Silence Is Not Golden In Real Estate Negotiations

George Rousos

George Rousos

by George Rousos


Industry Training Consultants

Real Estate Encyclopedia



Franois-Marie Arouet, better known by the pen name Voltaire, was a French writer and philosopher famous for his wit and for his advocacy of civil liberties, including freedom of religion and free trade. One of Voltaire?s famous sayings was, and I quote:

“We must distinguish between speaking to deceive and being silent to be reserved.”

I echo and remark this famous quote of Voltaire?s, often forgotten during the heat of the negotiation battle and is what relates to misleading and deceptive conduct. The action for misleading or deceptive conduct is increasing in its application with the development that silence in most cases will amount to a breach of s 18 of the Competition and Consumer Act 2010.

The use of a real estate agent is common practice in commercial transactions; however, under the provisions of both state and federal laws, it would appear that a real estate agent found to have engaged in partial disclosure could be found to have engaged in misleading or deceptive conduct.

For example.
Buyer A has received an offer and acceptance by the Seller. Buyer B then makes an offer to the Seller which is better than Buyer A?s offer. The agent refuses to divulge the amount of the offer to Buyer A .It would be reasonable in the circumstances, that Buyer A may use this counter offer to respond to the Seller, but failure by the agent to engage in full disclosure, would affect some actual or deemed decision making.

The above scenario is a common occurrence in NSW and is what motivated me to write this blog. Unfortunately, this lack of transparency facilitates and even encourages corruption in the real estate industry, however, implemented processes to ensure compliance with proper planning and preparation leading to a high level of total transparency in the market place, is all that is required here.

Before exploring this further, the following paragraph (silence in negotiations) is an excerpt taken from a drafted paper, put together by a legal academic, which intends to focus on the use of the undisclosed agency in land transactions in pursuant to section 52 of the Trade Practices Act (Now section 18 of the Competition and Consumer Act 2010). An ethically adequate approach is to look at this more closely.

Failing to disclose information may amount to misleading or deceptive conduct. Silence will only be in breach of s18 when the person who has failed to make the disclosure is aware or has knowledge of the information which has been omitted. The silence in respect of a fact is ?conduct? as defined under the Act, if the failure to disclose involves some actual or deemed decision making.

What has been suggested in the paper, that silence will infringe s18 in negotiations upon:

  1. failure to disclose the whole truth and thereby creating an erroneous impression by what is disclosed;
    2. active concealment of a fact, giving rise to an impression that such a fact does not exist;
    3. failure to correct a false statement, thereby implying it is true; or
    4. failure to disclose facts when there is an obligation to do so in the circumstances

As a matter of practice real estate agents should also be aware that the law of ?confidentiality” and “privacy” are distinctly different things from a legal standpoint. Confidentiality refers to personal information being shared but cannot be divulged to a third party without the express consent. On the other hand, privacy refers to the freedom from intrusion into one’s personal matters and personal information, and is covered by the Privacy Act.

Under Schedule 1 – General rules of conduct applying to all licensees and registered persons of Property, Stock & Business Agents Regulation 2014, an agent is permitted to disclose any confidential information obtained while dealing with a customer, providing that customer authorises disclosure.  However, the absolute amount of the offer presented, rejected or accepted is unlikely to fall under the definition of confidentiality. It is information considered likely to be that of a material fact, as it would be important to a reasonable person in deciding whether to engage or not to engage in a particular transaction.  Again, failing to disclose another offer to a particular customer may instead amount to misleading and deceptive conduct. Therefore the rule most applicable to non-disclosure of offers under the PSBA Regulation 2014 is 3. Honestly, fairness and professionalism – which compels an agent to act honestly, fairly and professionally with all parties in a transaction, and not mislead or deceive any parties in negotiations or a transaction.

It is worth noting, that the general principles of negotiation will breakdown when the combination of business ethics and professional ethics are not based upon the personal ethics of individuals but which are also codified by the profession and, where relevant, their regulators. The rule of thumb is never enter negotiations without preparation and knowing the law; it’s far too risky and will often lead to legal challenges in a social working environment. Furthermore under the Competition and Consumer Act, a consumer can make a claim for damages within 6 years after the day on which the cause of action that relates to the conduct accrued, so the adoption of full disclosure is a good idea, but its nature gives warning of the consequences to follow if ignored.

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