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Property defects - new disclosure rules

By Melissa Clark - 23 Mar 2010

The new Real Estate Agents Act (REAA) 2008 came into force on 17 November 2009. The new rules imposed on licensed real estate agents have been embraced positively and for the most part, the market seems to have responded in the same way.

An important new rule is that agents must now disclose known property defects to potential buyers. If there are no known defects but it appears likely that a property may have hidden or underlying defects (based on the agent's knowledge and experience of the real estate market) the agent must either:

  • Get confirmation from the seller that the property does not suffer from any such defect; or
  • Tell potential buyers of any significant potential risk so that they can get expert advice.

Not surprisingly, real estate agents are now asking sellers direct questions about potential defects before the agency agreement is signed. Under the new rules, if a seller tells an agent not to disclose any defect or risk, the agent cannot continue the agency.

Some agents are requiring sellers to certify that their property is not subject to any defects or hazards, or to make a "leaks" disclosure. Others are seeking indemnities from sellers if any information provided by the seller is incorrect or misleading, by omission or otherwise.

Tips for buyers

As a buyer you should always make your own enquiries about the condition of a property and obtain reports and advice from the relevant professionals.  Under the new rules agents can no longer simply rely on caveat emptor or let the buyer beware.  Agents must answer your specific questions about the potential for defects, particularly if any of the standard warranties have been deleted from the sale and purchase agreement or the auction conditions.

Tips for sellers

As a seller, be sure to read the fine print of the agency agreement.  Be clear about what you are acknowledging or certifying in relation to known or potential defects.

If you don't have actual knowledge of the condition of the property (e.g. if the property is owned by a trust and you are an independent trustee) you must include a limitation of liability clause in the agency agreement. The inclusion of such a clause has not been an issue for any of the agents we have dealt with over the last few months.

As part of the sales process we are constantly reviewing agency agreements before they are signed. We are also advising sellers about the various disclosure certifications as these differ from agency to agency. We have standard limitation of liability clauses available for use where a seller does not have actual knowledge of the condition of the property.

If you require any further information or have any queries, please contact Melissa Clark.


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