The dreaded words "non-compliance" and "leaky" ring alarm bells with any prospective home-buyer and while real estate agents have to disclose these crucial details, exactly when and how they do it is less clear.
A Hamilton property advertised as "Leaky on the Lake" made headlines over a decade ago after a clever agent tried a different approach and used its fault as a selling point.
The risk paid off and the property drew an unprecedented number of bids at auction, a $401,500 sale price while also saving the agent from a number of awkward phone calls about its defects.
But more than 10 years on, that extreme level of disclosure in marketing material still appears to be the exception rather than the rule.
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OneRoof has been privy to several real estate ads in the last month where a property’s lack of compliance or leaky building status has not been revealed to the buyer until they make further enquiries or go to the open home.
Under the Real Estate Agents Code of Conduct, which sets out rules agents must abide, an agent must disclose any defects – including any lack of consents or leaks - they are aware of or that they ought to be aware of as a competent agent.
But REA chief executive Belinda Moffatt, whose organisation oversees the code of conduct, said the code does not go as far as prescribing the specific types of information about the property that must be in an advertisement – other than that it is accurate, does not mislead and is a true reflection of the property and the marketing.
In fact, agents don’t have to include the often deal breaker details in the ad or even share it at the open home, according to the REA website. They just have to share any information about a problem with a property before an offer is drawn up.
REA chief executive Belinda Moffatt: "Our research indicates vendors sometimes provide incorrect information about a property." Photo / Supplied
The code also states that the agent “must 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”.
“That includes if they use the ad to indicate the vendor’s price expectations – this must genuinely reflect a price the vendor would consider. It is misleading, and therefore a breach of the Code of Conduct, to try and tempt buyers in with a low sticker price, if the vendor would never actually consider selling the property for that low,” Moffatt said
The REA website also advises owners to pass on any information on issues around compliance to the agent and for the agent to share that with buyers.
When it comes to what the REA deems as “sensitive issues” such as a murder or suicide happening in the property, it is up to the agent to assess it on a case-by-case basis and consider where it happened, how long ago, the likely reaction of potential buyers and the possible impact on the price. Again, they don’t have to tell every person through the open home, but should tell potential buyers before they make an offer, the REA website said.
Because agents work for the homeowner, they do need their permission to disclose any issues with the property - but if the vendor refuses then the agent should walk away from the listing, Moffatt said.
Failure to follow the rules puts them at risk of a complaint being upheld and disciplinary action taken through REA where they could face either suspension or being struck off.
Moffatt encouraged agents to do their own homework to verify information about the property as not all vendors get it right. If an agent suspects a fault with the property, they should query the owner about it.
“Our research indicates vendors sometimes provide incorrect information about a property, either unintentionally, through misremembering dates and details, or sometimes deliberately – hence the importance of verifying through documentation.”
When it comes to sensitive on-site issues such as murders or suicides, it is up to the agent to assess it on a case-by-case basis. Photo / Getty Images
And while major issues with the property and its physical condition should be disclosed, Moffatt said some things such as what was happening in the neighbourhood were often out of the agent’s hands and the buyer should also do their own due diligence to avoid “unwelcome surprises”.
Taverner Keys & Co director and property lawyer Penny Elliott said agents didn’t disclose any issues in the advertising, but may give a hint with wording such as ‘good prospective for renovation’.
But any problems with the property should be provided as soon as someone shows genuine interest in buying the property, she said.
Agents often sourced their own LIMs and made sure any issues such as a log burner getting final sign off were fixed before the property went on the market.
She knew of one agent in her area that spent their weekend painting skirtings just so the house could get its council code of compliance.
“Anything that is not taken care of, a good agent will disclose and, of course, under the Real Estate Agents Act and its rules they are required to disclose everything they know to purchasers.”
Elliott agreed that agents disclosing a murder or a suicide was a “grey area” and that it depended on the circumstances surrounding it.
“If it’s a long time ago people may not altogether know the history any more. But if there’s something recent and it’s extremely unpleasant and it’s been in the media, then a wise agent will disclose.”
She also believes agents should disclose whether a house has been a rental or had a reputation for being a local tinny house as that then gave the purchaser the chance to get the house tested.
Elliott said purchasers also needed to do their own due diligence and couldn’t always expect agents to pick up tricky issues with titles or boundaries.
Examples of issues real estate agents are expected to disclose:
- If a property is next door to a proposed new development or if it’s in an area that’s been subject to flooding
- Weather-tightness issues due to the property’s age or cladding
- Unconsented structures such as a deck or fireplace
- Boundary issues if they are aware of them
- Any items or appliances that don’t work such as the garage door or oven
- Physical defects such as a leaky roof or subsidence in the land
- Title defects if they are aware of them
- Properties with suspected asbestos ceilings or an asbestos coating painted under old lino
- Details of any EQC claims
- Methamphetamine contamination of 15 micrograms per 100 square centimetres or above is considered a property defect that must be disclosed to potential buyers
- Sensitive issues such as a murder or suicide should be reviewed on a case-by-case basis – but disclosure should be considered
Source: REA / Settled.govt.nz
