Duty of Disclosure

In a radio interview recently, I was asked about agent’s informing would-be buyers about a neighbours’ anti-social behaviour and if this information should be disclosed.

It was a tricky question because agents are normally acting for the seller and therefore have a legal obligation to act both under their instructions and in their best interests. Agents also have a fiduciary obligation to obtain the highest and best selling price. Yet this can conflict with the Australian Consumer Law which is designed to protect buyers. There are strong requirements to disclose “material facts” in a transaction and heavy penalties exist for those that fail to disclose such matters whether or not there was intent or not to mislead through a non-disclosure.

Under law, the agent is only obliged to be “fair” to a buyer and a duty to disclose material facts are part of this obligation. Whilst there is worthy discussion to be had about what constitutes “material fact”, broadly it can be defined as any piece of information about a property or the transaction that could reasonably impact upon a buyer’s purchasing decision or on the value of the property. For example, if the agent is aware that the rear studio has been built without local government consent then it is reasonable that the buyer should be told.

REIWA agents will make enquiries about a property when listing it for sale and then determine which bits of information justify disclosure being careful not to undermine their duty to act in their sellers’ best interests in the process. For example, is the sellers’ pending divorce really relevant to the transaction? Whilst none of the buyer’s business, there is a perception that the property might be purchased for less if the owners are being cajoled to sell due to separation.

Difficulties arise in determining what is a material fact and therefore a disclosure and what is not. Back to our anti-social neighbour, it is my view that informing would-be buyers of this is subjective and therefore non-disclosable, yet the Consumer Law rules could require agents to disclose possible physical and “psychological” impacts of neighbouring properties. Does this mean then that agents are be obliged to tell a buyer that next door is tenanted, are young folk, have children or are of a certain ethnicity?

The line between agents firmly acting for their seller and being fair to the buyer has blurred in recent years and I encourage buyers to take responsibility when making a buying decision and not rely on what are often unclear duties of disclosure.

4 Responses to “Duty of Disclosure”

  • Marianne Demaio says:

    Hi I’m selling a large stone fruit orchard
    My realestate has had a fresh enquiry and sent out the information they asked for but when I asked how the prospective. Buyer was he said he can’t tell me I said excuse me I have every right to know who it is he said the interested person want to remain anonymous I said no sorry I did not agree to that he won’t tell me. Is this even legal

    • Hayden Groves says:

      Hi Marianne, Whilst it is unusual for a Buyer wanting to remain anonymous, your agent is obliged to maintain that anonymity should the buyer insist upon it. However, you retain the right to not agree to a sale of your property unless the identity of the buyer is revealed. Hope that helps.

  • kylie says:

    hi my agent sold our house to their colleague without us knowing and it has only just been revealed to us. It sold 40k under the asking price. Is this in breach of ‘duty of disclosure’? conflict of interest – beneficial interests? it was never advertised either. She immediately had ‘a buyer’.

    • Hayden Groves says:

      Hi Kylie, An agent acts for their principal (seller) and has an obligation to disclose to the seller if the buyer has a relationship with them that could in any way lead to or even be perceived as a conflict of interest. My advice is to contact the Department of Mines Industry Regulation and Safety (Consumer Protection) and make a formal complaint as this sort of activity is seriously frowned upon by the regulator.

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