RES501 Instructions Read the situation, then complete the two parts and associated tasks that follow. Submit all your answers in one document. Write the number of each question you are answering.

Part 1: Inspection and appraisal legislation and best practice Read the scenarios and complete the tasks that follow.

Situation 1: Failure to inspect a property You have been asked to appraise a property that is rented. The tenant says that she must be home when you come through, but that she won't be home until after 6.30 pm on weekdays, or she says you can come on Saturday before 9 am, but Sunday is not suitable at all. You arrive at 6.35 pm that evening (Tuesday) but she is not there.

The owner wants an urgent answer, so you decide to do the appraisal without inspecting the inside of the property, which you assume to be in tidy condition because the grounds are neat with the lawn freshly mown and the shrubs well-trimmed. You research the property online and discover it has three bedrooms, one bathroom and one living room, so you appraise the property accordingly.

Task 1 Which rule in the Code of Conduct might you have breached, and why?

Situation 2: Renewing an agency agreement Your sole agency's 90-day period has just finished, and you are renewing the agency agreement. The market has been quite difficult over the past 3 months and the vendor is happy to renew for another 90 days. You change the relevant dates on the agency agreement and ask the vendor to initial the changes. The vendor does this and you give the vendor a copy.

Task 2 Which rule, and which of the Real Estate Agent's (REA) appraisal guidelines, have you breached? Explain how you breached the rule(s).

Situation 3: C&I appraisals Your friend Jake works for Dodgem Realty's commercial and industrial division. Jake says 'Geez, you guys do it hard, you have to do an appraisal on every property you list. Thank goodness we don't have to do that.

Task 3 Is Jake correct?

Explain the reasons for your opinion, supporting your answer with reference to the Rules and the REA guidelines.

Situation 4: Ryan and rule 10.3

A new salesperson, Ryan, has joined your office from a branch on the other side of town. You notice that he has done several appraisals but has never prepared a CMA (Comparative Market Analysis). He says 'You're right. I've never done a CMA.

Too much like hard work! I just use rule 10.3 and tell them there are no comparisons - after all, no two properties are identical, are they?'

Task 4 Discuss Ryan's approach to appraisals, and whether he is complying with the Rules or not. Explain his rationale, and the rationale that the REA would apply to this practice.

Situation 5: Jenny's CMA Jenny, from Downtown East Realty, has prepared a detailed CMA on a property that she is planning to list. There is one comparison property that matches the subject property closely but most of the others are above the recommended price range, with a couple below it. She has put together a glossy folder containing information on her company, her own profile including her recent sales, some general information on the market and her proposed marketing plan for the property.

She slips the CMA into the folder, between the marketing plan and the general information on the market. She presents the folder to the prospective client, together with the New Zealand Residential Property Agency Agreement Guide and tells the prospective client briefly what the folder contains.

Jenny explains that she thinks the property will sell at around $950,000, but she recommends they list at $969,000 to give a little room for negotiation. They flick through the folder, and she asks if they have any questions. They say 'No, sounds good, we'll list at $969,000 like you suggest'.

Task 5 Has Jenny breached any Rules, or REA or REINZ best practice guidelines?

If you believe Jenny has, explain how she has done this, and what she should have done to comply. If you believe she hasn't breached any Rules or guidelines, explain why.

Situation 6: Rodger's CMA Rodger, from North-East Realty, has been asked to list a property that he remembers well from three years ago when it was last on the market. He doesn't bother to inspect it because he's been there so many times, and his 'gut feeling' is that it is now worth around $750,000.

He prints out a CMA that indicates a price range of $740,000 to $760,000.

He doesn't bother to check the appropriateness of the comparison properties; he just makes sure they are in the right price range.

He gives the vendor the CMA and the New Zealand Residential Property Agency Agreement Guide, and then immediately asks them to sign the agency agreement.

Task 6 Has Rodger breached any Rules, or REA or REINZ best practice guidelines? If you believe he has, explain how he has done this, and what he should have done to comply. If you believe he hasn't breached any rules or guidelines, explain why.

Situation 7: Moana and the rules Moana, from North Country Realty, is listing a lifestyle property of 7.8 ha with an 8 bedroom/5 bathroom house. She has thoroughly inspected the property - the house, the barn and the paddocks - and has tried to prepare a CMA. She can't find any realistic comparisons, so she writes a letter to the vendor explaining this. She recommends 'price by negotiation' so that the market can determine the price, and with this in mind prepares a marketing plan for the property. Moana puts the letter, the marketing plan and the New Zealand Residential Property Agency Agreement Guide into a folder and presents it to the vendor.

She explains why the property is difficult to price, and why there are no comparisons, and describes the nearest sale that she has found - a property with 5 bedrooms and 3 bathrooms, on 2.5 ha - and explains that the vendor's property is worth a lot more than that.

Moana explains her marketing plan in detail, discussing with the vendor where the likely buyer might be found, and after almost an hour of discussion asks them to sign the agency agreement.

Task 7 Has Moana breached any of the Rules, or REA or REINZ best practice guidelines? If you believe she has, explain how she has done this, and what she should have done to comply. If you believe she hasn't breached any rules or guidelines, explain why.

Part 2: Apply supervision skills to appraisals and inspections Read the situations and complete the tasks that follow.

Situation 8: Yolanda's inspection

Yolanda from Parkside Realty has just inspected a property before preparing a CMA. She has completed the checklist, noting that there are 4 bedrooms, 2 bathrooms, a formal lounge, a family room and separate dining. The kitchen is stunning, and she has recorded this. She has noted that the double garage is generously proportioned, and there is off-street parking for several more vehicles. She has detailed the outdoor living and landscaping, noting the swimming pool and spa pool. The lounge, family room and outdoor living areas face north and are quite private, and she has recorded all this.

As a courtesy, she has given a copy of the inspection report to the prospective client, and they have called the office and demanded to talk to the branch manager. The prospective client is furious. They say 'your salesperson did a lousy job inspecting our property. She obviously missed the self-contained flat accessed via the path on the left side of the house, because there is no mention of that in the report, nor did she mention the sauna off the master bedroom. We left a key for the flat on the kitchen bench, but she just ignored it. What type of inspection is that? How can we trust her to sell our property when she's so slack?'

Task 8

a) What rule(s) and/or best practice recommendations has Yolanda breached?

Explain how she has breached them, and what she should have done to complete inspections and appraisals using best practice, consistent with relevant legislation.

b) Explain how the branch manager could have better supervised the sales team to prevent this issue, and other issues from occurring.

Situation 9: Hector's appraisal Hector, from Top End Real Estate, has appraised a six-month-old property. There are no comparisons for this property to use in a CMA because the house is 725m2 and built out of top-quality materials, many of which have been imported.

The land size is 1,500m2 , but the landscaping has yet to be completed. Hector has decided to use the replacement cost method to value the property. He has been advised by an architect friend to use a figure of $6000 per square metre to value the house, and his research has shown that the land is worth around $900,000. The chattels (including carpets) and included appliances cost the vendor close to $300,000 and they have told Hector this.

This is Hectors appraisal: Value of land $ 900,000 Value of house: 725m2 x $600 = $ 435,000 Carpets, appliances chattels etc $ 300,000 Landscaping $ - Total $1,635,000 (Note, no depreciation is applied because the property is only six months old.) Hector has presented his appraisal to the vendor. The vendor is not impressed, and marches into the office to see the branch manager.

Task 9 a) Comment on Hector's appraisal. Has he done everything correctly? If you think he has done everything correctly, why is the vendor upset? If you think he hasn't done everything correctly, explain what he has done wrong, and how it breaches the rules, and what he should have done to get it right. b) Explain how the branch manager could have applied better supervision in the office to prevent this issue, and other similar issues, from occurring.

Situation 10: Ken's appraisal Ken, from Commercial Specialists Real Estate, is new to commercial real estate. He has been asked to appraise a small commercial unit by the beneficiaries of the estate. They want to sell the unit and want to know its value. It is rented on a long lease to a tenant who has been there for 6 years and has proved to be very reliable.

The current rent is $30,000 p.a., with the owner bearing expenses of $8,250 p.a. Ken is using the capitalisation of income method to appraise the property.

Ken has found two good comparisons:

Comparison property A Sale price $525,000 Net Income $ 35,000 Net Income $ 35,000 Comparison Property B Sale price $405,000 $ 28,000 Net Income $ 28,000

To calculate the capitalisation rate, Ken has done this:

Property A $35,000 $525,000 = 0.067 Property B $28,000 $405,000 = 0.069 Average capitalisation rate 0.068, or a 6.8% return.

Value of subject property Net income = $30,000 - $8,250 = $21,750 $21,750 x 6.8 = $147,900.

Ken presents the appraisal to the beneficiaries. They are a little disappointed in the price but as they know nothing about commercial real estate, they list with Ken anyway.

An investor soon snaps up the property, knowing he has bought a bargain.

The beneficiaries' solicitor questions the sale price, and the branch manager soon receives a letter from her.

Task 10 a) In essence, what would the letter say?

b) Where has Ken gone wrong in his appraisal?

Re-calculate the value of the subject property. Show your workings.

c) Has Ken breached the rules?

If you think he has, explain which rules he has breached and how he has breached them.

d) Explain how the branch manager could have applied better supervision in the office to prevent this issue, and other similar issues, from occurring

Answer rating: 100% (QA)

Part 1 Inspection and Appraisal Legislation and Best Practice Task 1 Rule breached Rule 6 of the Code of Conduct A licensee must act in accordance with all legal and professional obligations Explanati... View the full answer