The Unforeseen Ramifications of a Real Estate Agent's Lack of Full Disclosure in Sales Contracts

In real estate, trust between buyers, sellers, and agents is crucial. When vendors choose an agent, they expect guidance through the complex maze of laws and market conditions. However, not all agents meet these ethical expectations. We had a very interesting experience last week where an agent was anything but transparent.

Whilst our business is that of mortgages and other types of loans, we have more than 25 years experience in property sales as real estate agents ourselves.

A client had come to us seeking finance pre-approval to purchase an investment property. Sam carried this out and everything was in place ready for them once they selected their property. The client asked us to refer them to a conveyancer which we did (they subsequently chose another of their choosing) but also asked us to look at the contract. Full disclosure here we are not licensed conveyancers and as earlier mentioned suggested they have the contract looked at by their conveyancer however given our exprience we also agreed to read the contract.

Material Facts and their disclosure

A material fact is anything to do with the property that could influence a potential purchasers decision in buying a property. Things such as perhaps a death in the property, a new development pending approval next door, proposed strata fee increases and many other things. These all have big ramifications in a buyers decision.

This particular contract was for that of a unit in a small complex. Included in the contract was a strata report for the building. There were a few things that caught my eye in the strata report. An unpaid bill to a law firm was mentioned in the costs associated with this unit and also a VCAT fee. Further the minutes for the previous body corp meeting were more than 12 months old. OK that was enough for me to call the strata company and ask them some additional questions.

This owner was behind on their strata fees and action was being taken by the body corporate to retrieve those fees. Nothing particularly unusual about that. The sale proceeds would be used to pay out those past due amounts. Then I asked the Strata Manager was there anything else I should be aware of to do with the building?

"Well yes there is.... There is around 600K worth of repairs required to the steel balconies and defects within the lift. The Body Corporate doesnt have the funds for these repairs and is looking into appointing a Project Manager and taking out a 15 year loan to fund these things. All of which is estimated to increase the strata fees by 3X." OK thats interesting! And yes this would certainly fall under the heading of material facts. Now I didnt speak directly with the agent however our client did prior to this and had questioned him about the rust around the balconies. The Agent avoided directly answering this and certainly didnt relay anything about increased strata levies. Some may defend the agent and protest you cant say he knew for sure however I unfortunately from past experience err on the side of absolutely he knew and so did the owner who both had a responsibility to declare those issues.

Suffice to say our owner declined to participate in the auction for the property however I thought "why not, I'm going to go to the auction and see what happens". Three spirited bidders, bidding went up over reserve and bang the property sold under the hammer for over the price range advertised.

Not all Agents are totally ethical when it comes to disclosure.

Moral of the story, caveat emptor - buyer beware. Or in laymans terms do your bloody research it's all there to be discovered quite easily!