Every agency agreement is required to be accompanied by a current market appraisal (CMA). It's not enough to simply present the prospective client with a list of properties and data collected. A licensee should explain how the property compares to other recent sales, and how they have arrived at the appraised amount.
You should explain why you have included some properties for comparison and be able to explain why you have excluded others. This is captured in a CAC decision where the complainant alleged the market appraisal was misleading and inflated.
Based on the appraisal and the advice from the licensee, the complainant entered into a sole listing agreement with the agency. The CAC decision stated:
The committee accepts that the production of a CMA is not an exact science; that it is not a valuation and should not be treated as such. A CMA is usually the first step in a contract between a vendor and a licensee and, as such, plays a major role in whether a vendor decides to list his/her property with a licensee. Therefore, the committee believes care and effort should be taken with the production of the CMA.
The committee stated they saw simply a presentation of data collected with no evidence of analysis by the licensee. This left the report open to being interpreted incorrectly by the seller.
Read the full decision from the CAC(external link)
The Real Estate Agents Disciplinary Tribunal (READT) has also recently commented on the importance of appraisals when discussing licensees’ obligations when completing Form 2 and noted:
'Licensees should bear in mind that the appraised value must realistically reflect current market conditions, and that in allowing licensees to enter a provisional value rather than wait for an independent valuation, the intent of section 135 is that the provisional value is "the nearest thing" to an independent valuation. They should also bear in mind that the written appraisal they are required to provide under rule 10.2 must form the basis for the "estimated cost (actual $ amount)" of commission they must provide under rule 10.6(a).'
Read more about conflict of interest
The Tribunal also commented about the care with which appraisals should be prepared:
'A licensee preparing an appraisal will, therefore, be aware of the need for the appraisal figure to support the estimate of the commission payable, required to be given to a prospective client. The licensee will be required to comply with licensees' obligations to 'exercise' skill, care, competence and diligence at all times when carrying out real estate agency work" (rule 5.2), to "comply with fiduciary obligations to the licensee's client" (rule 6.1), to "act in good faith and deal fairly with all parties engaged in a transaction" (rule 6.2), and "not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client" (rule 6.4)'.
'If there is any doubt or concern that licensees' appraisals may be inflated, or manipulated in any way such that they do not reflect current market conditions, supported by comparable information, then that doubt or concern should be addressed by careful education and training and, if necessary, disciplinary proceedings'.
Read more about this decision [PDF 289KB](external link)
If there's no comparable data
If no directly comparable or semi-comparable sales data is available, you must explain this in writing to the vendor.
You should be careful when claiming that there is no comparable data, and if there is semi-comparable data, reference should be made to that information. You may wish to reference different properties to help your vendor understand why you’ve determined they aren’t comparable.