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If your walls could talk, what would they say? If you’ve bought a house from a real estate agent, you should already know the answer.
Under Australian common law, vendors and real estate agents are required to disclose any information considered to be a “material fact” to prospective property buyers. This includes instances that have occurred on a property such as murder, violent crime and even the suspected presence of ghosts.
“A material fact is a fact that would be important to a reasonable person in deciding whether or not to proceed with a particular transaction,” says Tim O’Dwyer, property lawyer and author of Real Estate Escapes.
“Under Australian law (with little difference between the states), estate agents and vendors (in trade or commerce) must not in the course of selling misrepresent facts or engage in misleading, deceptive, dishonest or unconscionable conduct.”
Buyers who have unwittingly bought a “stigmatised” property are generally able to prove their case in court, and the agent who sold the property may be fined.
“Agents and vendors can find themselves not only sued by unhappy buyers but possibly also prosecuted on account of their conduct. Moreover, a court may set aside a completed contract,” O’Dwyer says.
Agent obligations regarding stigmatised property most prominently came to fruition in 2004, when an agency was fined for failing to disclose it was selling the home where Sef Gonzales killed his mother, father and sister three years earlier.
In this case, the NSW Office of Fair Trading determined the agent had breached the acts for “misleading behaviour in promoting the property for sale” and the selling agent was fined more than $20,000.
The Gonzales house eventually sold for $80,000 less than the original price to a different buyer who knew of its history.
In other circumstances, such as where illegal drug activity has occurred on a property, the consequences of not revealing material facts can be even more severe.
“This is clearly not only an issue of reasonable disclosure but also a serious health issue which any buyer (or tenant) would want to be told about,” O’Dwyer says.
“Pre-contract building inspections should involve checking, if possible, for chemical evidence of drug activity. Particularly if drugs may have been ‘cooked’ in the property.”
While many homeowners would testify that having difficult neighbours can significantly diminish a property’s value, O’Dwyer says this is not something agents are required to disclose.
“Best to say nothing [would happen] on the basis that the difficulty was a personal matter and not concerning the property. Nevertheless, some buyers would like to be told about problematic neighbours before committing themselves,” O’Dwyer says.
Some experts say that common law is not sufficient in protecting buyers from stigmatised property and this should be covered under statute law.
“I don’t think it is fair that under our current Australian laws wronged buyers have to go through the court system in order to seek justice,” says Trish Mackie-Smith, general manager of BuildingPro and former solicitor.
“It is my view that buyers would be far better protected if there was also statutory protection by way of legislation to legally oblige sellers and agents to disclose specific details about the property regarding its condition, like in the UK and the USA.”
The current laws also become murkier when agents are at the mercy of vendors deliberately choosing to withhold facts about a property, or when the vendors legitimately aren’t aware of a property’s past.
“If an agent knows about material matters from the past, these should be disclosed, but I don’t think there should be any obligation on a vendor’s agent to become a property historian,” O’Dwyer says.