Can real estate agents take a “don’t ask, don’t tell” approach to property defects?
Belinda Moffat is the chief executive of the Real Estate Authority. Here she answers your questions about buying and selling a home.
Q: I’ve heard people say that real estate agents only have to tell potential buyers about problems or flaws in a home if the seller tells them about it, so they can avoid having to disclose. problems by not asking questions – is this true?
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A: No, it’s not true, and it’s a shame that this myth persists.
In principle, a real estate professional who deliberately overlooks potential problems with a property in order to avoid their disclosure obligations would not meet our expectations as a regulator of their conduct.
Under the Code of Conduct for Estate Agents, which we oversee at the Real Estate Authority (REA), Registered (Licensed) Estate Professionals “must exercise skill, care, skill and diligence at all time during the performance of real estate agency work”. They must also “act in good faith and deal fairly with all parties involved in a transaction”. They also have express disclosure obligations, including disclosing to potential purchasers defects in a property of which they are aware or should be aware as a competent licensee.
Obviously, a licensee can only disclose information they know, and naturally the owner is a major source of ownership information. However, our advice to permit holders is to be proactive in collecting and verifying information about a property. In other words, they cannot rely solely on what the landlord tells them (or doesn’t tell them) to meet their obligations. Research tells us that landlords sometimes unwittingly provide incorrect information about a property, and sometimes they deliberately withhold it.
Licensees are not expected to uncover hidden issues with a property. But as real estate professionals, when it seems likely to them that a problem might exist, they cannot ignore it. They should either confirm with the owner that there is no problem (supported by evidence or expert advice) or inform potential buyers of the risk and advise them to obtain their own expert opinion.
For example, REA expects that when a licensee can see that construction work has been done on a property (such as a renovation or extension), they cannot simply accept the owner saying that the work has been agreed and compliant. Instead, the licensee should ask to see the relevant consent documents. If these documents cannot be produced, the dealer must bring the matter to the attention of potential buyers, so that they can choose to undertake their own investigations (what we at REA call due diligence).
That said, there are limits to what a licensee can reasonably verify – and therefore disclose – about a property, especially when it comes to issues that are unrelated to its physical condition – levels neighborhood noise, for example.
In addition, since the licensee works on behalf of the supplier (his client), he must have the authorization of the supplier to disclose the problems to potential buyers. For example, if a property has waterproofing issues, the registrant should explain to the seller that they are required to disclose this to potential buyers and obtain their consent to do so. If the seller doesn’t consent — in other words, “no, I don’t want you to tell buyers” — the code of conduct requires them to leave the listing. Failure to do so would put them at risk of a complaint being upheld and disciplinary action being taken through the REA.
We often use the decisions of Complaints Assessment Boards and the Estate Agents Disciplinary Tribunal to illustrate the extent to which obligations are extended to licensees to seek out and verify crucial property information. For example, a Tribunal ruling in 2021 involved licensees who were unaware that a home they listed had floor plumbing made of Dux Quest – a product from the 1970s and 1980s that is known to fail. It is an example of what the industry calls “stigmatized material” and if present in a home, this information must be disclosed to buyers. The permit holders didn’t know it was there because the owners hadn’t told them – and they hadn’t looked under the house. However, the Tribunal found that the licensees failed to exercise skill, care, skill and diligence because (to paraphrase this part of their decision) where there is reasonable access to the sub- floor of a property, reasonably competent licensees should take the opportunity to research issues of concern, whether related to plumbing, piling, or other issues.
Ultimately, licensees would not be adhering to the code of conduct if they took a “don’t ask, don’t tell” approach to issues related to a property they are selling on behalf of sellers. But it’s still important that potential buyers are also proactive in their search for a property. The more you know, the more confident you can be in bidding and making purchasing decisions.
If you’re not sure what you need to know or what you should ask, the REA’s consumer information website has you covered.govt.nz has plenty of information on all aspects of shopping and sale of residential property.
In terms of due diligence on a home you’re interested in, a great place to start is our Property Checker tool. By simply answering a few basic questions about things like the age of the property and building materials, you’ll get a list of specific things to look for and ask in order to start identifying potential issues.
The REA is the independent government agency that regulates the conduct of property professionals in New Zealand. For more information on what to expect when working with a real estate professional, visit rea.govt.nz. Have a question for Belinda? Email [email protected]