SA consumer watchdog says real estate agents can be liable if aware of property issues

Real estate agents who sell homes with serious defects could be liable for misleading customers if they know a property has issues, South Australia's consumer watchdog has warned.

This week, ABC News revealed the "nightmare" situation being faced by two families who bought newly built properties filled with a litany of defects, including holes in the walls and ceiling plastering, a failure to weatherproof the house and problems with plumbing and drainage.

The owners of one home, the Sharma family, said a building report had recommended the house be demolished.

They showed ABC News a range of issues with their home including wonky door frames, air vents that don't go anywhere, holes in the cabinetry and leaking pipes.

"Since we purchased this house, every day we are seeing new defects," said Rimple Sharma, who with husband Preet purchased the house for more than $800,000 late last year

The builder and vendor of the property, Khorshed Alam, has been fined $75,000 for three counts of operating without a licence, and three counts of performing building work without building indemnity insurance, for the two properties and another also in Adelaide's northern suburbs.

But the real estate agency's listing described the home in Adelaide's northern suburbs as "masterfully constructed" and "where craftsmanship meets contemporary luxury".

The advertisement also claimed the builder was "known for precision craftsmanship, innovative design and long-lasting durability" and that it included a "full builder's warranty and all compliance documentation".

Is the agency liable?

Consumer and Business Services Commissioner Brett Humphrey told ABC News that real estate agents could be liable if it was proved that the agent knew about issues relating to the property.

"If the real estate agent knew that the builder didn't have the required authorisations to build the home or was saying he was an owner-builder, but looking at selling the houses, if the real estate had knowledge of that then yes, there would be things that could be looked at into their obligations as to licensed real estate agents," Mr Humphrey said.

A spokesperson for Consumer and Business Services (CBS) said the department could not comment on specific cases, but in general it was an offence "to make a false or misleading representation for the purpose of inducing another person to purchase land".

Penalties of up to $20,000 or one year in prison apply.

In South Australia, real estate agents are required to prepare a Form 1 Vendor's Statement, which discloses important information about the property to the buyer before settlement.

CBS said people who provided incomplete or incorrect Form 1 statements could face fines of up to $10,000.

"Where a Form 1 is found to be incomplete or incorrect, the purchaser can apply to the court to have the contract set aside, and also seek damages," the spokesperson said.

When the Sharmas contacted the agency after settlement to request the building indemnity insurance, the agent told them to "please contact builder with that regards", in an email seen by ABC News.

ABC News sent questions to the CEO of the real estate chain of which the agency is a subsidiary.

In a statement, she said the agent had inspected the property before writing the advertisement for the house.

"More broadly, our understanding is that there were disputes between the vendor and purchaser during the transaction process," she said.

She said the agent's role throughout was to act professionally, communicate information provided to her, and meet her obligations as a real estate agent.

She has denied the property's advertisement was misleading.

"The marketing materials reflected the property as presented at the time and the photographs were not edited in a misleading manner," she said.

"The purchasers undertook multiple inspections prior to settlement and were provided opportunities to raise any concerns identified during the process."

Mr and Ms Sharma said they had been blocked from attending the second building inspection. They received a text from the agent telling them the owner would be present, and would only permit the inspector to enter.

The home owners told ABC News they were not able to contact the agent for lengthy periods during the settlement period, which delayed the process of getting a second building inspection.

In response, the company CEO said: "We do not accept that characterisation and understand there were multiple communications between the parties throughout the settlement period.

"The purchasers were also provided contractual protections and opportunities to withdraw from the purchase," she said.

When ABC News shared information about the local council's serious concerns about the build, the CEO stated: "[The company] takes such matters seriously and always endeavours to provide professional service in accordance with industry obligations and standards."

The Form 1 prepared for the sale, seen by ABC News, said the house was built by an owner-builder.

The sections about insurance on the form were left blank.

Real Estate Institute of South Australia (REISA) chief executive Andrea Heading said agents were obligated to make reasonable inquiries when preparing a vendor statement.

"Part of their obligation is to make sure there are reasonable inquiries in regard to the Form 1 and to make sure that they are not knowingly misrepresenting a property's condition," Ms Heading said.

"It's real accountability and certainly something our [REISA] members take very seriously."

But Ms Heading said the law did not require agents to act as building inspectors.

"The detection of defective or non-compliant construction work sits in the domain of licensed builder inspectors," she said.

"Our recommendation to potential buyers in South Australia is that they really must employ an independent building inspection prior to settlement."

Last week, South Australia's Consumer and Business Affairs Minister Michael Brown gave a public warning notice about eight building traders, which included Khorshed Alam.

"I have determined to issue this notice because I consider Mr Alam has demonstrated a tendency to disregard important legal obligations, such as requirements to hold a building work contractor licence and requirements to obtain builders indemnity insurance," Mr Brown said in the public notice.

Last month, before the fine was issued, Mr Alam's lawyer told ABC News he was in discussions with CBS.

"As those discussions are ongoing, and our client is currently in the process of obtaining legal advice, our client does not consider it appropriate to provide further comment at this time," the lawyer said in a statement.

The ABC has since reached out to Mr Alam's lawyer for further comment but has not received a response.