Tony Brazier
The Press - Wednesday 9 June 2010
From Caveat Emptor to Agent Beware
In the distant past a real estate salesperson really had only one concern and that was to do the best job possible for the vendor, regardless. The "Fiduciary Duty" was far reaching and goodness help anyone who was not willing to be go to the chamber for their vendor.
Then came the Fair Trading Act which quite rightly swung the emphasis, closer to midway by highlighting a "Duty of Care" that was owed to any purchaser. Basically this said that a salesperson cannot stand-by and watch a purchaser "walk off a cliff" because they were not privy to all of the knowledge that the vendor was. Although the attitude of "Caveat Emptor" (Buyer Beware) was still very relevant, whereby a purchaser was expected to do their own homework, the salesperson, and therefore their agency, was expected to give some protection to the purchaser by ensuring they did not go away to make decisions with the wrong or inadequate information.
At this stage of the industry's growth salespeople were given an inkling of what was still lacking when our Professional Indemnity Insurers strongly recommended that the issue of potential Leaking Buildings be dealt with openly by insisting upon a building inspection clause for any suspect property purchasers.
The past was a time of "Should I tell" when tossing up between the requirements of Fiduciary Duty to Duty of Care. In most instances our concerns were for things that were blatantly obvious to purchasers as they inspected a property, e.g. a crack in the masonry, a sloping floor, etc. But as time has evolved, to avoid all confusion, it has been better to divulge all that is known about a property including its potential for problems due to its location, construction or cladding.
Enter last November the new Duties of Disclosure under the Real Estate Agents Act 2008 and the rules written to abide by same. Under our rules (6.5) we must disclose a property's defects to any customer (purchaser). We are not required to discover hidden or underlying defects but if they are known to the client (vendor) we are required to get that information from the vendor.
Not only this, if we suspect through our knowledge and experience that there may be potential issues, we are required to either get confirmation from our vendor that there isn't a problem or ensure that the purchaser is informed of any potential risk as we see it. An example might be in the peaty soils of some Christchurch suburbs where experience tells us that a purchaser looking for long term development should consider the cost of piling that may be required. This may never have entered the head of the vendor who is selling who had a different use for the property.
Under the new Act if the salesperson fails to disclose information they either knew about or should have known about they may be subject to disciplinary action. Therefore salespeople will, in future, make it very clear to vendors that they have no choice but to disclose all defects and that it is the vendor's responsibility to give them a true reflection of his/her property's health. Some vendors won't like this but all salespeople are required, under their rules, to walk away from vendors who require them to withhold information about defects.
The catch phrase "Should I have known or could I have known" will be on the lips of all salespersons as they test themselves on what they feel could be a potential risk to the purchasers. This is a far cry from the distant past when it was expected the purchaser takes their own risks on being able to observe well and ask the right questions. The insertion of extra clauses into purchase agreements will be as much for the salesperson in satisfying their "Duty of Care" as it will be for the purchaser to have the opportunity of checking for defects as our industry turns 180 degrees from Caveat Emptor to Salesperson Beware.
In the future, as a vendor prepares to go to market they are best to ask themselves "What would I like to, or need to, know before I bought this house?" That way they can prepare for disclosure of any defects that their salesperson is duty bound to divulge. The price can be adjusted, or offer made to correct any defect, up front. Purchasers will be less hesitant to offer to purchase as any suspicion of information withheld is a real turn-off to them.
This defect disclosure regime is another example of the transparency that so many of us in the industry are happy to see become compulsory under the REA Act 2008.
Footnote:
Tony Brazier has worked in the property industry for 23 years and owns a real estate company selling and managing residential and investment properties.
This columns information is of a general nature only. Readers should seek professional advice before acting upon it.
|
RSS | About Us | Policy
