When should real estate agents tell buyers about a property's “sensitive” issues?

The Real Estate Authority(Real Estate Authority)

Chief executive Belinda Moffatt

Under New Zealand property law, real estate agents must inform prospective buyers of any problems with a property. Yet no prospective buyer wants to see or hear words such as “non-compliant” and “leaky” in an advertisement or at an open home. So when and how should agents disclose these issues to comply with the rules? Even many investors with years of experience in the property market may be unsure.

More than a decade ago, a Hamilton property was advertised as a “leaky home by the lake” after an agent tried turning its defect into a selling point, successfully making local headlines. The gamble paid off: the property attracted unprecedented bidding at auction and sold for NZ$401,500, while sparing the agent some awkward questions about its defects. Yet more than 10 years later, disclosing problems in marketing still appears to be the exception rather than standard practice for most agents.

Property website OneRoof found several listings last month where non-compliance or weathertightness problems were not disclosed to buyers immediately. Buyers were told only after making further enquiries or attending an open home. The real estate agents' code of conduct sets out the professional standards agents must follow. They must disclose defects, including any missing elements or leaks. Clearly, every agent should know what being a competent agent requires.

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Real Estate Authority chief executive Belinda Moffatt said the code did not prescribe specific types of information that must appear in advertisements. It simply required advertising statements to be accurate, truthful and not misleading. In fact, according to the REA website, agents do not have to disclose this information in advertisements or even when buyers view a property. They need only share information about property problems before a buyer makes an offer.

The code also states that agents “must not mislead clients, provide false information, withhold information required by law, or provide information unfairly”. This includes ensuring that any advertised indication of a seller's price expectations genuinely reflects a price the seller would consider. In other words, if the seller would not actually consider selling at the advertised price, the advertisement would be misleading and would breach the agents' code of conduct.

The REA website also advises sellers to pass any information about compliance issues to their agent, who should share it with buyers. Matters the REA regards as “sensitive”, such as a murder or suicide at the property, require a case-by-case assessment. Agents should consider where and when it happened, prospective buyers' likely reactions and any potential effect on the price. Again, they do not have to tell everyone at an open home, but should tell prospective buyers before they make an offer. Because agents work for the owner, they need the owner's permission to disclose problems with the property. If the owner refuses, the agent should decline the listing. Agents who fail to follow the rules risk being sued by buyers and facing disciplinary action through the REA, potentially including suspension or removal from the register.

Belinda Moffatt encourages agents to do their own research and verify property information, because not every owner can do so. If agents suspect a problem, they should ask the owner about it. REA research shows that sellers sometimes provide incorrect property information, occasionally unintentionally because they misremember dates and details, and sometimes deliberately. This highlights the importance of agents checking documents. While agents should disclose major problems and the property's actual condition, there are exceptions: recent developments, for example, may be beyond their knowledge. Buyers should also conduct their own due diligence to avoid “unwelcome surprises”.

Penny Elliott, a director and property lawyer at Taverner Keys & Co, said agents might omit problems from advertisements but hint at them with wording such as “great renovation potential”. She said information about any problems should be provided once someone shows serious interest in buying. Agents often obtain a LIM report themselves and check for issues, which need to be remedied before the property is listed. She knew of a local agent who spent a weekend painting skirting boards simply so the house could obtain a code compliance certificate from Auckland Council. “A good agent should disclose anything that has not been dealt with. Of course, under the Real Estate Agents Act and its rules, they must disclose everything they know to buyers.” She also agreed that whether agents must disclose a murder or suicide was a “grey area”, depending on an assessment of the circumstances.

Penny Elliott said that if something happened a long time ago, people might not know the full history. However, if it was recent, particularly unpleasant and had appeared in the media, a sensible agent would choose to disclose it. She also believed agents should disclose whether a house had been rented out, giving buyers an opportunity to have it inspected. Buyers also need to conduct their own due diligence and cannot always expect agents to uncover difficult title or boundary issues.

Below, we summarise the issues agents should disclose to buyers about a property for sale:

• A proposed new development next door, or a location in an area that has previously flooded
• Leaks caused by the property's age or exterior cladding
• Structural alterations made without council consent, such as a deck or fireplace
• Boundary issues
• Items or appliances that do not work, such as a garage door or oven
• Physical defects, such as a leaking roof or land subsidence
• Title disputes
• Suspected asbestos ceilings or asbestos coatings beneath old carpets
• Details of any EQC claims
• Methamphetamine contamination of 15 micrograms or more per 100 square centimetres is considered a property defect and must be disclosed to prospective buyers
• Sensitive matters, such as a murder or suicide, should be assessed and considered for disclosure.