Conflict of interest
If you or someone related to you, personally or professionally, has an interest in a property or business you have listed, there is a conflict of interest and you must follow specific procedures set out in the Act.
What is a conflict of interest?
Conflicts of interest arise when an agent’s personal or professional interests compete with the client’s interests. The interests can be financial, personal or business.
There is a fiduciary relationship between the client and the licensed agent. The client has a legal expectation that their interests will be best served by their agent.
Examples of conflict of interest include:
- an agent buying or leasing a property that is listed with their agency
- an agent recommending a business or property to clients or customers that he or she receives a benefit from, such as shares, a referral fee or discounted goods
- an agent assisting a relative to buy a property that is listed by the agency the agent works for
- an agent recommending to a client or customer, the services of a provider which is operated by or affiliated with a relative, friend, business or another associate of the agent
- an agent collecting more than one commission for a sale
- an agent advising consumers as a mortgage advisor or valuer.
A summary of the legislation
Sections 134-137 of the Real Estate Agents Act 2008 deal with certain types of potential conflicts of interest as do rules 9.14 and 9.15 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (Code of Conduct).
Sections 134 and 135 set out licensees’ obligations when a licensee or ‘person related’ to the licensee (defined in section 137) is interested in purchasing a property or business, or interest in that property or business. Those obligations include the requirement to obtain the client’s consent on the prescribed form (Form 2) and provide the client with a valuation at the licensee’s expense. Read more here.
Section 136 requires that when a licensee is carrying out real estate agency work in relation to a property or business that they (or a ‘person related’ to the licensee) own or have a financial interest in, the licensee must disclose in writing that they (or a ‘person related’) may benefit financially from the transaction. Read more about disclosing benefits here.
Section 137 sets out the meaning of licensee and ‘person related’ to a licensee when considering sections 134-136. Read more about who is a related person here.
A licensee must not act in a capacity that would attract more than 1 commission in the same transaction.
Licensees cannot be employed by both a buyer and seller in the same transaction.
A licensee must not engage in business or professional activity other than real estate agency work where the business or activity would, or could reasonably be expected to, compromise the discharge of the licensee’s obligations.
This rule addresses the issue of you acting outside your role as a licensed real estate professional when involved in a transaction.
An example is a licensee who is giving advice as a mortgage advisor or valuer, because they may be able to influence someone to buy or sell a property to earn a commission.
Who is a related person?
137 Meaning of licensee and person related to licensee in sections 134 to 136
(1) In sections 134 to 136, licensee includes, in the case of an agent that is a company, every officer and shareholder of the company.
(2) For the purposes of sections 134 to 136, a person is related to a licensee if the person is—
(a) a partner of the licensee under a partnership agreement:
(b) an employee of the licensee:
(c) a branch manager or salesperson engaged by the licensee:
(d) the licensee’s spouse or civil union partner:
(e) the licensee’s de facto partner:
(f) a child, grandchild, brother, sister, nephew, or niece of the licensee or of any person referred to in paragraphs (d) or (e):
(g) any other child who is being, or is to be, cared for on a continuous basis by the licensee or any person referred to in paragraph (d) or (e):
(h) a grandparent, parent, uncle, or aunt of the licensee or of any person referred to in paragraph (d) or (e):
(i) an entity that has an interest in the licensee or an entity in which the licensee has an interest (except where either interest is in quoted financial products within the meaning given for those terms in section 6(1) of the Financial Markets Conduct Act 2013).
Disclosure of other benefits (other than commission)
If you are carrying out real estate agency work in relation to a property or business in which you or a ‘person related’ has an interest, you must disclose that conflict to every prospective party to the transaction and inform them if you (the licensee) or the ‘person related’ may benefit financially from the transaction (in addition to your commission).
This disclosure must be in writing. If you just tell the potential party in conversation or do not tell them at all, you are in breach of Section 136. You must provide the written disclosure before or at the time that you provide the prospective party with any contractual documents that relate to the transaction.
Section 136 does not:
- Allow parties to cancel a contract.
- Cover disclosure of rebates, discounts, and commissions in relation to expenses incurred on behalf of a client, e.g. marketing and advertising expenses (Section 128).
- Cover the constraints on the right of a licensee or any partner, sub-agent, nominee or a related person, to purchase property or land from a client of the agency or sub-agency (Section 134).
Download the disclosure of other benefits template.
You cannot claim more than one commission for a sale
Claiming more than one commission for one transaction is not allowed.
The Code of Professional Conduct and Client Care Rule 9.14 specifically states that an agent cannot receive commissions from both parties to a transaction:
9.14 — A licensee must not act in a capacity that would attract more than 1 commission in the same transaction.
You can’t claim a commission from both the buyer and seller in the same transaction.
Listing a related person’s property
If you are engaged, directly or indirectly, in selling a property or business that you or anyone ‘related’ to you personally or professionally owns or has a financial interest in, then you must disclose that conflict of interest to the buyer in writing. This must be disclosed in writing before they sign a sale and purchase agreement.
REA’s best practise states that if you have a relationship with the client prior to being asked to help with a listing, and they don’t fall under section 137’s definition of a ‘person related’ you should still advise the buyer in writing. This helps to prevent the buyer from finding out later and potentially making a complaint.
Buying a client’s property (Form 2)
If you are carrying out real estate agency work and you or a ‘person related’ has an interest in buying it, you must obtain the client’s consent, and provide the client with a valuation at your expense.
You must give the valuation to the client before asking for their consent, or if they agree, within 14 days of obtaining their consent. The client’s consent must be given in the prescribed form which is Form 2 of the Schedule to the Real Estate Agents (Duties of Licensees) Regulations 2009.
Form 2 requires the client to state that an agency agreement was signed with the licensee and that the client consents to the licensee or a related person acquiring directly or indirectly an interest in the land or business to being sold. It also requires confirmation from the client that a valuation or provisional valuation was provided. The client’s consent is not effective unless it is given on Form 2 and the client is provided with a valuation. It is not possible for the parties to waive this requirement, even if the client says they do not need a valuation.
The client can cancel the contract if a provisional valuation is specified on Form 2, and the independent valuation (when provided) is greater than the provisional valuation. They may choose to re-negotiate the agreement or continue with it. If the valuation is less than or equal to the provisional value, the client is not able to void the agreement, and you have a binding contract.
It is best practice to stop working for the client and arrange for another agent from your agency to represent them. It is important the client has someone independent working for them to sell their property. If you are a one-person agency, we recommend you advise the client to go to another agency or that you deal directly with the client's lawyer.
Providing an independent valuation
You must give the client an independent valuation of the property by an independent registered valuer or, if it is a business, by an independent chartered accountant.
The valuation needs to be provided regardless of the method of sale.
You must give the valuation to the client before or at the time of them signing Form 2. If you’re not able to give the valuation at the time they sign Form 2, the client may agree to you giving them the valuation within 14 days of them signing Form 2.
Any consent given without the independent valuation being supplied is invalid. If the client doesn’t consent or you do not provide a valuation, the client may cancel the agreement and does not need to pay commission (section 135).
Who pays for the valuation?
You must pay for the valuation, even if the person purchasing the property is a ‘person related’.
The valuation must be provided regardless of whether the client says a valuation is not required.
Obligations continue until settlement
The obligations under sections 134-135 continue to apply after a sale and purchase agreement becomes unconditional, until settlement. It does not matter that the licensee may have had no input into the negotiations leading to the agreement for sale and purchase – the obligations persist until settlement.
If a client has agreed that a valuation can be provided within 14 days of their consent, licensees are required to specify a provisional value on Form 2.
Where the licensee appraisal is expressed as a range, we recommend that you use the appraisal figure used for the commission estimate in rule 10.6(a) as the provisional value. If your agency uses set commission rates, then you would use the mid-point in the range.
If the independent valuation comes back and is greater than the provisional value you’ve written on Form 2, then the client has the option to void the sale and purchase agreement, re-negotiate it or continue with it. If the valuation is less than or equal to the provisional value, the client is not able to void the agreement, and you have a binding contract.
You can’t contract out of these requirements.
Informed consent requires more than just filling in Form 2
If the offer is less than the provisional valuation figure you must advise the client in writing before or at the time the offer is submitted that the offer is less than your appraisal of what the property is worth.
You should also advise the client in writing that the client will not have the right to cancel the contract under section 135(5) if the independent valuation is more than the offer price but less than or equal to the provisional value specified on Form 2.
If the independent valuation is higher than the provisional valuation, the client can cancel the contract for the sale of their property (if they have already signed one) without any penalty.
Protecting the client, customer and yourself
With the interconnectedness of communities and business relationships, conflicts of interest are inevitable from time to time.
You and your agency must be aware of your obligations and must implement systems and procedures to make sure you comply with the Real Estate Agents Act 2008.
Don’t proceed with a transaction where there is a conflict of interest that could expose you to a finding of unsatisfactory conduct or misconduct. Make sure you fully disclose in writing any financial interest that you or other ‘related persons’ may have in that transaction.
If you are unsure whether a situation may breach the Act, the associated Code of Conduct or the Regulations, ask for advice from your Manager or contact us.
Guidance from a decision
This case involves a licensee purchasing a property that he was the listing agent for at the time.
The licensee had a sole agency agreement in place with the complainants and had held an open home which resulted in offers being submitted.
The complainants rejected the offers and on the same day the licensee submitted a personal offer on their agency’s sale and purchase agreement form and wrote ‘private sale’. The licensee failed to provide a written appraisal and explanation of pricing for the property as required by rules 10.2 and 10.3. He did not complete Form 2 and supply them with an independent valuation and did not alert them to the fact that they could cancel the agreement for sale because of his failings.
The licensee was aware of the statutory requirements. There was adequate time to correct the procedural failures before the licensee settled the purchase, but this was not done.
The licensee was found guilty of Misconduct by the Tribunal.
Read the full decision here.
Licensee failed to outline conflict of interest to vendors
The licensee accepted that he allowed the sale to himself and his partner to proceed without getting the complainant’s consent in the prescribed form, and without providing them with a written (or any) valuation by a registered valuer, as required by section 134(1) and (3), and 135. He also accepted that he did not tell the complainants that because of his failure to comply with the requirements of section 134 and 135, they could cancel the sale contract.
The Tribunal rejected the suggestion that the licensee genuinely believed he was acting correctly given the importance of the obligations and the fact that he was a very experienced licensee and licensed as a branch manager. It noted that these provisions were well known to licensees, and fundamental to the Act’s purpose of promoting public confidence in the performance of real estate agency work, and a breach must be regarded seriously.
The licensee did not lose his obligations by calling the transaction a "private sale" on the Agreement for Sale and Purchase, and not charging commission. He was still required to comply with the Act and follow the correct process.
Didn’t act in the vendor’s best interest
This allegation was based on the prospective buyers’ evidence that the licensee had said that the sale price for the property was not expected to go above its rateable value.
The Tribunal accepted this evidence and therefore found that the licensee had significantly reduced the possibility that the property would sell for the price the complainants (his clients) wished to achieve.
Further, because the licensee made an offer on the same day the prospective purchasers’ offer had been rejected the Tribunal:
- doubted that all potential buyers had been or would be exhausted
- noted that there was no opportunity for any potential buyers who were not already on the database to show themselves.
Section 134: The licensee failed to obtain the complainants’ informed consent to continue acting on the sale when he had a conflict of interest arising out of his decision to purchase the property for himself.
Section 135: The licensee failed to provide the complainants with a written (or any) independent valuation of the property.
Rule 10.2: The licensee ‘failed to provide them with a written (or any) appraisal of the property’.
Rule 10.3: The licensee ‘failed to advise the complainants how the properties referred to in documents provided to them had been selected and how that information could be reflected in the price for the property’.
Rule 9.1: Licensee ‘failed to act in the complainant’s best interests’.
What this means for you
You cannot assume the client is knowledgeable and understands and it’s not acceptable for a licensee to assume that the requirements of the Act and Rules do not need to be complied within a case.[TB1]You must comply with your obligations under section 134 of the Act in every case. You must provide the vendor with an independent valuation and written appraisal as well as their written informed consent to move forward with the sale.
If you are unsure if you need to supply this to a vendor, talk with your manager or contact us.