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Don't mention the floods

By Tim O'Dwyer - posted Monday, 17 January 2011


After some comparatively minor Brisbane CBD flooding some years ago Queensland’s Beattie government knee-jerked a new rule for motor auctions (but not for vehicle sales otherwise): auctioneers must announce if a vehicle is water-damaged.

No Queensland government ever wanted comparable flood disclosure in real estate sales. Yet home-sellers must inform buyers about electrical safety switches and smoke alarms – as well as provide sustainability declarations and pool safety notices.

Meanwhile, auctioneers and agents can freely sell flood-affected Queensland real estate without having to disclose the soggy truth. If the buyers’ council search shows past flooding, tough luck (for them)! The standard Real Estate Institute of Queensland contract (approved by the Queensland Law Society) contains no opt-out flood clause. Unless agents, auctioneers or sellers falsely represent properties as flood-free, buyers cannot withdraw. Flood-prone sellers have no worries – provided you’ve sold after the clean-up and before the next big flood.

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The Beattie government’s first Fair Trading Minister, Judy Spence, said in 1999 that, because of Queensland’s potential for flooding, her department had concerns about real estate practices and “disclosure in the standard form of contract”. But nothing changed. Auctioneers, agents and owners of flooded properties have largely kept buyers (and tenants) in the dark, while standard contracts remain flood-clause-free. Conveyancing solicitors rarely see an agent-prepared contract or tenancy agreement where a property’s flood history has been revealed.

Twelve months ago Premier Bligh’s Fair Trading Minister, Peter Lawlor, said the Queensland government did not intend to make pre-contract flood disclosure mandatory. In fact the Minister had been lobbied for “full disclosure” of all material matters in residential sales. He explained that, with the regulation of property transactions being subject to a complex range of local and state legislative requirements, the government would not consider placing a “full” disclosure onus on sellers: “As the circumstances surrounding individual property sales are so diverse, this form of disclosure could not be readily prescribed or guaranteed.”

Meanwhile, flood plain management specialist Dr Stephen Yeo questions the valuation consequences whenever local councils inform residents of their “level of exposure to flooding”. “Does disclosure adversely affect residential property values?” he asks. “It could,” he says, “but the more likely result is that it would not.”

Because community perceptions can influence values, Dr Yeo says those who shape perceptions need to be responsible. Community leaders (currently with other priorities) have good reason, he suggests, to down play the possibility of adverse effects and “talk up” the market.

This month Brisbane-based Property Searchers principal Scott McGeever told Australian Property Investor Magazine that demand for Brisbane near-river and low-lying properties would drop significantly into the next five years.

After that, he suggested, buyers would quickly forget the severity of the event,which would become history again.

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Although elevated properties already attract a slightly higher premium, said McGeever, current flooding will see unaffected elevated areas attract even higher premiums in the “initial aftermath”.

Back in 1974, even before Queensland’s floodwaters had receded and while the clean-up was underway, some real estate agents were talking up the market. They said nothing about unwise development, nor about buyers or tenants in flood-prone areas not having been informed or warned.

These agents ignored the adverse and promoted “high and dry” properties for sale (as happened further back in 1893!). The Real Estate Institute of Queensland said these 1974 advertisements were “completely unfair”, but what is unfair about the truth? The Housing Industry Association anticipated “a fairly grim period ahead”. Many agents predicted a steep drop in values in flooded suburbs, but others were confident the public would soon forget the floods. The optimists proved correct. In my experience the floods were soon forgotten, and few buyers would ever ask (until now) about flooding. Many folk from interstate and overseas have come and bought land and homes here without any knowledge of 1974. Young couples, who weren’t even born in 1974, became unwitting flood-prone property owners.

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About the Author

Tim O’Dwyer is a Queensland Solicitor. See Tim’s real estate writings at: www.australianrealestateblog.com.au.

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