Vendor reports for owners in preparation for selling
There has been a trend towards properties being sold by auction with a builder’s report supplied by the agents. Quite often vendors provide interested buyers with a copy of the LIM report and a Valuation (a valuation may not be required by mortgage lenders) so this is a great move.
Some vendors provide a “seller’s info pack” that will ideally include a LIM and a Valuation in case anyone wants one, and often a builder’s report of the home. More often than not, the info pack builder’s reports are woefully inadequate. So much so that you have to wonder if it was even the same house! Buyers would be too trusting, even foolhardy to rely on a builder’s report supplied by the same people who are trying to sell them the home “Soft touch” building inspectors are being recommended to vendors and buyers by some real estate agents
If you are selling and you get a house inspection before you go on the market, you can fix things that might otherwise delay settlement. Being prepared ahead of time is the big advantage to vendors. If your builder’s report misses important issues however your deal could fall through because of an unknown problem uncovered by a more comprehensive building report from a buyer.
A transaction may fall over because of building inspection surprises when buyers get their own building report that identified issues not noted in the vendor-supplied report. Knowing that an issue has been found, agents are in a position where if they know of a problem or suspect one, they must pass that information on to prospective purchasers (Real Estate Agents Act Rules of Conduct 2012, item 10.7: A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer).
If a builder’s report is supplied by the vendor it can expose the vendor to a risk of legal liability if it is below industry standard. That is because a buyer may argue that you misrepresented the true condition of the house by omitting key information or using a pre-sale report prepared by someone without the relevant qualifications so that you can warrant that the home was in good condition. In New Zealand a claim for misrepresentation can be brought against the vendor even though statements of fact made by the vendor or your agent were innocently made. You are arguably liable if the report which you disclose makes statements of fact about your home that turn out to be incorrect.
Vendor-supplied builder’s reports which are part of the seller’s info pack made available to buyers are not prepared by competent, qualified surveyors yet they are being upheld as providing a buyer with peace of mind, allowing your potential purchaser to make a buying decision, when in fact they are failing to properly inform on the true condition of the home. Most owners of homes with significant leak problems, or owners who have to make other costly repairs had relied on a pre purchase report of this type. Both buyers and vendors need to be aware of the risks with an inadequate building report that fails to identify significant issues with the home.
Hamid & Ors v England & Ors (2011) illustrates how real estate agents can be held liable if they choose to withhold negative information they possess about a property they are marketing for sale. Real estate agents must notify prospective purchasers of defects identified in earlier unfavourable building reports, even if a subsequent report provided by the vendor clears the property.
The Dominion Post, March 2016 A would-be buyer who pulled out of a Wellington auction last week because of problems uncovered by her architect, is warning such reports aren’t “worth the paper they’re written on”. She was about to bid on a house in Kelburn at an auction after being supplied with a positive builder’s report by the vendor. But when her architect arranged a viewing on the day of the auction, he found a number of structural problems that either were not in the report, or which appeared as minor.
In another case last week, a woman is understood to have put a $31,000 deposit on the house of her dreams in the Wellington region, after receiving a builder’s report provided by the vendor’s agent. But when she got an independent report, she found the house was leaky and harbouring black mould. She pulled out, but the house sold on Thursday, after the agent disclosed her findings at the auction. She has yet to claim her deposit back. In MacDonald’s case, discrepancies included an upstairs deck that her architect said was “structurally unsound”, and a borer problem that required flooring and joints to be replaced. “I sent the agent an email saying I’m not going to bid for the house, I’m really disappointed at the building report,” she said. “It’s at best inaccurate, and at worst misleading and dangerous.” She asked the agent to disclose what she had found to the buyers at auction. She did not know whether the agent did so, but said that “judging by the amount it went for”, she had her doubts. Harcourts did not want to discuss MacDonald’s case, but Wellington agency co-owner Marty Scott said its agents now encouraged vendors to provide a builder’s report, and it was becoming “quite the norm” in about 75 per cent of house sales.
We recommend you always seek legal advice regarding matters of property transactions and building reports (applies to all pages of this website).