What are a licensee’s obligations when it comes to building reports?

At the Real Estate Authority (REA), we often get calls from licensees wanting to better understand their obligations around property inspection reports (commonly known as building reports). From disclosure obligations to recommending an inspector, here are the answers to your most frequently asked questions.

Vendors can commission a property inspection report and supply this to prospective buyers. If there’s an issue with the information in the vendor’s report and a buyer has relied on this information, the buyer has no recourse against the property inspector because they did not commission the report themselves. This is why you should still advise buyers to seek expert advice and obtain their own property inspection report. It’s a good idea to follow up in writing to summarise any conversations you have about this with prospective buyers.

Do I need to disclose a previous property inspection report?

Yes, you must advise prospective buyers if a previous property inspection report has highlighted problems with a property, even if the problem has been resolved, or if a later report states there are no longer any issues with the property. Rule 6.4 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (Code of Conduct) outlines the need for you to share information with buyers:

• A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client.

You must discuss disclosing the existence of any previous reports with your vendor before making any disclosure statements to prospective buyers. If there was an issue that has been remedied, talk to your vendor about what information they can share with potential buyers to show it has been remedied.

Can I provide copies of previous property inspection reports?

You shouldn’t provide copies of any previous property inspection reports to prospective buyers without getting the consent of the person who paid for it (for example, the vendor or another prospective buyer). However, this doesn’t stop you from disclosing that an issue was identified in a previous property inspection. If a subsequent report states that there are no issues with the property, you should let prospective buyers know that there have been contradictory reports, and recommend they commission their own property inspection report.

What if the vendors don’t want to disclose information about their property?

If you believe an issue identified in a property inspection report needs to be disclosed, explain to the vendor why it should be shared, and follow up the conversation in writing to summarise what was discussed. Weigh up the information and the risk of not sharing these details. Discuss this with your supervisor or manager and the vendor, and potentially seek legal advice. If you believe the issue needs to be disclosed and the vendor doesn’t agree, you may need to walk away from the transaction.

This topic was addressed in a Real Estate Agents Disciplinary Tribunal decision. The Tribunal commented:

“Where a client instructs that information be withheld from a purchaser, and a licensee considers that the information should be disclosed under the rules, a licensee should raise and discuss the issue in detail with [their] vendor client. If the client maintains that information must be withheld, and the licensee remains of the view that it should be disclosed, the licensee must then decline to act further on that transaction.

“A licensee must be very clear with a client when a conflict over disclosure arises. If the client maintains that information be withheld that the licensee considers should be disclosed, the licensee’s duty is to cease to act; not to disclose the information contrary to the client’s instructions.”

Can I recommend a property inspector?

Best practice is to recommend several property inspection companies and avoid giving preferences or making negative comments about particular companies. A relevant Complaints Assessment Committee (CAC) decision outlines a situation where a licensee tried to persuade the purchaser not to use a particular property inspector. The CAC held that the licensee had breached the following rules:

• 6.2 – acting in good faith and dealing fairly with all parties to a transaction

• 6.3 – engaging in conduct likely to bring the industry into disrepute

• 9.1 – acting in the best interests of the client and according to client instructions

• 9.2 – engaging in conduct which would put a client or customer under undue pressure.

If you recommend only one inspection company, you may leave yourself and your agency open to a complaint if something goes wrong with the service provided by the company you recommended. We recommend advising purchasers to use an inspector who conforms to the New Zealand standard NZS 4306:2005 Residential Property Inspection, rather than referring buyers to specific property inspectors. These organisations have processes for registering and accrediting members:

• New Zealand Institute of Building Surveyors (NZIBS)

• Building Officials Institute of New Zealand (BOINZ).

Can a vendor refuse a buyer’s choice of property inspector?

Buyers have the right to choose their own property inspector as the inspection is for their benefit and at their cost. You must ensure the property inspector has reasonable access to the property and that they’re provided with any assistance or information that they request on behalf of the buyer.

If a sale and purchase agreement has been entered into and you advise a vendor not to accept the buyer’s choice of property inspector or do not allow them access to carry out the inspection, you could potentially be advising a vendor to breach the sale and purchase agreement, which may result in a finding of unsatisfactory conduct.

Nadine Thomas Industry Insights and Engagement Manager, REA

Find more information and advice for real estate professionals at rea.govt.nz, or speak to our team on 0800 367 732.