Devilish real estate details about to shut down 500 NZ jobs

In a time of deep recession, the National-led government is about to shut down the jobs of up to five-hundred New Zealanders.

This is a story that hasn’t yet hit the news – in fact you’re reading it here for the first time – but it’s a story that started two years ago with plughead populist Clayton Cosgrove, and will reach its climax next week under the oversight of Nathan Guy, Gerry Brownlee and Simon Power, when hundreds of New Zealanders will lose their jobs, agencies and businesses.

The story goes like this.

Two years ago  Clayton Cosgrove devised a scheme to get himself a headline.  He announced he wanted to “drop the hammer” on real estate agents – to “drag them kicking and screaming” into the spotlight; to rewrite, for the second time in four years, the Real Estate Agent’s Act. (Rick Barker had effected a review and made a rewrite back in 2004, of which nothing came.)

This rewrite, said Plughead, would protect “Mom and Pop home-owners” from bullies, rip-offs and “land sharks” --and in September last year when the law was passed, the Real Estate Agent’s Authority (REAA) set up under the Act began rewriting the Real Estate Agent’s code to make it fit the plughead populist’s new law.

Both the new code and the new quango, the REAA, come into force in ten days, on November 17.

But here’s a problem.  There were problems enough with the demonisation of real estate agents and hasty rewriting of law simply to get headlines for an underperforming minister. 

But there’s a new problem, a serious one. which has only just become apparent now Clayton’s Code is about to be introduced: The Act was intended simply to protect “Mom and Pop home-owners,” but the Code has been written by some minion in Wellington who has expanded it to cover not just all real estate, but all businesses for sale as well.

The small change will have a fatal unintended impact on agents who sell land and businesses. Let me explain why.

For decades now, real estate agents have been selling businesses on commission to businessmen and women. These aren’t “mom and pop” New Zealanders, they’re entrepreneurs based both here and overseas.  They’ve been selling dairies, superettes, motels, hotels, service stations, resorts, backpackers operations and everything else in between.  What the minion who’s written the new code has done however is to effectively close down agents who specialise in selling land and businesses.

You see, what the new code requires is that in order for agents to secure a listing, they must first supply clients with a written appraisal of their land or business.  Despite much confusion about what this might mean, this view is now confirmed by both the in-house lawyer of the Real Estate Institute of NZ (REINZ) and by REINZ’s David Bigio – i.e., that every new listing secured by every agent must now be supported by a written appraisal.  (When I say “much confusion,” until last week David Bigio was traipsing the North Island telling REINZ members they would need a written appraisal, while another lawyer was traipsing the South Island telling REINZ members they won’t!)

Here’s the relevant clause from the new code:

“9.5       An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.”

Pretty clear, huh.

But here’s the rub. In order to offer a professional written appraisal in the manner required by this new code, an agent would have to have the professionals on board to make those appraisals, and insurance cover to be a professional valuer of businesses.

To be specific, valuing a business for sale requires setting a value for each of:

1. Land & Buildings
2. Chattels
3. Benefit in the Lease
4. Goodwill

Which means that each agent, broker or office selling businesses on commission are going to need up to four specialist valuers:

1. A Registered Valuer to value land & buildings
2. A Registered Valuer to value Chattels Valuer
3. A Registered Valuer and/or Chartered Accountant to value benefits in terms of lease remaining
4. A Registered Valuer and/or Chartered Accountant to value Goodwill.

Now just to repeat, to secure a new listing to sell a dairy or a motel, an agent must offer a professional appraisal written by both a Registered Valuer and a Chartered Accountant, to have insurance cover to be a professional valuer of businesses.

They say that the devil is in the details, and for around 500 agents and brokers thoughout NZ who specialise in selling land and businesses, that couldn’t be more true.

But there’s more: since the appraisal is prepared in order to secure a listing, i.e., to secure the chance to earn a commission, the appraisal itself must be offered at no charge.

So not only are there no offices in the country (outside one or two of the very big boys) that has the professionals on board who can offer such appraisals, there are none at all who will be able to foot such a bill.

There are around five-hundred agents and brokers around New Zealand who sell businesses like hotels, motels and resorts around the country.  In a week’s time they will be out of business.

And here’s the irony.

The National Government who say they stand for "Free Enterprise" have sat back and allowed this code to be written and introduced – a code which will effectively destroy agents, brokers and businesses throughout NZ.

And here’s another one.

Not one of those agents, brokers or businesses – not even the REINZ  or anyone else for that matter – are allowed access to the new Real Estate Agents Authority to challenge the code.  They’re not allowed access until 9am on the 17th November, when the new agency officially comes into being!

And by that time they are out of business! 

That’s the sort of tale Franz Kafka might have written.