Two estate agents failed to disclose the Mt Eden house a couple purchased was next door to a live-in drug rehab clinic frequented by paroled prison inmates, a watchdog has heard.

The buyers say they only learned about the neighbouring clinic when they met a probation officer on the street who was checking on a former prisoner.

The agents later admitted knowing of the facility but told investigators they both assumed the other had informed the buyer in an innocent "miscommunication".

Their agency, Bayleys, has apologised for the error but is refusing to provide compensation, saying the purchasers suffered no financial loss.

Advertisement

It comes just two months after the Weekend Herald revealed that another couple are suing Harcourts after agent Michael Robson failed to tell them their new Mt Eden home was also next door to a drug rehab facility.

In the latest case, Bayleys agents Stewart Morgan and Summer Sun were both found guilty last year of unsatisfactory conduct, censured and fined $3000 for not telling the buyers that recovering drug addicts lived in the neighbouring property.

The Wings Trust residential centre has no signage and looks like an average family home.

"We accept that our agent ought to have informed you of the existence of the neighbouring facility," Bayleys compliance manager Tony Bayley wrote in October 2014.

"The failure to inform you was an oversight, as all other potential purchasers were so informed.

"However, our investigations reveal that there have been no issues with the facility and none of the neighbours consider it to be of detriment to their property values."

Stewart Morgan and Summer Sun.
Stewart Morgan and Summer Sun.

Real Estate Agents Authority (REAA) documents show the couple bought the 1900 villa for $1.075 million in April 2014 for their son. The property had been passed in at auction and on the market for three months.

They learned of the centre soon after settlement in July 2014, the REAA heard.

The couple immediately contacted Bayleys, saying they had been financially penalised. They did not feel safe owning a house next to "parolees and convicts" and would not have bought the property had the agents given full disclosure.

"It defies the imagination that this could be an innocent omission," the pair told investigators.

"Had we been informed we would have dismissed the property outright. We feel we have been deceived and face a loss on what should have been a valuable asset."

One of the buyers, a Barfoot & Thompson agent, told the Weekend Herald the matter only came to the REAA's attention after investigators received an anonymous letter about the sale sparking an investigation, which eventually led to a formal complaint and disciplinary process.

The property had been marketed as a "family home" and Morgan, who now works for Sotheby's International Realty, told the buyers most of the neighbours were "lawyers, doctors or professionals", the REAA heard.

The couple eventually sold the house last September for $1.54 million after improvement work, and say they disclosed the Wings Trust facility to the new buyer.

But they believe they missed out on up to $150,000 based on an independently-commissioned valuation.

They are now seeking legal advice for a potential damages claim against the agents and agency.

The REAA ruled that agents must not mislead a client, provide false information or withhold information "that should by law or in fairness be provided to a customer".

While not proven that it was deliberate, the transaction was a clear breach of disclosure rules.

"We do not consider that the presence of a rehabilitation facility immediately next door to a residential property is a matter about which there should be any doubt whether or not it must be disclosed.

"Rightly or wrongly the presence of such a facility would be of concern to a portion of members of the public and disclosure should have been made."

In a statement this week, Tony Bayley said the company acknowledged its error, "caused by a simple misunderstanding in communications between the two salespeople".

"Two senior managers from the company had personally met the purchaser and apologised for the error, and the company had subsequently initiated an administrative process to ensure the fault would not occur again."

Morgan and Sun both declined to comment.