Cosgrove proposes end to self-regulation for real estate industry
Cosgrove outlines government's plans to overhaul the legislation governing the real estate industry
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Associate Justice Minister Clayton Cosgrove today announced that an end to self-regulation for the real estate sector is among the government's proposals to bring accountability and transparency to the industry, and to establish an independent complaints system that protects consumers.
Mr Cosgrove has today released The Government's Preferred Options for Reform of the Real Estate Agents Act 1976 - a document that sets out proposals to change the licensing, complaints, and disciplinary system for real estate agents and salespeople.
Mr Cosgrove said the industry has had the privilege of self-regulation under the Real Estate Agents Act 1976, but its "closed shop" practices for dealing with public complaints no longer measures up.
"Major concerns have been raised by the public and real estate agents themselves about how the industry deals with complaints and disciplinary matters. Last year I asked the Real Estate Institute of New Zealand (REINZ) to come back to me with proposals to improve accountability and transparency in the industry. Sadly the REINZ came back with proposals that kept the complaints system in-house."
"I am proposing to remove the regulatory functions from the industry, because it has failed to protect customers from rogue agents. I am also proposing to create an independent Real Estate Licensing Authority responsible for investigating and resolving complaints. The Authority will have wide investigative powers, and will be able to order a wide range of penalties and remedies, including compensation and de-licensing of agents. A public register of real estate agents and salespeople will be established that will include any breaches of the industry standards against the names of agents or salespeople involved."
Mr Cosgrove said the reforms would restore the confidence of consumers and honest real estate agents. "Consumers will be better protected by an independent disciplinary process with effective redress for breaches of a new code of conduct and of the law. Honest real estate agents will benefit from no longer being tarnished by the last land shark who ripped off a consumer and who brings the entire industry into disrepute."
"As the disciplinary function of the REINZ would move to the new Authority, real estate agents would no longer be required to be members of REINZ. Instead they will have to be licensed by the Authority," he said.
Mr Cosgrove said New Zealanders' greatest asset is often their home, so it is paramount that people have access to an independent, transparent and effective disciplinary process should they feel they have been done over or ripped off. He said that the new structure would be funded by the industry, not the taxpayer, and the new complaints system would be low or no cost to the consumer.
The Minister will be holding a series of community meetings around the country to hear public views on the government's preferred options.
Members of the public have until 10 July 2007 to make submissions on the proposals. Mr Cosgrove said he aimed to introduce a Bill to amend the Act into Parliament within the next few months, with the aim of passing the legislation by late this year or early next year.
See the enclosed backgrounder for more information on the main proposals. Copies of The Government's Preferred Options for Reform of the Real Estate Agents Act 1976 are available on the Ministry of Justice website - www.justice.govt.nz
Background Information
Why does the Real Estate Act 1976 need to be overhauled?
The main problem that prompted this review is that the Act's provisions relating to complaints and discipline are not being fully utilised by the industry under the current self-regulatory structure. While the overwhelming majority of real estate agents are honest professionals, there is widespread concern about the ethics of some in the industry and the effectiveness of complaints processes.
Some high-profile cases have highlighted significant shortcomings with the current disciplinary processes, such as the time delays in processing complaints, lack of compensation for consumers through the process and the low penalties imposed in proportion to the commissions received in the transactions.
The legislation is also 30 years old. Since its introduction there have been substantial advances in regulatory frameworks for consumer protection. Currently the real estate industry lags behind other occupations in this area, such as lawyers and conveyancers, and motor vehicle traders. Real estate transactions need to be conducted in an environment that provides for independent resolution of disputes, holds agents to account, and is transparent and fair to consumers.
What is wrong with REINZ's disciplinary process?
Concerns with the REINZ's current disciplinary process include:
¡ REINZ acts as gate-keeper and decides if complaints are referred to the Licensing Board. Relatively few complaints are referred to the Licensing Board, which has the power to suspend or cancel registration, plus impose up to a $5,000 fine on agents.
¡ Most complaints are dealt with at REINZ sub-committee level, which means decisions about disciplinary action are made by fellow real estate agents, and a $750 is the maximum imposable fine.
¡ Long delays in processing complaints, and complainants not kept informed of progress.
¡ Concerns about the quality of investigations.
¡ Limited information available about the complaints process.
¡ The current regime provides no compensation for complainants when agents or salespeople are found to be at fault, except in cases of fraud.
¡ The industry's Code of Ethics inhibits agents from expressing their concerns publicly, as it states "Members shall never publicly criticise fellow members".
How many cases has REINZ referred to the Real Estate Licensing Board?
Recent statistics provided by the industry show that very few cases are being sent to the Licensing Board.
· In 2004, 132 complaints were received but none were referred to the Board.
· In 2005, 163 complaints were received but only 7 were referred to the Board.
· In 2006, 212 complaints were received but only 2 were referred to the Board.
What was wrong with the proposals put up by the REINZ?
The original proposal put up by the REINZ in December 2006 did not revamp the industry's Code of Ethics as requested, nor did it provide a complaints structure that was independent of the industry, transparent and responsive to consumers. It left control largely in its own hands. However the government supports the work currently being undertaken by former Consumers Institute Chief Executive David Russell to review the REINZ code of ethics and notes the problems that he has announced with the current code of ethics.
What is the timing around these proposed reforms?
Members of the public have until 10 July 2007 to make submissions on the proposals. Draft legislation will then be introduced later this year, with the aim of passing the legislation before Christmas or early next year.
Why is the government putting its preferred options out for discussion, instead of just introducing a Bill?
By submitting its proposals for discussion, the government is giving the public, especially victims of shonky practices by real estate agents, and the industry the opportunity to have their say about how the real estate industry needs to be regulated before the government makes its final decisions. People are urged to make submissions on the document and/or to attend the community meetings, the details of which will be announced soon.
What are the government's preferred options for change?
· Abolishing the existing Real Estate Licensing Board ("the Board") and replacing it with a new Real Estate Licensing Authority ("the Authority").
· The Minister of Justice appointing all members to the Authority. The Minister may, but is not obliged to, include, industry representatives (currently, two of the five members of the Board must be Real Estate Institute of New Zealand ("REINZ") nominees).
· Making the Authority (as opposed to the Board or the REINZ) responsible for:
· the complaints and discipline system at all levels. Currently the Board deals with a minority of complaints filtered up to it by REINZ, over which it has no control.
· having a Complaints Assessment Unit directly under the Authority's control that will investigate all complaints and represent complaints before the Authority.
· investigating a wider range of complaints. These can include breaches of the Act as well as breaches of other relevant legislation, for example breaches of the Fair Trading Act 1986. The Authority will be able to impose a wider range of penalties, and order substantial compensation in appropriate cases.
· licensing agents and salespeople, setting industry standards (such as codes of practice and the industry code of ethics) and setting the educational requirements for entry to the industry.
· Removing the requirement that agents must be members of the REINZ.
· Overhauling the eligibility requirements for being licensed as a real estate agent, salesperson or branch manager. In particular:
· strengthening the "good character" requirements for being licensed as a real estate agent, salesperson, or branch manager
· increasing over time the qualifications required of salespersons, to reflect their responsibilities.
· Making the real estate industry subject to the same employment laws as any other industry or business in New Zealand by removing the special provision allowing real estate salespeople to be engaged as independent contractors even though they would otherwise be considered in law to be an employee. This change could be brought in gradually over time by allowing current salespeople to continue under their current arrangements as long as they stay in the industry. The industry would retain the choice of engaging new salespeople as contractors or as employees, but they would come under the same employment laws as every other industry or business.
· Modernising the rules that real estate agents, salespersons and branch managers must comply with in order to provide a higher level of protection to consumers.
· Requiring salespeople and agents to undergo continuing education to improve their skills and reduce risk to consumers.
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Associate Justice Minister Clayton Cosgrove today announced that an end to self-regulation for the real estate sector is among the government's proposals to bring accountability and transparency to the industry, and to establish an independent complaints system that protects consumers.
Mr Cosgrove has today released The Government's Preferred Options for Reform of the Real Estate Agents Act 1976 - a document that sets out proposals to change the licensing, complaints, and disciplinary system for real estate agents and salespeople.
Mr Cosgrove said the industry has had the privilege of self-regulation under the Real Estate Agents Act 1976, but its "closed shop" practices for dealing with public complaints no longer measures up.
"Major concerns have been raised by the public and real estate agents themselves about how the industry deals with complaints and disciplinary matters. Last year I asked the Real Estate Institute of New Zealand (REINZ) to come back to me with proposals to improve accountability and transparency in the industry. Sadly the REINZ came back with proposals that kept the complaints system in-house."
"I am proposing to remove the regulatory functions from the industry, because it has failed to protect customers from rogue agents. I am also proposing to create an independent Real Estate Licensing Authority responsible for investigating and resolving complaints. The Authority will have wide investigative powers, and will be able to order a wide range of penalties and remedies, including compensation and de-licensing of agents. A public register of real estate agents and salespeople will be established that will include any breaches of the industry standards against the names of agents or salespeople involved."
Mr Cosgrove said the reforms would restore the confidence of consumers and honest real estate agents. "Consumers will be better protected by an independent disciplinary process with effective redress for breaches of a new code of conduct and of the law. Honest real estate agents will benefit from no longer being tarnished by the last land shark who ripped off a consumer and who brings the entire industry into disrepute."
"As the disciplinary function of the REINZ would move to the new Authority, real estate agents would no longer be required to be members of REINZ. Instead they will have to be licensed by the Authority," he said.
Mr Cosgrove said New Zealanders' greatest asset is often their home, so it is paramount that people have access to an independent, transparent and effective disciplinary process should they feel they have been done over or ripped off. He said that the new structure would be funded by the industry, not the taxpayer, and the new complaints system would be low or no cost to the consumer.
The Minister will be holding a series of community meetings around the country to hear public views on the government's preferred options.
Members of the public have until 10 July 2007 to make submissions on the proposals. Mr Cosgrove said he aimed to introduce a Bill to amend the Act into Parliament within the next few months, with the aim of passing the legislation by late this year or early next year.
See the enclosed backgrounder for more information on the main proposals. Copies of The Government's Preferred Options for Reform of the Real Estate Agents Act 1976 are available on the Ministry of Justice website - www.justice.govt.nz
Background Information
Why does the Real Estate Act 1976 need to be overhauled?
The main problem that prompted this review is that the Act's provisions relating to complaints and discipline are not being fully utilised by the industry under the current self-regulatory structure. While the overwhelming majority of real estate agents are honest professionals, there is widespread concern about the ethics of some in the industry and the effectiveness of complaints processes.
Some high-profile cases have highlighted significant shortcomings with the current disciplinary processes, such as the time delays in processing complaints, lack of compensation for consumers through the process and the low penalties imposed in proportion to the commissions received in the transactions.
The legislation is also 30 years old. Since its introduction there have been substantial advances in regulatory frameworks for consumer protection. Currently the real estate industry lags behind other occupations in this area, such as lawyers and conveyancers, and motor vehicle traders. Real estate transactions need to be conducted in an environment that provides for independent resolution of disputes, holds agents to account, and is transparent and fair to consumers.
What is wrong with REINZ's disciplinary process?
Concerns with the REINZ's current disciplinary process include:
¡ REINZ acts as gate-keeper and decides if complaints are referred to the Licensing Board. Relatively few complaints are referred to the Licensing Board, which has the power to suspend or cancel registration, plus impose up to a $5,000 fine on agents.
¡ Most complaints are dealt with at REINZ sub-committee level, which means decisions about disciplinary action are made by fellow real estate agents, and a $750 is the maximum imposable fine.
¡ Long delays in processing complaints, and complainants not kept informed of progress.
¡ Concerns about the quality of investigations.
¡ Limited information available about the complaints process.
¡ The current regime provides no compensation for complainants when agents or salespeople are found to be at fault, except in cases of fraud.
¡ The industry's Code of Ethics inhibits agents from expressing their concerns publicly, as it states "Members shall never publicly criticise fellow members".
How many cases has REINZ referred to the Real Estate Licensing Board?
Recent statistics provided by the industry show that very few cases are being sent to the Licensing Board.
· In 2004, 132 complaints were received but none were referred to the Board.
· In 2005, 163 complaints were received but only 7 were referred to the Board.
· In 2006, 212 complaints were received but only 2 were referred to the Board.
What was wrong with the proposals put up by the REINZ?
The original proposal put up by the REINZ in December 2006 did not revamp the industry's Code of Ethics as requested, nor did it provide a complaints structure that was independent of the industry, transparent and responsive to consumers. It left control largely in its own hands. However the government supports the work currently being undertaken by former Consumers Institute Chief Executive David Russell to review the REINZ code of ethics and notes the problems that he has announced with the current code of ethics.
What is the timing around these proposed reforms?
Members of the public have until 10 July 2007 to make submissions on the proposals. Draft legislation will then be introduced later this year, with the aim of passing the legislation before Christmas or early next year.
Why is the government putting its preferred options out for discussion, instead of just introducing a Bill?
By submitting its proposals for discussion, the government is giving the public, especially victims of shonky practices by real estate agents, and the industry the opportunity to have their say about how the real estate industry needs to be regulated before the government makes its final decisions. People are urged to make submissions on the document and/or to attend the community meetings, the details of which will be announced soon.
What are the government's preferred options for change?
· Abolishing the existing Real Estate Licensing Board ("the Board") and replacing it with a new Real Estate Licensing Authority ("the Authority").
· The Minister of Justice appointing all members to the Authority. The Minister may, but is not obliged to, include, industry representatives (currently, two of the five members of the Board must be Real Estate Institute of New Zealand ("REINZ") nominees).
· Making the Authority (as opposed to the Board or the REINZ) responsible for:
· the complaints and discipline system at all levels. Currently the Board deals with a minority of complaints filtered up to it by REINZ, over which it has no control.
· having a Complaints Assessment Unit directly under the Authority's control that will investigate all complaints and represent complaints before the Authority.
· investigating a wider range of complaints. These can include breaches of the Act as well as breaches of other relevant legislation, for example breaches of the Fair Trading Act 1986. The Authority will be able to impose a wider range of penalties, and order substantial compensation in appropriate cases.
· licensing agents and salespeople, setting industry standards (such as codes of practice and the industry code of ethics) and setting the educational requirements for entry to the industry.
· Removing the requirement that agents must be members of the REINZ.
· Overhauling the eligibility requirements for being licensed as a real estate agent, salesperson or branch manager. In particular:
· strengthening the "good character" requirements for being licensed as a real estate agent, salesperson, or branch manager
· increasing over time the qualifications required of salespersons, to reflect their responsibilities.
· Making the real estate industry subject to the same employment laws as any other industry or business in New Zealand by removing the special provision allowing real estate salespeople to be engaged as independent contractors even though they would otherwise be considered in law to be an employee. This change could be brought in gradually over time by allowing current salespeople to continue under their current arrangements as long as they stay in the industry. The industry would retain the choice of engaging new salespeople as contractors or as employees, but they would come under the same employment laws as every other industry or business.
· Modernising the rules that real estate agents, salespersons and branch managers must comply with in order to provide a higher level of protection to consumers.
· Requiring salespeople and agents to undergo continuing education to improve their skills and reduce risk to consumers.