4 minute read
INDUSTRY
Nadine Thomas, Head of Engagement, Insights and Education, REA
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Appraisals and advertising:
A rigorous and factual market appraisal is critical to ensuring buyers and sellers can confidently engage in fair real estate transactions. The Code of Conduct and REA’s Continuing Professional Development (CPD) training material give licensees clear guidance on how to make an accurate appraisal. This guidance also reinforces the need to accurately reflect a vendor’s pricing expectations in the advertised price.
Assessing the current market value of a property is a critical first step for licensees before they sign an Agency Agreement with a vendor. The appraisal needs to reflect the standard of the individual property and the latest comparable sales data.
The Code of Conduct sets out the expectations of a realistic market appraisal.
Rule 10.2 – Appraisals and pricing
10.2 An appraisal of land or a business must—
(a) Be provided in writing to a client by a licensee; and
(b) Realistically reflect current market conditions; and
(c) Be supported by comparable information on sales of similar land in similar locations or businesses.
REA’s CPD training material reinforces what this rule means in practice: • Licensees must seek to avoid the risk of over-representing or under-representing the potential market value of land or a business
• The obligation to provide factual market information (comparable properties and sales figures) aims to manage this risk. This guidance reflects how important appraisals are in ensuring people can confidently engage in fair real estate transactions.
The Real Estate Agent Disputes Tribunal (READT) emphasised the need for realistic appraisals in a 2015 decision (Decision #). The Tribunal found that the code “… required the licensee to provide the vendor in writing with the licensee’s assessment of the value and quality of the property to be marketed from the realistic experience of the licensee as to the relevant market conditions based on relevant sales information for similar property.”
for consumers by text or email. Licensees may provide this service but should make it clear the appraised price is not based on a visual inspection of the property and may be subject to review.
If the ‘initial appraisal’ leads to a listing, the licensee should visit the property prior to the Agency Agreement being signed. Visiting the property is vital to ensure a licensee can provide a client with an accurate market assessment based on the condition and specifications of the property.
It is important to note that licensees must avoid the term ‘valuation’ when referring to their appraisal. An appraisal is only an estimate, it is not a valuation. Only a registered valuer can produce a valuation for a member of the public.
The appraisal can form part of the licensee’s sales proposal. This document will explain the services the licensee can provide including their thoughts on how to market the property.
Rule 10.3 – Comparable sales data
10.3 Where no directly comparable or semicomparable sales data exists, a licensee must explain this, in writing, to a client. instances, a licensee must acknowledge the uncertainty this creates in their written appraisal.
Rule 10.4 – Advertising and pricing
10.4 An advertised price must clearly reflect the pricing expectations agreed with the client
The ‘advertised price’ can be a key part of a licensee’s marketing toolkit. However, it must accurately reflect the pricing expectations of the client. The appraisal may help inform these expectations.
In a tight property market this can be a tough assessment to make. Market conditions can change within the space of a few days or weeks. If a client’s expectations change this should be reflected in all advertising and marketing, including verbal conversations with potential buyers.
Consumers are doing their homework
The Code of Conduct and CPD training give licensees guidance on how to conduct a fair market appraisal. REA is also informing consumers about the need to do their due diligence before making an offer. buyers obtained additional information before making an offer.
Private valuations, LIMs, building reports and engineers reports are all being used by potential buyers to inform their decisionmaking.
This is positive news for everyone involved in the real estate sector and licensees should encourage customers to seek external advice before making an offer.
