The day after a couple moved into their new home, a police officer who lived next door knocked on their door to tell them the previous owner sold methamphetamine from the home.
The Auckland real estate agent who sold the house has been censured and fined $3000 after failing to disclose to the owners the property was a "known drug house". She is appealing the Real Estate Agents Authority decision.
Barfoot & Thompson's Annie Yong sold the Greenhithe property to an Auckland couple in June 2014 for $945,000.
The property included a three-bedroom tenanted house and a one-bedroom house in which the couple reside.
According to the decision, the day after moving in, the police officer, a neighbour, told them it was a "known drug house" where the previous owner had sold meth.
Meth inspections Ms Yong organised for both houses came back negative.
The agent admitted to the authority she was aware of the rumours, but she didn't tell the neighbours as she "didn't want to spread" it.
The authority found Ms Yong misled the owners by failing to disclose the drug rumours and that she should have determined whether they were rumours or truth.
"If that cannot be established then the licensee is required to pass the information on to the purchaser," it said in its decision.
When Barfoot & Thompson's branch manager heard the rumour, he ordered Ms Yong to insert a clause in the sales and purchase agreement to advise the new home owner to perform a meth contamination test, which she did. She was also ordered to mention the rumours, but she failed to do so.
The couple who bought the property did not want to be named but told the Herald they were surprised and shocked by the police officer's news.
"All we've been told by the agent was maybe there was a problem. But it was all a bit vague and not specific," he said.
He said the agent didn't seem concerned about the rumour.
"So we thought a rumour is a rumour. She wasn't concerned by it so why should we be?"
When the Herald contacted Ms Yong, she said her lawyer advised her to not comment.
She was appealing the decision, the home owner told the Herald.
Barfoot & Thompson managing director Peter Thompson said he was not in a position to comment as the case was under appeal. However, the company took the issues seriously, he said.
What agents must tell you
Real estate agents are bound by two key rules around disclosure of potentially damaging information in a property sale.
Real Estate Agents Authority chief executive Kevin Lampen-Smith said they must not mislead a customer or client, provide false information or withhold information that should by law or in fairness be provided.
And although they are not required to discover hidden or underlying defects in land, they must tell potential buyers about known defects.
Where it appeared likely to a reasonably competent agent that land may be subject to hidden or underlying defects, they must also ask the client to confirm, coupled with evidence or expert advice, that the land does not have defects, or make sure the potential buyer is told of any significant potential risk.
Ignorance was not an excuse - and potential issues agents should be aware of included weather tightness, boundary issues, proposed developments or changes that could affect the neighbourhood, restrictions on the titles or council compliance.
"[The agent] is expected to know the property they are selling."
Disclosure was about protecting buyers so they could make a fully informed decision, Mr Lampen-Smith said.
"Disclosure is a fundamental duty of a real estate agent and agents can't turn a blind eye to actual or even possible, defects with a property."
Rules were less clear around whether potential buyers should be told about deaths on the property.
A natural death at a property does not need to be disclosed by an agent, but deaths considered non-natural, such as murder, manslaughter, suicide or particularly vicious or notorious crimes that occurred on the property "require the agent to consider all the circumstances before deciding whether or not disclosure needs to be made", he said.
Circumstances to be considered included where on the property the death occurred, how long ago and the likely reaction of potential buyers and affect on the price.
The disclosure of such information by an agent should be handled sensitively. There was no need to advertise the information or tell everyone who viewed the property, Mr Lampen-Smith said.
"Instead the obligation is to tell purchasers who have indicated an interest in submitting an offer on the property."
In any case where an agent thinks a potential buyer needs to be told something, but the seller does not agree, the only appropriate response was to to "cease to act for the vendor and not disclose the information", he said.
Agents must also tell sellers and potential buyers about conflicts of interest.