Buyer beware: What are your rights if you purchase a shonky property?

If you buy a $10 item of clothing that turns out to be faulty, you’re guaranteed a refund or replacement. Buy a faulty house worth millions of dollars, however, and the seller ramifications become clear as mud.

Experts in the property industry are calling for reforms to better protect buyers from purchasing “shonky” properties.

Currently it is only in the ACT that property buyers can invoke provisions of the Civil Law (Sale of Residential Property) Act 2003 against a vendor or selling agent for failing to provide a building and compliance inspection report, or for giving false documents.

“The basic rule that applies is ‘buyer beware’ (caveat emptor),” says Vivi Tan, property law and contract law expert from Victoria University.

“In the absence of agreement between the parties, or of misrepresentation or fraud on the part of the vendor, the vendor is not liable for defects in quality.”

For the rest of the country’s consumers, the only recourse buyers have against a former owner (and selling agent) is an action in damages for misleading or deceptive misrepresentations about the structural soundness relied upon by the buyer.

“Taking this action in court is a very difficult, costly and stressful path to take,” says Trish Mackie-Smith, general manager of BuildingPro and former solicitor.

“When it comes to the condition of properties being sold, the buyer beware doctrine is woefully inadequate. Sellers do not necessarily have to disclose defects of which they are aware.”

Mackie-Smith says defect reporting unfairly shifts industry power from buyer to sellers.

“The bargaining power is unequal. Real estate agents are keen to get the sale through as fast as possible and are motivated to gain higher commissions based on the sale price,” she says.

Experts in the property industry are calling for reforms to better protect buyers from purchasing shonky properties. Photo: istock

Under Australian Consumer Law, retail customers are entitled to a repair, replacement or refund when products fail to meet the automatic guarantee of being “safe, lasting, with no faults”, “look acceptable” and “do all the things someone would normally expect them to do.” These laws however do not extend to include property.

“The higher the value of contract, the more the buyer should beware,” Tan says.

Principal buyers agent at OH Property Group, Henny Stier, says laws in other countries such as the US do more to protect buyers from purchasing damaged property.

“Sellers in most [American] states have the burden to disclose any defects, be it leaky windows, work done without permit, termite problems, neighbourhood nuisances, any defects or malfunctions with appliances, [and] information about a construction or development projects nearby” she says.

“Depending on where you live in the US, sellers can be on the hook for what they disclose (or fail to) for up to 10 years. In Australia this is not the case and there is very little recourse for buyers.”

Stier recalls a recent example where a leaking roof was deliberately concealed by a vendor and not picked up during the pest and building inspection.

“A seller only has to present the property in the same condition as it was during the marketing campaign … As the sellers had painted the house just prior to putting it on the market, it would be near impossible for anyone to know there was a leak,” Stier says.

“They offered to repaint the ceiling but refused to fix the roof as they claimed it was a pre-existing condition.”

Mackie-Smith is an active campaigner for better rights being awarded to buyers, stating that neither the real estate industry nor the legal and conveyancing professions have made any serious efforts to persuade governments that full disclosure offers the best pre-purchase protection for home buyers.

“In this era of consumer protection, it makes no sense whatsoever that no statutory consumer protection laws exist when it comes to buying the most important and expensive asset in your lifetime,” Mackie-Smith says.

Tan is more supportive of current laws, stating she does not think there should be more protection by way of new legal requirement in this area.

“This is why purchasers should undertake or organise necessary inspections (wherever possible) in order to discover serious defects, including structural ones … In other words, purchasers should not simply rely on the representation of the vendors.”

Disclaimer: The advice in this article is general information only. Legal advice should always be obtained to consider the particular circumstances of each case.