Real Estate Agents Duty to Disclose

• November 2004

Real estate agents in NSW are subject to various legislation, but those most relevant to disclosure requirements are the Commonwealth Trade Practices Act 1974, and the State Property, Stock and Business Agents Act 2002. Both of these acts contain provisions relating to misleading and deceptive conduct. The NSW act also requires the disclosure by real estate agents of certain matters.

Real Estate agents are further governed by The Rules of Conduct as prescribed in the Regulations. There are 19 core Rules, which apply to all licence and certificate holders. The Rules of Conduct contain their own disclosure requirements. Importantly, Rule 1 of these Rules requires that agents have knowledge of the Act and Regulations. 

Property, Stock and Business Agents Act

The Property, Stock and Business Agents Act commenced in 2002. Under the act agents need to be acutely aware of the fiduciary nature of the relationship with their client (the principal). The relationship between principal and agent places an agent in a position of trust, confidence and responsibility in which their foremost duty is to act in the best interests of their client and deal ethically with all parties involved in property transactions.

The legislation includes several provisions, which require agents to disclose certain information to consumers. The Act requires the disclosure of:

Relationships and benefits (Section 47)

A real estate agent or salesperson who is acting for a client in respect of the sale or purchase of land is required to disclose certain relationships (such as family relationships) and any benefits they or others may receive in relation to the sale or for referring the client or a prospective buyer to a service provider.

Disclosure in advertisements (Section 50)

If a licensee is selling land or other property in which they have an interest (for example, if they own it), the interest must be disclosed in any advertisement published in connection with the property.

Disclosure in agency agreements of rebates, discounts or commissions (Section 57)

Another aspect of the agency relationship that demands transparency is the receipt of rebates and discounts by agents in relation to expenses payable by the client, such as advertising and property maintenance. These ‘commissions’ provide the real estate agent with a financial advantage over and above their agreed fee.

The licensees must set out in the agency agreement the source and estimated amount of all these commissions, and the client’s consent will be needed to retain entitlement to these benefits. If the agent fails to make the required disclosures, they lose their entitlement to be reimbursed by the client for any expenses incurred under the agreement.

Disclosure when providing financial advice

Where agents give general financial advice as an incidental part of selling land, they will be required to give the following information and warnings:

  • warnings that the advice is general advice, and has not been prepared taking into account the individual circumstances of the person to whom it is given;

  • warnings that intending purchasers should assess the suitability of any investments in the property in light of their own individual needs and circumstances, which they can do themselves or by consulting an appropriately licensed person ;

  • the provision of information relating to any conflicts of interest of the adviser (such as if the adviser is also acting for the vendor or the developer)

The Rules of conduct – disclosure requirements

The Rules of Conduct are designed to support the Act's approach to competency and professionalism and to provide agents with a guide to the professional and ethical standards expected by the public. The Rules, which complement the Act's disclosure requirements, are set out below.

Passing on of purchase offers to the seller

An agent acting for a seller is required to inform their client in writing of all offers of purchase made up until exchange of contracts has taken place. The exception to this requirement is where the client has given alternative written instructions.

Information to be given to buyers when a part-deposit is paid with a purchase offer

Often when a prospective buyer submits a purchase offer to an agent, the agent will ask for a partial deposit to reinforce the offer. The agent is required by The Rules of Conduct to:

  • promptly inform their client when a deposit has been paid, and
  • inform the person who made the deposit if any subsequent purchase offers are received and inform the person that they have the right to make further offers until exchange of contracts has taken place.

Misleading and Deceptive Conduct

The Property Stock and Business Agents Act 2002 has several provisions on misleading and deceptive conduct, and false representations. The general requirements of these sections are:

  • an agent must not make a false representation to a seller on the estimated selling price of the residential property, and must not under estimate the selling price to a buyer. (Sections 71 and 72);

  • an agent is not to publish any statement that is intended to promote the sale or lease of any property that is materially false, misleading or deceptive. It is an adequate defence if the person believed on reasonable grounds that the statement was true and had no reason to suspect that the statement was false or misleading. (Section 51);

  • an agent who makes any representation or promise that is false, misleading or deceptive (whether to the knowledge of the person or not) or by any concealment of a material fact (whether intended or not), which induces any other person to enter into any contract or arrangement is guilty of an offence. It is a defence if the agent proves that they did not know, and had no reasonable cause to suspect, that the statement, representation or promise was false, misleading or deceptive. (Section 52)

The maximum penalty for each if the above offences’ is 200 penalty units, which presently equates to $22,000.

Trade Practices Act

The application of the misleading or deceptive conduct provisions of the TPA can be complex. For specific advice relating to your individual circumstances, you will require legal advice. 

However what follows are some general principles on the application of the misleading and deceptive conduct provisions of the TPA:

  • warnings that the advice is general advice, and has not been prepared taking into account the individual circumstances of the person to whom it is given;

  • warnings that intending purchasers should assess the suitability of any investments in the property in light of their own individual needs and circumstances, which they can do themselves or by consulting an appropriately licensed person ;
  • the provision of information relating to any conflicts of interest of the adviser (such as if the adviser is also acting for the vendor or the developer)

Agents are able to maximise their chances of avoiding liability for representations that have not originated from them when they make that fact clear to the recipient of the information. While this area of the law is unclear, the High Court has suggested that a person who does no more than pass on information supplied to him or her, making it clear that he or she is merely passing it on for what it is worth and making no claim to its truth or falsity, may not have engaged in misleading conduct if the information proves to be incorrect. However a real estate agent is unlikely to escape liability if they are aware or have cause to believe the representations are false or misleading.

This publication contains general information only. It is not provided as legal advice. Pofessional advice should be taken before any course of action is pursued, or any information herin relied upon.