Natural disaster damage
Listing a property in a high natural event area has its challenges. It is important you understand what these are so you can best protect yourself.
Important questions to ask the vendor
Before a vendor signs an agency agreement, you should get as much information about the property as possible. Here are some things to keep in mind when gathering information from vendors in areas affected by natural events:
- Has an EQC claim been lodged on the property and, if so, what was the outcome of the claim? You will need to see supporting evidence from the vendor and pass this along to any prospective buyers.
- If a claim has been lodged, will it be transferred to the buyer as part of the sale?
- If money was paid out, ask for the scope of works so this information can be shared with buyers. If work was carried out, ask for evidence so buyers can check whether it matches the scope of works. Evidence of work can include copies of sign-offs of completed work, tradespeople's certificates, council consents and code compliance certificates.
You can ask general questions about any disclosures on the property and request the supporting documents.
EQC claims and insurance
Toka Tū Ake The Earthquake Commission (EQC) is a New Zealand Crown entity that provides insurance for residential property owners (contents, dwellings and some land). EQC covers environmental damage caused by earthquakes, landslips, volcanic eruption, tsunamis and geothermal activity.
When a residential property suffers damage due to a natural disaster and the vendor has private insurance, a claim may have been filed with EQC. It’s important to ask the vendor about any claims they have submitted and the outcome because potential buyers can now request this information directly from EQC.
We recommend that you or your vendor request this information directly from EQC and provide it to buyers during the disclosure process to prevent unnecessary delays.
You can request claim information from EQC. Information is requested in under the Official Information Act (OIA) in accordance with the Privacy Act to obtain the history of a claim with EQC.
There is an outstanding claim on the property
If a vendor has told you there is a claim on the property, you should ask for the details of the claim to pass on to any potential buyers.
Potential buyers may want to add conditions to the sale and purchase agreement requesting a full and accurate statement of all EQC claims for the property (home and land), including any settled or outstanding claims. The buyer can also include a condition that all claims are assigned to them.
The vendor does not want to disclose any claim or damage
The vendor should disclose any known defects when listing their property. If they don’t disclose known issues, they may be held liable by the buyer for misrepresentation. We recommend you suggest the vendor seeks legal advice about their obligation to disclose any defects that affect the property.
It’s important to remember that, if a vendor asks you not to disclose a defect that you are aware of, such as structural damage following an earthquake, you can’t continue to act for them.
A claim has been paid out, but no work has been done
Ideally, the price will reflect the value of the property in its unrepaired state.
Disclosures should still be made about the property, and any supporting documents you have received from the vendor can be given to potential buyers.
We recommend you suggest buyers get expert advice about risk, finance and insurance so they can make an informed decision. It’s important to remember that, while it is not your job to discover hidden or underlying defects with the property, you should know if it is subject to a defect and must disclose known defects.
If it appears likely that the property may be subject to a hidden or underlying defect, you have additional obligations to either:
- get the vendor to provide evidence stating the property is not subject to any defects or
- ensure a buyer knows there’s a risk and explain they should consider getting expert advice.
Listing ‘as is, where is’
Marketing a property for sale ‘as is, where is’ can be a way to alert potential buyers to the current state of the dwelling.
When listing an ‘as is, where is’ property, it is important to state this up front in the marketing material. It’s too late to share this information just before an auction or when potential buyers view the property. Your disclosure obligations still apply when selling ‘as is, where is’. You must still disclose known defects and make enquiries where it seems likely there may be hidden or underlying defects.
Sale and purchase agreements for properties being sold this way can sometimes have specific clauses about risk and insurance. It’s important that both the vendor and potential buyers seek legal advice.
Guidance from a decision
This case involves a property that was sold in 2014. The buyers requested the property’s scope of works before signing a sale and purchase agreement. They were told by the licensee that it was still to be paid out. This was confirmed in an email from the licensee that specifically stated that EQC had not scoped the property and the claim would be assigned to the purchaser on settlement.
After settlement, the buyers pursued the claim. EQC informed them that it had already settled the claim in 2012. In response to this new information, the licensee stated that he relied on the information provided by the vendor and that he had been misled.
The Complaints Assessment Committee (CAC) found the licensee guilty of unsatisfactory conduct.
Below are some of the key points from the decision and what it means for you.
Failure to make proper inquiries
The CAC found that the licensee passed on information about EQC to the complainant (the buyer) on at least two occasions when he had failed to make proper enquiries to clarify that information was accurate:
That information included the completed Earthquake Claim and Insurance Form, on which the vendor had stated that the claim had been paid out and repairs not completed, and an email... which stated the vendor had not seen the scope of works report. These two statements were received together by [the licensee], and accordingly, he queried the inconsistency with the vendor. He maintains that the vendor then confirmed that the EQC claim had not been paid out...
The inconsistency between the completed Earthquake Claim and Insurance Form and other correspondence between [the licensee] and the vendor... should have alerted [the licensee] to the need to seek independent verification of what he was being told about the EQC claim. Unfortunately, however, [the licensee] simply relied on a statement from the vendor without seeking confirmation from EQC of the status of the claim.
Misled the complainant regarding EQC information
The CAC found that the licensee misled the complainant regarding the EQC information:
[The licensee] provided to her on two occasions information that he did not know was correct... [and] did not make it clear to the complainant that the information he was providing was from the vendor and that she should make her own independent inquiries. Nor did he explain to her that he had not checked or verified the information he was passing on...
[When] advertising includes a positive representation (we consider that promoting of the property in any form amounts to advertising) the licensee is obliged to ensure that they explain the source of the information to the purchaser, and that it will need to be independently verified. This was not done in this situation.
The licensee breached rule 6.4 of the Professional Conduct and Client Care Rules (Code Of Conduct) and section 72 of the Real Estate Agents Act 2008 as his conduct fell short of the standard expected of a reasonably competent licensee.
He failed to make proper enquiries or seek independent verification when he established that the vendors had not been paid an EQC claim.
The licensee also misled the complainant by failing to inform her that he had not verified the information provided by the vendor regarding the EQC claim.
What this means for you
When providing information to potential buyers, it is important that you first ensure it is accurate and correct. You must also make it clear to buyers where the information you are providing comes from and that it may need to be independently verified to confirm its accuracy.
If the vendor is providing you with contradicting information, you must make proper enquiries and seek independent verification on the matter.
We recommend you seek advice about the effect of the Tribunal's decision if this is a significant matter for you.