, disclosure about relationships only needs to be given if the agent has referred a buyer to a service provider for professional or other services and the agent has a business or personal relationship with the service provider or the agent has or will benefit from the referral. If an agent refers a buyer to a person for professional services and the agent does not have any business or personal relationship with the service provider and is not receiving any benefit then that part of the disclosure form does not need to be completed. This disclosure has a major impact on agency practice. The agent is required to declare ‘if they have, or will be referring the buyer to persons for professional services’. The term ‘professional’ service is br oad and agents are advised to disclose any business relationship
that is the subject of a referral (e.g. lawyers, valuers, and financial advisers). This provision also includes many of the services an agent has traditionally referred people (e.g. pest and building inspectors). If the agent is receiving any benefit from the service provider, or feels obliged to refer business through a professional arrangement, then this relationship should be disclosed. An agent should be cautious when making any referrals and if in doubt, disclose. Some agents may take the attitude that it is prudent not to make referrals. However, consumers do expect this as part of the service. Modern real estate practice has become accustomed to delivering a high level of integrated service to consumers. This includes assisting consumers to explore a range of products and services relating to finance, conveyancing solicitors, architects, decorators, designers, building inspectors and property maintenance providers. The important issue is how this service is provided. If an agent is genuinely assisting a consumer and making the appropriate disclosures, then all parties benefit. One final warning comes about an agent’s legal liability when making referrals, namely,
caution must be exercised when making any form of business or personal referral. Consumers should be advised to make their own investigations and to seek quotes from a range of advisers or specialists to satisfy themselves a fair and competitively priced product or service is being received. If the agent refers a buyer to a person for professional services and the agent does not have any business or personal relationship with the service provider and/or is not receiving any benefit, then that part of the PO Form 8 does not need to be completed. The buyer must acknowledge and sign the PO Form 8 before a contract can be entered into. We will study the PO Form 8 in detail later in this unit. In the sale of a business, it is likely that the seller will be required to produce financial statements for the business to satisfy the buyer that trade figures are as originally stated. Buyers are sometimes allowed to attend and operate the business for a certain number of days before settlement as a method of satisfying themselves that the stated trade figures are as claimed by the seller and the agent. Such requirement will be a special condition of the contract, but it is not a statutory requirement of disclosure. It is also quite possible for buyers of businesses to settle without financials if they are suitably satisfied. Disclosures of this type are normally satisfied in a period of ‘d ue diligence’ and this will be a special condition of the contract.
[11.3] Agent’s duty of full disclosure
Real estate agents are aware of their obligation to disclose any known material property defects to prospective buyers. For instance, if a real estate agent is aware that a property has continuing drainage problems, the agent should disclose the condition to potential buyers. Even though the disclosure may discourage sales, withholding this information opens the agent to a claim alleging negligence, negligent misrepresentation, or even fraud. However, sometimes the information learned by an agent is not readily recognisable as information that a buyer would consider to be material to their decisions about purchasing property and establishing an offering price. It’s not always easy to decide what to document in conversations with many prospective
buyers. Consider the following:
Did the prospective buyer disclose their intended use for a property?
Did the prospective buyer inquire about the physical condition of the property?
Did the prospective buyer inquire about conditions other than the physical condition of the property, such as zoning laws or utility access? Did the agent provide additional information that could be important in evaluating the future value of the property or costs to develop or improve it?
If the answer to any of these questions is yes, document these conversations in the client’s files. Using a standard format helps ensure that important facts are documented. Documentation should consistently include:
the date, time and location of the conversation (note if discussion was via telephone)
the names of the participants
the question posed by the prospect
the response provided, noting specifically the agent’s recommendations for further follow up by the prospect (e.g. investigate zoning laws, obtain estimates to install utilities) information the agent volunteered that could be relevant to future value or development/improvement costs
Professional judgment should be used in determining whether or not this information should be included in a follow up letter or email to the prospect. If it is agency custom and practice to follow up with sales prospects by letter or email, it is advantageous to use this communication to recap what the agent discussed when meeting with the buyer. When selling property that has a body corporate or common property (community title schemes) the seller is required to provide to the buyer a Section 206 Disclosure Statement. This statement is a statutory requirement under the Body Corporate and Community Management Act (BCCM Act) The disclosure statement must be provided to the buyer by the seller (or the seller's agent) and signed by the buyer prior to the buyer entering into a contract. The Section 206 Disclosure Statement will be studied in detail later in this unit. [11.4] The Law of Contract
A valid contract is an agreement made between two or more parties whereby legal rights and obligations are created which the law will enforce.
The terms 'contract' and 'agreement' are often used with the same meaning. While they may not always be exactly the same, a real estate contract involves elements of agreement. Section 59 of the Property Law Act 1974 states that no action may be brought upon any contract for the sale of land, or any interest in land unless the contract is in writing and signed by the party to be charged, which means the person who is being sued. [11.5] Deposit monies and the contract of sale
The receipt, holding and payment of money paid as a deposit on the purchase of property require strict adherence to the requirements of legislation. Handling money belonging to someone else carries with it the responsibility to account for that money. In addition, the way a deposit is structured can have serious consequences for sellers. Agents must be aware of the nature of an instalment contract and the restrictions it places on the seller’s rights to deal with the property.
[11.6] Receiving and holding of deposit monies
The way an agent handles contract deposit monies is set out clearly in the Agents Financial Administration Act 2014 (AFAA). In the real estate industry, only a licensed agent or licensed auctioneer may hold deposit money. These monies must be held in a trust account. Trust account generally means ‘someone else’s money’ and is a serious responsibility. Section 16 of the AFAA states that an agent or an auctioneer who receives money in respect of a sale must, immediately on receiving the money must either pay the money into a general trust account with an approved financial institution; or where the settlement date of the contract date is more than 60 days after receipt of the money and the money is received with a direction that it be invested, pay the money in accordance with that direction into a special trust account for the investment of such money (in accordance with section 17 of the AFAA). [11.7] Receiving deposits
As soon as the deposit under a contract is received, the deposit holder must issue a trust account receipt and sign the contract as having received the deposit. The money should then be deposited ‘forthwith’ into the agent’s or auctioneer’s trust account
or special investment trust account as explained previously. This means it should be banked on the day it is received. A breach relating to agents is when a deposit cheque is left pinned to a contract as proof of deposit during negotiations. A situation that also arises is where a buyer will request that the agent doesn’t bank a cheque until funds have been transferred or until an offer has been accepted. An agent should be reminded that under the POA their duty is to their client and under no circumstances should they take instructions from a customer, to the contrary. [11.8] Types of deposit
It is becoming more common for agents not to receive cash or cheques as a deposit. Many buyers now prefer to electronically transfer the money into the agency’s tr ust account. Agents need to be aware that it can sometimes take a day or more before the money shows
up in the account and this should be taken in to consideration when nominating the date that the deposit is to be paid by. A deposit can also be paid by way of a deposit bond or a bank guarantee. Certain finance companies that are underwritten by insurance companies will guarantee a 10% deposit in return for a set fee paid by the buyer. This bond represents deposit until settlement. [11.9] Release of deposit money
An agent must be careful when paying out a deposit to a buyer or seller. The agent should ensure written notification is received from both parties that the deposit is to be paid out. On receipt of such notification the agent should pay the deposit as directed. If a deposit is paid by way of cheque, the deposit cannot be refunded until the financial lending institution has cleared the cheque. When a property settles, agents must not release (disburse) the deposit or any monies to any party, until written instructions have been received from both the buyer and sellers solicitors (or if self-representing, from the buyers or sellers themselves) [11.10] Agent’s entitlements
Money paid into any trust account must be retained in the trust account until disbursed (paid out) in accordance with the AFAA. The licensee is authorised to draw an amount from the transaction fund to pay a transaction expense when the expense becomes payable; and when the transaction is finalised, to draw an amount from the transaction fund that is equal to the difference between:
the balance of the transaction fund the total of the licensee’s transaction fee and any outstanding transaction expense; to pay the person entitled to the amount or in accordance with the person’s written direction to draw the licensee’s transaction fee from t he transaction fund when the amount, if any, has been paid and when the transaction is finalised
An example of when a transaction is finalised is the settlement of a contract for the sale of property or the termination of the contract. However, restrictions can apply in respect to drawing of commission in relation to the sale, particularly where there is a dispute between the parties to the contract. [11.11] Payments to the seller
The agent or auctioneer is required to pay to the seller within 14 days of a demand in writing from the seller, or in any event within 42 days of entitlement by the seller, the balance of the deposit to the seller or as directed in writing by the seller or the seller’s solicitor . The agent must also give a detailed account of all deposit and any other money (e.g. advertising money) received and payments made from that money. [11.12] Disputes over deposit money
If the agent receives a notice disputing entitlement to deposit then the agent must continue to hold the deposit in trust. The agent should then notify both parties that the money will be held in trust for 30 days pending notification of the commencement of legal proceedings. If no
notification is received within the 30 days, then the deposit may be paid to the nominated party. If the agent receives notification of court proceedings then the money should be paid into the court. [11.13] Learning activity 9
Before performing a service for a client an agent must have a valid appointment to act. In a residential sale the agent uses the PO Form 6. Considering the provisions of section 104 of the POA, what must this appointment form specify? Question 1:
__________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 2: When must an agent provide the buyer a PO Form 8 Disclosure to prospective
buyer? Name the section and the Act which refers to this disclosure. __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 3: Under the Agents Financial Administration Act who is entitled to hold deposit
monies and in what type of account? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 4: What are the procedures a real estate agent must follow when deposit money
is received? __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________
Question 5: Explain the circumstances in which deposit money may be withdrawn by a real
estate agent. _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
UNIT 12 - AGENTS IN CONJUNCTION [12.0] Introduction
In real estate transactions, an agency conjunctional relationship may be created by either from specific instructions received from the seller or buyer to act in conjunction; or where an agent acting on behalf of a seller or buyer allows another agent to introduce a buyer or seller – or vice versa – the agents are said to be acting in conjunction. Such an agreement may either arise from a simple agreement between agents or in a specific request from a lessor/seller for certain agents to act in conjunction. Usually in these circumstances the agents will share a predetermined proportion of the total commission. The agent (or the sellers) should indicate on the listing authority whether their client instructs the agent to conjunct, or not to conjunct, by ticking the boxes provided. On the right of the boxes the agent should indicate the percentage commission split to be apportioned between the conjuncting agents. It is important that agents should get all conjunctional agreements confirmed in writing before proceeding with any conjunction. This will assist to alleviate commission disputes between agents after the property settles. Agents shall conjunct on properties with other agents except when a client has given written instructions to the contrary. Conjunctional arrangements shall be evidenced in writing and specify the amount of commission which would be paid if the property were to be sold at the listed or reserve price. All dealings concerning property listed solely or exclusively with another agent for sale or lease, or with buyer or tenant, who are subject to a sole or exclusive agreement, should be conducted through the client’s age nt, and not with the client, except with the consent of the client’s agent . Agents should ensure that agreements regarding real estate transactions are in writing in clear and understandable language, expressing the specific terms, conditions, obligations and commitments of the parties to the agreement. A copy of each final agreement shall be given to each agency upon their signing or initialling, and shall be dealt with in accordance with the instructions of the parties involved. A useful saying for all agents to consider is “when is it not in the clients’ best interest to conjunct?”
[12.1] Learning activity 10
Under what circumstances can the listing agent refuse to conduct a conjunctional sale with another agency? Question 1:
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
UNIT 13 - BENEFICIAL INTEREST [13.0] Introduction
Beneficial interest is often described as 'insider trading' in real estate matters. The disclosure of the buyer's relationship to the agent, agency or employees must be made by the licensee to the seller, prior to the offer being made and before negotiations commence. The relationship between a seller and the licensed agent engaged to procure a sale is a fiduciary relationship. The agent is not permitted to put the duty owed to the client in conflict with his or her own interests, unless the agent has first fully disclosed the exact nature and extent of that interest and the client has consented. [13.1] What is beneficial interest?
In accordance with section 153 of the POA, beneficial interest defines that a licensee, other than a property developer, is taken to have a beneficial interest in property in each of the following cases:
The purchase of the property is made for the licensee or an associate of the licensee. An option to purchase the property is held by the licensee or an associate of the licensee. The purchase of the property is made for a corporation (having not more than 100 members) of which the licensee or an associate of the licensee is a member. An option to purchase the property is held by a corporation (having not more than 100 members) of which the licensee or an associate of the licensee is a member. The purchase of the property is made for a corporation of which the licensee or an associate of the licensee is an executive officer. An option to purchase the property is held by a corporation of which the licensee or an associate of the licensee is an executive officer. The purchase of the property is made for a member of a firm or partnership of which the licensee or an associate of the licensee is also a member. The purchase of the property is made for a person carrying on a business for profit or gain and the licensee or an associate of the licensee has, directly or indirectly, a right
to participate in the income or profits of the person’s business or the purchase of the
property. Also, a registered employee of a licensee, other than a property developer, is taken to have a ‘beneficial interest’ in property in each of the following cases:
The purchase of the property is made for the registered employee or an associate of the employee. The registered employee or an associate of the employee has an option to purchase the property. The purchase of the property is made for a corporation (having not more than 100 members) of which the registered employee or an associate of the employee is a member. An option to purchase the property is held by a corporation (having not more than100 members) of which the registered employee or an associate of the employee is a member. The purchase of the property is made for a corporation of which the registered employee or an associate of the employee is an executive officer. An option to purchase the property is held by a corporation of which the registered employee or an associate of the employee is an executive officer. The purchase of the property is made for a member of a firm or partnership of which the registered employee or an associate of the employee is also a member. The purchase of the property is made for a person carrying on a business for profit or gain and the registered employee or an associate of the employee has, directly or indirectly, a right to participate in the income or profits of the person’s business or the purchase of the property.
The term, beneficial interest, also includes:
the licensee who is a corporation and the purchase of property (or option to purchase) is made for an executive officer of a corporation when the purchase of property (or option to purchase) is made for an executive officer of a corporation of which the registered employee or their associate is an executive officer
[13.2] Associate
The Property Occupations Act defines the term associate as a property agent, who acts, for a sale of property, in conjunction with a property agent appointed to sell the property; or a spouse, parent, brother, sister or child of the person; or a child of the persons spouse. Section 32DA of the Acts Interpretation Act defines de facto as outlined below Section 32DA Meaning of de facto partner (1) In an Act, a reference to a de facto partner is a reference to either 1 of 2 persons who are living together as a couple on a genuine domestic basis but who are not married to each other or related by family. (2) In deciding whether 2 persons are living together as a couple on a genuine domestic basis, any of their circumstances may be taken into account, including, for example, any of the following circumstances — (a) the nature and extent of their common residence; (b) the length of their relationship;
(c) whether or not a sexual relationship exists or existed; (d) the degree of financial dependence or interdependence, and any arrangement for financial support; (e) their ownership, use and acquisition of property; (f) the degree of mutual commitment to a shared life, including the care and support of each other; (g) the care and support of children; (h) the performance of household tasks; (i) the reputation and public aspects of their relationship. (3) No particular finding in relation to any circumstance is to be regarded as necessary in deciding whether 2 persons are living together as a couple on a genuine domestic basis. (4) Two persons are not to be regarded as living together as a couple on a genuine domestic basis o nly because they have a common residence. (5) For subsection (1) —
[13.3] Disclosure of beneficial interest to seller
If there is beneficial interest in a real estate transaction, the agent must make a statutory disclosure to the client. This must be made on the PO Form 7 Disclosure of Beneficial Interest to the Seller. This disclosure must be given to the client to sign before a contract is entered into. PO Form 7 will be studied in detail later in this unit. An agent who purchases a property from a client without disclosing their beneficial interest or personal, fiduciary or business relationship with the buyer could also be in breach of the section 18 of the Property Occupations Regulations. An agent must not accept an appointment of agent, or continue to act, as an agent for a client if doing so will place the agent’s duty or interests in conflict with the client’s interests. If there is a beneficial interest in a transaction, the agent should advise the client to either have a formal valuation conducted on the property, or to appoint another real estate agency to negotiate the transaction on their behalf. This keeps the negotiations and price fair. Agents and their salespersons are placed in a position of trust by their sellers. Therefore if an agent or a salesperson seeks to obtain an interest in the property for sale, they must act fairly, honestly and ensure the seller makes an informed decision to sell. The Property Occupations legislation requires that the seller must not be disadvantaged by the transaction. An agent has the ability to charge their client commission in a beneficially interested transaction provided they meet the requirements of the POA, namely that; - Before a contract of sale is entered into, they obtain the clients written acknowledgement in the approved form that the client:
Is aware that property agent or real estate salesperson is interested in obtaining a beneficial interest in the property; and Consents to the property agent or real estate salesperson obtaining the interest; and
Acts fairly and honestly in relation to the sale and the client is in substantially as good a position as the client would be if the property were sold at a fair market value
[13.4] Learning activity 11
Peter is a salesperson with Black Coast City Real Estate. Peter is contacted by interstate owners who need to sell their investment house. The owners advise Peter that they are anxious to sell, as they need the money for impending medical expenses. However, they have not visited the Black Coast for some time and have no idea of the values in this area. Unbeknown to the owners, Peter has a son who is looking for a house at the Coast. Peter knows that similar units in this area have sold for $275,000- $280,000. Peter inspects the house and calls the owners telling them it is worth around $250,000. The owners only paid $202,500 for the house 3 years ago and consider that the price is reasonable. They consequently list the unit for sale with Peter. He then sells it to his son. Answer the following questions. Question 1: What offences has Peter committed?
__________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 2: If Peter charges commission what does he need to obtain from the client?
__________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Question 3: How can this scenario be avoided?
__________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________
UNIT 14 - FEES, CHARGES AND EXPENSES [14.1] Advertising costs
The agency licensee cannot claim the cost of advertising unless it is expressly authorised under the Property occupations Form 6. The provision of rebates, commissions and discounts by entities such as advertisers to persons placing those advertisements (such as agents) is an accepted part of commercial dealings, not only in the real estate industry. However, agents should disclose to any consumer to whom any rebate, commission, benefit, or discount from an advertiser relates, the source and amount of that rebate, commission, benefit or discount. If, at the time that an agent makes this disclosure, the agent is unable to provide the advice of the precise amount of the rebate, commission, benefit or discount, the agent should advise a reasonable estimate of that amount. Part 8, section 4 of the PO Form 6 provides should outline any rebates, commissions etc. (if any) provided to the agent. Agents should comply with the regulatory provisions of POA requiring the full disclosure to relevant consumers of any significant relationships, connections or affinities between agents and third party suppliers. Further, all jurisdictions contain criminal laws that prohibit the receipt of secret commissions. [14.2] Fees and expenses
The POA provides for specific fees and expenses to be incurred and recovered by the agent. These can be paid in advance or reimbursed upon receipt of an itemised account and must be detailed in the PO Form 6. A fee is the cost of a service that an agent provides. A fee can be charged for a service not normally considered a part of an agent’s prescribed activities when selling, managing or renting properties. A fee could be charged for the following services (more commonly charged in property management):
supervising and inspecting major repairs and renovations, lodging building plans, and overseeing building applications reading water meters coordinating advertising consultants, copy writers, photographers, graphic artists and designers coordinating a marketing campaign that involves detailed market analysis, project or development feasibilities
consulting with architects, engineers and designers on behalf of a client
providing written reports that do not involve the sale, management or rental of a property
Agents are not permitted to charge a consumer a fee relating to the preparation of documents relating to a real estate transaction. This includes tenancy applications, lease agreements, management agreements, sales contracts, written market appraisals (relating to the sale or rental of a property) or listing documentation fees. Section 219 of the POA states; agents cannot charge a fee for a document that they are legally required and obligated to produce.
An expense is when agents incur a financial liability on behalf of their clients and could include:
promotional fees searches (such as a Title search from Queensland Department of Natural Resources and Mines other consultancy fees such as decorators, tradespeople, pest control, building inspectors, etc. the appointment of an auctioneer (this may be a fee also)
A fee, charge or expense cannot be charged or recovered unless the client has given authorisation in writing in the PO Form 6, or otherwise approved in writing. All fees, charges and expenses must be quoted on the Appointment of agent as GST inclusive. When claiming from the client the agent must be able to clearly and correctly justify the charge for the expense undertaken. For example, if the agent undertakes a title search the original receipt must be produced to justify the invoice or trust account disbursement, as the case may be. An agent cannot claim for expenses unless authorised in writing from the client and actually expended by the agent. This has repercussions for agents who may be charging a general marketing fee without proof of itemised expenditure on behalf of the client. Section 89 of the Property Occupations Act refers to the restriction on recovery of reward or expense without proper authorisation. An agent is not entitled to sue for, or recover or retain, a reward or expense for the performance of an activity as an agent unless, at the time the activity was performed, the agent held an agent’s licen ce; and was authorised under the person’s licence to perform the activity; and had been properly appointed by the client to be charged with the reward or expense. An agent should disclose to any consumer (e.g. client or customer) to whom any rebate, commission, benefit, or discount from an advertiser, relate the source and amount of that rebate, commission, benefit or discount. If, at the time that the agent makes this disclosure, the agent is unable to provide the advice of the precise amount of the rebate, commission, benefit or discount, the agent should advise a reasonable estimate of that amount. The most common rebates available to agents are from print and electronic media advertising. Agents should fully disclose in writing to each party to a transaction, the scope of service that their agency will be providing to them and seek a written acknowledgment from each party. Agents should also disclose their role to other agents involved in the transaction. Agents may use the term ‘free’ and similar terms in their advertising and in other
representations provided that at the same time all terms, governing availability of the offered product or service, are clearly disclosed or stated to be available. When the true costs are disguised in the selling price of the property you shall not offer gifts or items as being ‘free’ . Agents may also represent their services as ‘free’ or without cost, even if they expect to receive compensation from a source other than their client provided that the potential for them to obtain a benefit from a third party is clearly disclosed at the same time. [14.3] Commission
Commission can be defined as the amount paid by the person who appointed the agent (most commonly the seller), normally when the property is sold. It may either be a presentation of the actual selling price (or rental amount if a property management appointment), or a set amount agreed by the parties. The commission is negotiable between agent and the seller. The amount of commission an agent may charge is not regulated in
Queensland, and agents may charge whatever commission the agent wishes (and the seller accepts). The PO Form 6 provide for the agent to be paid commission by the client. The commission payable is subject to GST where applicable. An agent should always ensure their client is fully informed of the amount of commission being charged and have this clearly documented in the PO Form 6. The POA also has strict guidelines forbidding an agent to charge more for a service than permitted. However, there is nothing to stop the agent from negotiating a commission on a sliding scale, provided this is correctly specified in the PO Form 6, e.g. if the property is sold within 14 days commission payable will be $xxxx. In summary, the payment of commission depends upon all the following factors: the agent being licensed for the entire period of the appointment
an appointment, in the proper form (the PO Form 6), signed by the client, being in force for the period of the services, for which the commission is to be paid, are to be performed
the fulfilment of the obligations under the appointment
as a rule, depending on the conditions of the appointment, the completion of the transaction
[14.4] Repayment of excess commissions
If an agent is convicted by a court of an offence against sections 88(2), 89(2) or 90(3) of the POA; and the court convicting the person is satisfied on the balance of probabilities that the agent, in connection with the offence, has recovered or retained from the client an amount to which the agent was not entitled, the court must order the person to pay the amount to the client. The order must be made whether or not any penalty is imposed on the conviction. The client may file the order in a court having jurisdiction for the recovery of a debt of an equal amount and the order may be enforced as if it were a judgment of that court. [14.5] Secret commissions Case Study An agent has received money from a customer to negotiate a lower contract price in favour of the customer. In this case the client was not aware of the money changing hands and believed that the agent was acting in their best interests. The property sells for a lot less than the client had intended. The agent receives his agreed commission from the client and then receiv es agreed payments or ‘bonuses from the buyer.
In this case, the agent has breached their fiduciary duty by receiving a secret commission. A test for determining secret commission is to ask these questions:
Is there a third party offering the agent a gift, money or other form of consideration in the transaction?
Is this being offered without the knowledge of the agent’s client?
If the agent accepts this payment will the agent’s client’s rights be adversely affected in
the transaction?
If the answer is yes to any of these questions, the agent may be in breach of the law and committing an offence. By law, a secret commission is any fee or other benefit that an agent receives from a third party whilst acting for a client who is not aware of the arrangement. Any monies received by an agent from a third party whilst during the period of the appointment should be passed on to the client. The agent’s disclosure, in PO Form 8 should be acknowledged, in writing, prior by the buyer
to any agreement being entered into with a third party. On this form, the agent must tell buyers what kind, if any, relationship the agent has with anyone the agent refers the buyer to for professional services, and whether the agent expects to receive any benefits from the service provider as a result of the referral and how much you expect it to be. Agents, who are property developers, must additionally disclose if the agent owns at least 15% interest in the property the agent is selling.
[14.6] Client bonuses
A financial incentive or bonus offered to the agent by the client is not a secret commission and does not require disclosure.
UNIT 15 – DOCUMENTATION REQUIRED PRIOR TO CONTRACT SIGNING
There are several important procedures relating to real estate contracts that must be followed in specific special circumstances. These procedures directly relate to legislation regulating the validity of the contract and require a series of disclosures to be made to consumers before a contract can be enforced. [15.1] Definition of property
It is important that agents clearly understand the definition of residential property, because the type of transaction, whether it is residential or non-residential, directs the type of documentation that must be provided for a contract to be enforceable. [15.2] Residential property
Section 21 of the POA defines residential property as:
a single parcel of land on which a place of residence is constructed or being constructed
a single parcel of vacant land in a residential area
a lot included in a community titles scheme or proposed community titles scheme. This includes home units, villas, townhouses and group title house and land subdivisions
[15.3] Non-residential property
Non-residential property is referred to as:
a single parcel of land on which a place of residence is constructed or being constructed if the property is used substantially for the purpose of industry, and commerce a single parcel of vacant land if the property is in a non-residential area or is in a residential area, but only if a local government has approved development in relation to the property, the development is other than for residential purposes, and the approval is current
property used substantially for the purpose of industry and commerce properties used substantially for the purpose of primary production. However, any sale of land used for primary production shall be considered residential and have commissions capped as per the residential schedule of fees and commissions
[15.4] Agency practice issues
The POA places the responsibility on the agent to determine whether the transaction is residential or non-residential as this will impact directly on the statutory disclosures to be provided as well as the payable commission. Areas in which agents should show particular caution are:
home offices and small businesses being run legally or otherwise from a residential property. The definition makes no reference to whether the use is legal for existing residences land where primary production is still occurring at the time of sale. If an application is made to rezone the land to commercial or industrial, the sale must still be considered residential mixed-use complexes with a residential and business component being sold on the one title bulk project and land sales. More than three sales must be treated as a residential transaction (certain projects and subdivisions could previously be treated as a commercial transaction) boarding houses and flats that are on land zoned residential properties that are used for residential purposes but subject to rezoning or development applications
[15.6] Property Occupations Form 7 Disclosure of beneficial interest to seller by property agent or property auctioneer
As studied previously in Paragraph 14.3, if there is beneficial interest in a real estate transaction, the agent must make a statutory disclosure to the client. This must be made on the PO Form 7. This disclosure must be given to the client to sign before a contract is entered into. In circumstances where a licensee or a salesperson, has a beneficial interest in the purchase of real estate property, commission can be charged. An agent has the ability to charge their client commission in a beneficially interested transaction provided they meet the requirements of the POA, namely that; -
Before a contract of sale is entered into, they obtain the clients written acknowledgement in the approved form that the client:
Is aware that property agent or real estate salesperson is interested in obtaining a beneficial interest in the property; and Consents to the property agent or real estate salesperson obtaining the interest; and
Acts fairly and honestly in relation to the sale and the client is in substantially as good a position as the client would be if the property were sold at a fair market value
Property Occupations Form 7 – disclosure of beneficial interest to the seller by a property agent or property auctioneer
[15.7] Property Occupations Form 8 Disclosure to prospective buyer
As studied in previous units, the PO Form 8 applies only to residential property sales. The PO Form 8 is a statutory form and the agent must provide it in the approved format. The agent must provide it to the buyer; and have it signed by the buyer, before a contract is entered into (signed). The detailed instructions on the form will help to determine what must be disclosed and what does not have to be disclosed to buyers. These requirements are as required by section 157 of the POA. Please refer to the section below. Property Occupations Act 2014 Part 6 Disclosure requirements — licensees, real estate salespersons, property developers and marketeers 157 Disclosures to prospective buyer
(1) A residential property agent for the sale of residential property must disclose the following to any prospective buyer of the property — (a) any relationship, and the nature of the relationship (whether personal or commercial), the agent has with an entity ( a referred enti ty ) to whom the agent refers the buyer for professional services associated with the sale; Examples of relationships for paragraph (a) — •
a family relationship
•
a business relationship, other than a casual business relationship
•
a fiduciary relationship
•
a relationship in which 1 person is accustomed, or obliged, to act under the directions, instructions, or wishes of the other
(b) whether the agent derives or expects to derive a benefit from a referred entity and, if so, the amount or value of the benefit; (c) if the agent derives or expects to derive a benefit from a referred entity — (i) for a referred entity who is an individual — the individual’s full name; or (ii) for a referred entity that has a registered business name — the registered business name; (d) the amount, value or nature of a benefit an entity has received, receives, or expects to receive in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of the property; (e) if an entity has received, receives, or expects to receive a benefit in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale, of the property — (i) for an entity that is an individual —the individual’s full name; or (ii) for an entity that has a registered business name — the registered business name. Examples for paragraph (c) of persons who may receive a benefit — • accountant • finance broker • financial adviser • financier • property valuer • residential property agent • r esidential property agent • seller • solicitor Maximum penalty — 200 penalty units.
(2) However, subsection (1)(c) does not apply if the benefit is the amount the residential property agent has received, receives, or expects to receive by way of commission from the seller for the sale. (3) The disclosure is effective for subsection (1) only if it is — (a) given to the prospective buyer in the approved form before a contract of sale for the property is entered into; and (b) acknowledged by the prospective buyer in writing on the approved form before a contract for the sale of the property is entered into. (4) In this section — means monetary or other benefit. benefit l pr operty includes a proposed home that — residentia (a) is to be erected or constructed under a domestic building contract; and (b) is being marketed in connection with marketing land. residenti al pr opert y agent means —
(a) a property agent; or (b) a real estate salesperson acting for a real estate agent; or (c) a person performing an activity in contravention of section 97(1); or (d) a person acting as a property agent in contravention of section 97(2); or (e) a person acting as a real estate salesperson in contravention of section 151(1).
The agent for the sale of residential property must disclose the following to any prospective buyer of the property of any relationship, and the nature of the relationship (whether personal or commercial), the agent has with anyone to whom the agent refers the buyer for professional services associated with the sale; such as:
a family relationship
a business relationship, other than a casual business relationship
a fiduciary relationship
a relationship in which one person is accustomed, or obliged, to act in accordance with the directions, instructions, or wishes of the other
The agent must also disclose whether the agent derives or expects to derive any benefit from a person to whom the agent has referred the buyer and, if so, the amount or value of the benefit; the amount, value or nature of any benefit any person has received, receives, or expects to receive in connection with the sale, or for promoting the sale, or for providing a service in connection with the sale of the property. Examples of persons who may receive a benefit may be:
finance broker
financial adviser
financier
property valuer
residential property agent
seller
solicitor
An agent should be cautious when making any referrals and, if in doubt, disclose. Some agents may take the attitude that it is prudent not to make referrals but consumers expect
this as part of the service. Modern real estate practice has become accustomed to delivering a high level of integrated service to consumers. This includes assisting consumers to explore a range of products and services relating to finance, conveyancing solicitors, architects, decorators, designers, building inspectors and property maintenance providers. The important issue is how this service is provided. If an agent is genuinely assisting a consumer and making the appropriate disclosures, then all parties benefit. Consumers should be advised to make their own investigations and to seek quotes from a range of advisers or specialists to satisfy themselves a fair and competitively priced product or service is being received. If the agent refers a buyer to a person for professional services and the agent does not have any business or personal relationship with the service provider and/or is not receiving any benefit, then that part of the PO Form 8 does not need to be completed. Any disclosure document should always be signed by an agent prior to disclosing information to a consumer. [15.8] Benefits received by any party associated with the transaction
The intent of the legislation is to reveal to a buyer, details of all parties involved in the transaction, and to clarify exactly who may benefit directly or indirectly from the transaction. The agent is required to disclose any benefit that will be received by a person or entity where the benefit received does not relate to a referral. This includes a benefit received by any person or company associated with the promotion or sale of the property, or who provides a service in connection with the sale. These benefits, persons and companies include:
Financial advisors. If a financial advisor works directly for the seller (usually a marketeer
or developer involved in an investment package), their fees and commissions must also be disclosed. If the finance is packaged on sellers’ terms such as developer’s finance, the name of the financier must be disclosed, and the amount of remuneration from the transaction fully revealed to the customer on the PO Form 8 disclosure.
Valuers and investment advisors. If a valuer or investment adviser is associated with
the seller or financier and receives a fee as a result of the transaction, this must also be disclosed.
Marketing and promotional companies, where a marketing or promotion company will
receive fees or benefits as a result of a sale. This is common with co-ordinating marketing agents or promoters who receive a negotiated fee from the developer for every sale transacted regardless of who made the sale and who receives commission.
Promotional companies. Marketing, promotion and advertising costs must be disclosed
where payment or remuneration is contingent on the sale of a property.
Property Occupations Form 8 Disclosure to prospective buyer v1 1 December 2014
[15.9] Contract Warning Statement
It is a requirement under Section 165 of the Property Occupations Act that a seller must ensure the proposed relevant contract includes the following conspicuously written words to like effect; ‘The contract may be subject to a 5 business day cooling off period. A termination penalty of 0.25% of the purchase price applies if the buyer terminates the contract during the statutory cooling off period. It is recommended the buyer obtain an independent property valuation and independent legal advice about the contract and his or her cooling off rights, before signing’
The seller must ensure the words are written in the contract once, immediately above, and on the same page as the place in the contract where the buyer signs to indicate the buyers’ intention to be bound by the contract.
This cooling off period applies to all residential property transactions other than those sold under auction terms. A cooling off period will not apply to a contract formed within 2 business days after an auction, if the buyer was registered as a bidder for the auction. [15.10] Cooling –off period for residential sales
The cooling-off period for residential sales lasts for five business days and ends at 5:00pm on the fifth business day. When calculating the five business day cooling off period the agent must ensure to include the day, if it is a business day, on which the signed contract was given to the buyer, as day one. For example, if a contract is signed, dated and given to the buyer at 9 pm on Monday, then the first day of the cooling off period shall be that Monday and it will expire at 5 pm Friday. If the contract is signed, dated and given to the buyer at 9 pm on Wednesday, the cooling off period will expire at 5 pm on the following Tuesday (provided there are no public holidays in the period). The cooling off period will commence as soon as the seller, or their appointed agent or solicitor, gives the buyer a copy of the signed and dated residential property contract if that day is a business day. The Property Occupations Act recognises that the date of notification, or withdrawal, shall be the date and time that a faxed transmission has been forwarded, as per the provisions of Sections 11 and 14 of the Electronic Transactions Act 2001(Qld). Section 11 Requirement to give information in writing
(1) If, under a State law, a person is required to give information in writing, the requirement is taken to have been met if the person gives the information by an electronic communication in the circumstances stated in subsection (2). (2) The circumstances are that — (a) at the time the information was given, it was reasonable to expect the information would be readily accessible so as to be useable for subseq uent reference; and (b) the person to whom the information is required to be given consents to the information being given by an electronic communication.
A buyer, under a relevant contract, who has not waived the cooling-off period for the relevant contract may terminate the relevant contract at any time before the cooling-off period ends by giving written notice to the seller indicating that the buyer terminates the relevant contract. If notice of termination is given the relevant contract is at an end. The seller must, within 14
days after the relevant contract is terminated, refund any deposit paid under the relevant contract to the buyer less the amount of the termination penalty. An amount payable to the buyer is recoverable as a debt. Termination penalty, in relation to a relevant contract, is defined as an amount equal to 0.25% of the purchase price under the relevant contract. This penalty is intended to discourage buyers from entering into simultaneous multiple contracts. It is essential that the agent delivers a copy of the signed and dated contract to the buyer, or their nominated representative or solicitor, as soon as the contract has been finalised. When preparing contracts for the sale of residential properties, it is imperative that the date is not inserted at the top of page one of the contract until all the parties have concluded negotiations, and signed the contract. The agent then immediately conveys acceptance and dates the contract. [15.11] Buyers may waive or shorten the cooling-off period
A buyer who proposes to enter into a relevant contract may waive the cooling-off period for the relevant contract by giving the seller under the proposed relevant contract written notice. [15.12] Shortening the cooling-off period
Legislation makes provision for a buyer, under a relevant contract, to shorten the five day cooling off period for a residential contract by giving the seller, under the contract, written notice. The circumstances whereby a buyer may wish to do this are:
where a high demand property may need to be secured by the buyer before another buyer goes to contract
where a buyer just wants a certain sale and quick finalisation of the sale
to assist the negotiations with the seller
[15.13] Termination of contract during the cooling-off period
A cooling-off period shall end at 5 pm on the fifth business day after the cooling-off period started. The buyer may terminate the contract at any time up to 5.00 pm on the due date by giving a written notice to the seller or the seller’s agent. This notice is not a statutory form and there is no legislative requirement to provide any information other than the date and sufficient details to identify the contract and buyer in question. This should be done in writing. Once this notice has been given the contract will be at an end and best practice suggests the agent must refund the deposit immediately (the Property Occupations Act states within 14 days) upon notification to release the monies by the seller or their legal representative. If the deposit is paid by way of cheque, then the agent also has a legal obligation not to release the deposit until that cheque has been cleared by the appropriate financial institution. If the buyer has not notified the seller or the seller’s agent by the due time, it will be taken
that the buyer will be proceeding with the sale subject to other contract conditions. Remember, the buyer may be subject to the termination penalty of 0.25% to the seller of the purchase price if they “cool off” during the termination penalty.
APPENDIX A - Learning activity answers ANSWERS TO LEARNING ACTIVITY 1 [1.3] Q1: In the concept of agency, who is the client?
The person upon whose behalf the agent has been engaged to provide the service.
Q2 What are the two types of duties imposed on agents, and their staff, to both the seller and the buyer, as a consequence of the agency relationship?
Contractual duties which both parties agree to perform in terms of their contract; and oblige the agent to perform the contract of agency within its terms; and Fiduciary obligations, which are implied into the agency contract by common and equity law; and which arises out of a relationship based on confidence and trust, such as the contract between the agent and the client.
Q3 In what circumstances does an agent have to seek out information required by the prospective buyer of a property offered for sale?
Where an agent is asked a question in relation to a property they are offering for sale or rental, there is a clear duty for the agent to seek out the information required by the customer.
ANSWERS TO LEARNING ACTIVITY 2 [2.6] Q1. What are the two main forms of landholding in Queensland?
a. Fee simple, also described as freehold land b. An interest in freeholding or perpetual lease, also described as Crown leasehold land.
Q2. What are the two types of land title used in Australia? Indicate which type is used in Queensland.
a. Torrens Title which is used in Queensland b. Old System Title
ANSWERS TO LEARNING ACTIVITY 3 [3.6] Q1. Name six types of information which can be obtained through a search of the Titles Register.
A search of the Titles Register can provide the following information:
The correct names of the owners The correct Real Property Description (RPD) Encumbrances on the title of the property e.g., easements, caveats, covenants, mortgages Registered Dealings over the land e.g., demolition notices, heritage listings, contamination etc. Whether the land is Freehold or Leasehold
Title Reference number
Q2. There are a number of issues will impact negatively on a real estate transaction. Name four matters that may affect a person’s land title registration.
a. Encumbrance b. Easement c. Covenant d. Caveat
ANSWERS TO LEARNING ACTIVITY 4 [4.8]
Q1.What relevant state legislation imposes requirements on the sale of land in Queensland? Explain the effects of that legislation.
There are two Acts that impact directly on the sale of land in Queensland. They are the Property Law Act 1974 and The Land Sales Act. The Property Law Act regulates the conveyancing of land and the formation of the contract of sale. The Land Sales Act regulates the sales of land that does not have separate title issued, e.g. ‘off the plan’ sales.
Q2. What is the difference between chattels and fixtures in a contract for sale of a residential home?
A chattel is a movable item that is not considered an improvement in the sale. A fixture is considered an improvement or part of an improvement and therefore remains with the sale unless excluded. A fixture can be concreted, bolted, screwed, plumbed, fitted and joined or glued into place.
ANSWERS TO LEARNING ACTIVITY 5 [5.9] Q1. Name four circumstances where it is an offence against Section 40a(1) of the Fair Trading A ct 1989 to make false and misleading statements
Section 40A (1) Fair Trading Act makes it an offence to make false and misleading statements about:
The nature of the interest in land
The price payable for the land
The location of the land
The characteristics of the land
The use to which the land is capable of being put or may lawfully be put The existence or availability of facilities associated with the land.
Q2. What are some of the risks involved in providing specialist advice to clients?
Before any discussion with a client or customer, an agent will ensure they are suitably qualified and licensed.
Q3. What agency systems and processes should be in place to ensure compliance with the Privacy Act?
The Privacy Act requires agencies to:
Have a readily available privacy policy which must contain the following information; 1. The kinds of information that the business collects and holds
2. How the business collects and holds personal information. This includes data storage and cloud computing 3. The purposes for which the business collects, holds, uses and discloses personal information 4. How an individual may access their personal information 5. How an individual may seek the correction of their personal information 6. How an individual may complain about a breach of the APPs or an applicable APP Code, and how the business will deal with the complaint 7. Whether the business is likely to disclose personal information to overseas recipients, and if so, the countries in which such recipients are located
Q4. What is the procedure to check if someone is listed on the Do Not Call Register?
Ensure the policy is being complied with Ensure all personal information is stored securely and destroyed or de-identified once it is no longer required. security systems are adequate Review the types of solicited and unsolicited personal information gathered during the course of their business and if it is really necessary Assess how this personal information is used Recognise when disclosures of privacy matters must be made to tenants, sellers, buyers, lessors, consultancy clients, contractors and agency staff Regularly review and audit privacy practices and procedures Pay particular attention to direct marketing campaigns Take care in the way notes of personal information are recorded Understand when solicited and unsolicited personal information should not be disclosed
Consumers can very easily add their name and number to the Do Not Call Register, meaning that they have registered to NOT be contacted by any telemarketers. Agents will need to check the ‘register’ through a process referred to as list washing. This
process will be available 24 hours a day, 7 days a week. The agency will need to set up a list washing account. There are 2 types of accounts – an administration account and a washing account. The administration account is considered best suited to most businesses. ANSWERS TO LEARNING ACTIVITY 6 Q1. Your client asks you for advice concerning the best method of selling the client’s property. List six criteria you should consider before preparing a response as to the most appropriate selling method.
Does the property suit one method of sale?
Can market price be easily established?
Does the property have alternative uses?
Does the property have much competition?
Is the seller motivated to sell?
Is the seller realistic about price?
Will the seller pay for the marketing campaign? Is the timing right for selling? What are the current levels of results for each method of sale?
Where is the market heading?
What are buyers’ current attitudes?
Which methods get the best results?
Which methods best suit buyer habits?
Which methods get unrealistic sellers quickly conditioned?
ANSWERS TO LEARNING ACTIVITY 7 [8.16] Q1. What is the meaning of market value as used in the real estate industry?
The High Court of Australia today recognises market value as: The price which a property could be expected to realise if sold by a willing but not anxious seller to a willing but not anxious buyer at the date at which the value is required to be ascertained.
This definition has been interpreted to include the following provisions:
There is only one value for all purposes. That is, the price at which a property will sell at any given time is determined between a willing buyer and a willing seller. It is assumed that these parties are aware of all the facts relevant to the current marketplace, and therefore capable of making a rational decision as to a fair market price. The market value of a property for sale or for rent should always indicate a price that
the property would achieve if it was offered for sale or for rent in the open market, allowing a reasonable time for a customer to become fully informed of the attributes of the property and the prevailing market conditions. For this reason, market value is often referred to as the price at which a willing client would sell or rent and a willing customer would buy or rent neither party being subject to any abnormal pressure or circumstances. Q2. What is considered to be the market price of a property for sale?
The market price of a property is the most likely price that a customer will pay for a property at a specific point in time. Determining the market price of a property involves a high degree of market knowledge, research, an understanding of pricing methods and most importantly, a great deal of common sense. The price that a customer is willing to pay for a property can be influenced by:
The price that a valuer working for the financier thinks the property is worth The price that the agent thinks the property is worth The price that the client thinks their property is worth.
ANSWERS TO LEARNING ACTIVITY 8 [10.2] Q1. Name the distinct types of property listings which a client can enter with the agent.
(a) Open listing (b) Sole agency listing (c) Exclusive agency listing.
Q2. What are the differences between each type of listing?
An open listing is a written agreement entered into between a person (‘seller’) and a real estate agent (“selling agent”) under which the seller appoints the selling agent, in accordance with the terms of the agreement, to sell stated property. Under the agreement, the seller retains a right to sell the seller’s property during the term of the agreement; or to appoint additional real estate agents and pastoral houses as selling agents to sell the property on terms similar to those under the agreement; and the appointed selling agent is entitled to remuneration only if he or she is the effective cause of sale. The appointment of the selling agent can be ended by either the seller or the selling agent at any time. The only difference between an exclusive agency and a sole agency is the extent of
the entitlement of a selling agent to receive an agreed commission or other reward on the sale of particular property. Under an exclusive agency , a selling agent is entitled, on the sale of particular property and in accordance with the terms of an agreement with the seller of the property, to receive an agreed commission or other reward, whether or not the selling agent is the effective cause of the sale. However, if the sale were subject to a sole agency , the selling agent would not be entitled to the commission or other reward if the seller were the effective cause of the sale. ANSWERS TO LEARNING ACTIVITY 9 [11.13] Q1. Before performing a service for a client an agent must have a valid Appointment to Act. In a residential sale the agent uses a PO Form 6. Considering the provisions of Section 104 of the POA, what must this appointment form specify?
Refer to Section 104 of the Property Occupations Act.
Q2. When must an agent provide the buyer a PO Form 8 disclosure to prospective buyer? Name the section and the Act which refers to this disclosure.
POA Section 157
Q3. Under the AFAA who is entitled to hold deposit monies and in w hat type of account?
Only licensed real estate agents and licensed auctioneers who have a current trust account are entitled to hold deposit money.
Q4. What are the procedures a real estate agent must follow when deposit money is received?
Q5. Explain the circumstances in which deposit money may be withdrawn by a real estate agent.
Issue a trust account receipt for the money and deposit it into the trust account forthwith. The deposit must be banked by 5.00 pm on the same or nearest working day. A real estate agent may withdraw money from the trust account once the agent becomes entitled to commission and expenses. This is when the agent is authorised by the seller in writing or instructed by a court.
ANSWERS TO LEARNING ACTIVITY 10 [12.1] Q1. Under what circumstances can the listing agent refuse to conduct a conjunctional sale with another agency?
Only when the client has authorised the agent in writing not to accept conjunctions; otherwise, the agent would be acting contrary to client’s in structions and has failed to act in the client’s best interests.
