Will the new law change the way homes are sold?

An article in the Herald on Sunday makes the assertion that the changes to the Real Estate Agents Act 2008 will change the way properties are sold.

I would hold that the new law will not change the way that homes are sold.

The article states that :

A property lawyer is tipping more sellers could opt to sell privately to get around new rules making real estate agents disclose defects in the home to potential buyers.

What I interpret this statement as saying is “if you (the seller) want to hide known defect in your home, then don’t use an agent and sell privately so you don’t have to disclose defects”. I find this surprising coming from a lawyer, after all, the seller always bears a responsibility to provide factual information regarding a property when questioned. More importantly any half-smart buyer contemplating parting with over $350,000 for a median priced property is surely going to get expert reports on the condition of the property.

To think that in some way private sales of houses would be judged by the buyer to be a less risky purchase or to think they can approach it in a more relaxed manner is staggering.

The new Act certainly places a greater responsibility on the agent. This is good. The principle of the Act is to bring greater transparency and greater safeguards for buyer and sellers. The real estate industry has embraced the new Act and sees these added responsibilities as further evidence of the professional service they wish to provide buyers and sellers.

To provide some clarity to this issue the Act details the professional standards of conduct expected and required of agents in section 6 of the Code of Professional Conduct and Client Care.

6. Standards of professional conduct

6.1 An agent must comply with the fiduciary obligations to his or her client arising as an agent.

6.2 A licensee must act in good faith and deal fairly with all parties engaged in a transaction.

6.3 A licensee must not engage in any conduct likely to bring the industry into disrepute.

6.4 A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or fairness be provided to a customer or client.

6.5 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Further, where it appears likely, on the basis of the licensee’s knowledge and experience of the real estate market, that land may be subject to hidden or underlying defects, the licensee must either-

(a) obtain confirmation from the client that the land in question is not subject to defect; or

(b) ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses

6.6 A licensee must not continue to act for a client who directs that information of the type referred to in rule 6.5 be withheld.

It is important to recognise that these are rules and whilst they need to be read in conjunction with the Act the fact is that such rules are never cut and dry as to the exact manner of their application. The article in the paper states that

“for example, an agent should be able to tell of a house is at risk of being a leaking building based on when it was built or what it is made of.”

If this was to be taken literally it would mean that every agent would tell every buyer that every home built over the past 25 years using a timber frame with a cladding system which is not adequately ventilated is potentially a leaky building! The fact is the only way to identify a leaky home is to undertake a professional survey by a professional company who, using testing equipment can establish the likelihood that the property has become effected by internal frame damage. This is exactly what a building report undertaken by the buyer should tell the buyer. There is no way a real estate agent can provide this service. They are not qualified on such matters nor put themselves out in the market to be surveyors and building inspectors.

Having said that the new responsibilities placed upon the real estate profession are there to safeguard the interests of the buyer and the seller, and this is where this issue becomes really interesting.

In the vast majority of cases involving a property transaction a property buyer is at the same time a seller and visa versa. So to think that sellers are not going to want as much professional disclosure as buyers is illogical. This is why the code of professional conduct and care speaks to the agent providing that to both sides. How the view that private sellers will somehow be happy with that when they are also buyers is hard to believe.

Overriding this issue in the context of private sales is the fact that the consideration in choosing to sell privately or through an agent is in the main not purely around the amount of disclosure or even the fee. The fact is negotiating a property purchase is a complex and time consuming activity which surprises the many people who think they can sell privately, and who then end up employing an agent. That is why still with all the greater access to open marketing on the web the number of private sales continues to be around 10% – very similar to most other countries internationally – selling a property is far more than just advertising, and equally should not be shrouded in attempts to deceive or hide key facts.