Death, drugs, dastardly neighbours - what do you need to disclose when selling a property?

It’s a stunning property—a six bedroom colonial house with polished floorboards and large gardens in a quiet, leafy suburb in New Jersey. In June 2014 it sold for a cool $1.4 million to a couple looking for a family home in which to raise their three young children. But the dream quickly turned into a nightmare when the couple received a series of insidious notes from the house’s stalker.

“My grandfather watched the house in the 1920s and my father watched in the 1960s. It is now my time.”

“I have been put in charge of watching and waiting for its second coming.”

“Do you need to fill the house with the young blood I requested? “Once I know their names I will call to them and draw them out to me.”

“Have they found out what is in the walls yet? In time they will.”

“I am pleased to know your names now and the name of the young blood you have brought to me. Will the young bloods play in the basement?”

“Who has the bedrooms facing the street? I’ll know as soon as you move in. … It will help me to know who is in which bedroom then I can plan better.”

“And now I watch and wait for the day when the young blood will be mine again.”

“Who I am? I am the Watcher.”

Terrifying stuff. So terrifying the new owners, who had done extensive renovations on the property, refused to move in. They are currently suing the previous owners, who they claim knew about The Watcher and his troubled obsession, yet failed to disclose the information. Their argument is that they would never have purchased the property if they’d known of its stalker. Because they themselves have a legal obligation to inform potential buyers of the situation, they have been unable to sell the New Jersey home despite several attempts to do so in the intervening years.

Which begs the question - what do you need to disclose when selling a property?

In the ACT real estate agents are legally obligated to disclose that a property is considered ‘stigmatised’ as well as any other ‘material information.’ This means any information that may impact a property’s value or a buyer’s willingness to purchase the property. This can be a grey area, as what deters one potential buyer may not matter to another.

Generally, real estate agents need to disclose:

• The history of the property, including any murders, suicides, sexual assaults or major crimes.
• Any health and safety issues, for example proximity to toxic waste.
• Proximity issues, such as closeness to stigmatised properties, or even violent neighbours.
• Anything else relevant to purchasers that they cannot reasonably be expected to ignore.

Failure to do this can result in fines of up to $1.1 million and the loss of their real estate licence.

Independent Sales Agent Mark Larmer faced this exact scenario when a stigmatised property came on to his books a few years back. The Belconnen unit had been the scene of a gruesome murder. The victim had been the owner of the property.

“Honesty was the best approach. We didn’t publish the information in the online advertising or in the factsheet but told all prospective buyers at the point of sale to ensure they had they were able to make a fully informed decision when making an offer to purchase. There were a few potential buyers who changed their mind, but in the end it didn’t affect the sale price too badly. The home sold for about 5% less than what it could have without its history.”

Health issues are another key disclosure point. In another recent case in the US, the buyer has taken the previous owner and his own home inspector to court for not disclosing the presence of bats living in the attic.

Larmer advises that “Yes, if a health issue, such as mould or pests, has been highlighted as a significant issue in a property and is perhaps a reason the owners are selling, it should be disclosed.”

Ok Mark—crime scenes and major health issues must be disclosed…but difficult neighbours?

“I would argue that the occasional party is not grounds to make a big deal out of. However an ongoing concern with a neighbour, one in which police or the council has become involved, may be worth noting—particularly if it plays a part in why you’re leaving.”

So a vendor or agent’s disclosure responsibilities are not clearly defined. Instead, it’s a matter of personal judgement and common sense. It is also very much a matter of open and honest communication. As Mark’s experience with the Belconnen murder property shows, what seems like a major issue to some people may not have a major impact on the final sale price.

Advice for vendors

It’s best to tell the agent upfront of anything that may be an issue so they can deal with it and come up with a game plan. It’s better they find out about a problem prior to the campaign than half way through.

In a grey scenario they will recommend you seek legal advice, so you can be confident that you’re not exposed to court action post-sale. Remain confident that in most cases, while the issue may turn off some buyers, it may not affect the sale price of your property at all. Were your last tenants running a sophisticated drug operation? There will be people out there that just don’t care. In fact, the keen botanist may pay extra for you to keep that hydroponic set up for their prized orchids.

Advice for buyers

There are always going to be unknowns and surprises when moving house. Ask the agent about the things that matter to you; they will do their best to ensure there are no hidden issues. The vendor also may not consider something an issue that the buyer might.
Do your own research. Google the property address to see if there are any news articles or reports of issues in the home. Knock on a few neighbours’ doors to find out if there are any issues in the house or street which they know about. We’ve even known people to sit outside a property a night to check for barking dogs etc. Have a professional inspect the house, and be very specific about the things you want them to check for.

In Canberra all building, pest and other reports must be submitted with the contract. Check the these carefully to ensure that it is comprehensive and has no errors.

But rest assured, the chances of you having your own ’Watcher’ is very, very slim.