What happens when a buyer finds an issue with the property you’re selling?

Where you have clear evidence of an issue

First, ask the buyer if they can give you a copy of the information or any specifics they have that makes them believe there is an issue with the property.

Next, discuss the problem with your vendor. The vendor may have information that resolves the problem, for example, a recent report confirming the cladding has been tested and does not contain asbestos.

If the problem is raised during the conditional period or after the contract has gone unconditional, make sure the lawyers for both parties are aware of the issue. The lawyers can then discuss how they might resolve it.

If the issue comes up before any offers have been received, talk to your vendor about how you are going to disclose the information to potential buyers. If your vendor is going to resolve the issue before settlement, get this in writing and suggest they talk to their lawyer about whether it should be written into the sale and purchase agreement.

If the vendor does not want the information disclosed and there is clear evidence of an issue, you may need to walk away from the listing (see Rule 10.8).

When the buyer says there is evidence but won’t share it

Sometimes a buyer will tell you their builder has picked up an issue and say they can’t share the written report with you. This puts you in the difficult position of being notified of a potential issue without having any written evidence of it. It can be helpful to understand why the buyer doesn’t want to share the information so you’re in a better position to discuss the issue with the vendor.

See what information the vendor has about the potential issue. Perhaps the vendor might want to commission their own property inspection. What else could you do to check if it’s a valid issue?

If you’re not able to find any information to support what the buyer has told you, you and your vendor may still decide this is information that in fairness should be shared with potential buyers, or you can make a clear suggestion to the purchaser to seek their own review of the issue because you have limited information. Clearly document any decision you make and seek legal advice if you need to.

When there is no clear evidence of the problem

In some cases, you may not have evidence that there is a problem, for example, if there is a rumour that a large subdivision may be built next door but the council does not have any resource consents on file and there appears to be no activity next door.

If the vendor can’t provide information to address the issue and you’re also not able to verify whether there is an issue, talk to your vendor. Whether disclosure is required or not will depend on the facts. Disclosure is less likely to be required if you and the vendor can’t verify any aspect of the rumour. In addition to disclosure, consider what guidance you should give to buyers about their own due diligence, particularly where unverifiable issues have been brought to your attention.

The Tribunal considered the dilemma of disclosure versus non-disclosure in Pink (Annie) Yong-Mewburn v REA [2016] NZREADT 62. In this case, the listing agent had been told a rumour that there had been drug use in the property for sale. The listing agent chose not to share this information with the buyer but took other steps to try to protect the buyer. At paragraph 7, the Tribunal said when finding that the agent had acted appropriately:

“There is a fine line between over-disclosure of facts that may damage a vendor’s right to sell their property at a fair market price and under-disclosure which is unfair to a purchaser.”

If you and your vendor decide the issue does not need to be disclosed, clearly document your decision and involve your manager.

If you and your vendor decide the information should be disclosed, talk to them about how you might present this information to potential buyers and when.