Implications of the new Real Estate Agents Act
The new Real Estate Agents Act came into force in late 2009. It has been introduced to lift the professional standard of the real estate industry.
The main changes are the establishment of a new independent oversight body – the Real Estate Agents Authority, an industry Code of Professional Conduct, and an independent complaints process. There have been a number of complaints already. The ones we are aware of relate mostly to non-disclosure of issues related to the property.
Under the new Act, agents must disclose known defects in a property to a customer. “Where it appears likely, on the basis of the [Agent’s] knowledge and experience of the real estate market, that land may be subject to hidden or underlying defects, the [Agent] must either (a) obtain confirmation from the vendor that the land in question is not subject to defect; or (b) ensure that a buyer is informed of any significant potential risk so that the buyer can seek expert advice if the buyer so chooses.” – the Real Estate Agents Authority.
It is the higher emphasis on disclosure which is causing a few unanticipated challenges for us, particularly around non-compliant properties. In the past, compliance issues were often not noted on the sale and purchase agreement. As such, the bank had no idea, and as long as the buyer was happy the deal would go through. Now all known issues are being disclosed in the sale and purchase agreements. Some recent examples of issues which have been noted on properties our clients are purchasing:
- Conversion of basement to bedroom
- Conversion of carport to garage
- Combining separate bathroom and toilet
- House with original asbestos ceilings (not a code issue, lenders simply don't like this)
- No council consent on sleep-out
Banks tend to be very conservative on compliance issues, even minor ones, and in this market are more likely to decline finance – especially if you are borrowing over 80%. The new Act is great for protecting home buyers (ensuring full disclosure) but it has made it more difficult to raise finance on properties with code issues. If you are keen to buy a property that has a Code of Compliance issue you will generally need to get compliant prior to settlement.