Case Studies
Size Matters for Properties
8 May 2021
Two CEAnergy case studies that review the actions of real estate salespersons (RESs) who misinformed consumers about the actual floor area of the properties they were marketing.
May 2021 - 4 min read
Case 1
In November 2018, Salesperson A was engaged by her client to market an HDB flat. Salesperson A posted an online listing to advertise the property but did not conduct any searches on Singapore Land Authority’s Integrated Land Information Service (INLIS) to verify the floor area of the property before she incorrectly listed it as being 1,259 sqft. Salesperson A proceeded to repost the listing over the next couple of months, each time repeating the incorrect floor area of the flat.
In January 2019, a couple viewed the property twice, and during their second viewing, they specifically asked Salesperson A whether the floor area of the flat was 1,259 sqft as advertised. Salesperson A affirmed this information.
Based on the recent transaction price of $905,888 for a unit that was similarly sized at 1,259 sqft, the couple made an offer for $900,000 for the property. The couple then asked Salesperson A for a valuation of the property, to which Salesperson A said that a valuation would only be done after the Option to Purchase (OTP) had been issued, as per HDB’s procedure.
In place of a valuation report, Salesperson A sent the couple a “Home Report” that offered an estimated market value of the flats on the same and other floors as the property. Although the “Home Report” stated the floor area of the flats as 1,216 sqft, this discrepancy with what Salesperson A had represented as the floor area of the property was not highlighted, nor did the couple notice it. It was only when the couple had received the valuation report, which stated the total floor area as 1,216 sqft, that they realised that Salesperson A had misrepresented the floor area of the property.
The couple repeatedly raised this issue to Salesperson A, but the latter refused to respond and acknowledge the error. Salesperson A did, however, amend the online property listing to correctly reflect the actual floor area as 1,216 sqft.
Salesperson A also did not respond to the couple’s request for either a refund of the option fee or a reduction in the purchase price of the property based on the reduced floor area. In the end, the OTP lapsed, and the option fee was not refunded.
CEA’s Disciplinary Committee (DC) convicted Salesperson A of breaching paragraph 6(3) read with 6(4)(c) of the Code of Ethics and Professional Client Care (CEPCC) for failing to act in a reasonable manner towards the buyers by (i) sending them the listing of the flat which stated the wrong floor area; and (ii) misrepresenting to the buyers at the viewing of the property that the floor area was 1,259 sqft.
The DC sentenced Salesperson A to a one-month suspension and a financial penalty of $1,500. Two other charges were taken into consideration.
Case 2
In August 2018, a couple came across an online property listing posted by Salesperson B, who was accompanied by her husband, Salesperson C. Salesperson B was the main salesperson conducting the viewing of the property while Salesperson C was quiet for most of the viewing.
Salesperson B handed the couple a flyer which listed the property as having “Built in Est: 4000 sqft”, meaning that the built-in area of the property was estimated to be 4,000 sqft.
During the viewing, the couple sought confirmation that the built-in area was approximately 4,000 sqft, and requested for detailed drawings of the property reflecting the built-in area as such, as well as documentation of any alterations and additional works carried out on the property. Salesperson B said that such documents would only be released to them by the property owners if the couple exercised the option to purchase the property.
Based on the $2.65 million selling price of a nearby property that had a larger land area but smaller built-in area than this property, the couple made an offer of $2.8 million for the property through Salesperson B.
Salesperson B told them that another prospective buyer had made an offer of $2.83 million but that the owners allegedly were not keen to accept this offer because of the extra conditions made by the prospective buyer. In actual fact, the $2.83 million offer was not communicated to the property owners. Salesperson B later proceeded to destroy the option fee cheque that this prospective buyer had passed to her, claiming that the owners wanted a higher offer.
Salesperson B convinced the couple to increase their offer, and eventually the couple’s offer of $2.818 million was accepted by the owners.
When the couple met Salesperson B and C to sign the Offer to Purchase, they again sought confirmation that the built-in area was approximately 4,000 sqft. Salesperson B confirmed this information.
Salesperson B added that she could not be the salesperson closing the transaction as she was switching estate agents, so Salesperson C signed off on the Offer to Purchase instead. This resulted in Salesperson B’s estate agent being excluded from the transaction and thus deprived of a 10% cut of the commission that would have been paid to Salesperson B.
Subsequently, the owners issued the Option to Purchase to the couple, who proceeded to obtain a bank loan to purchase the property.
On the advice of their lawyer, the couple requested for Salesperson B to provide documentation proving that the extensions on the property had been carried out properly and/or with approval from the relevant authorities. Salesperson B forwarded the couple a few documents, including a letter to the Inland Revenue Authority of Singapore that indicated the “Gross Floor Area” of the property as 267.04 sqm, which was approximately 2,873 sqft. The gross floor area is similar or approximate to the built-in area of a property.
To resolve the discrepancy in the stated floor area versus what Salesperson B had said the floor area to be, the couple, along with Salesperson B and Salesperson C, revisited the property with the contractor who had renovated and maintained the property over the years. A measurement the property showed that its built-in area was only approximately 2,800 sqft. The bank’s valuation of the property also stated the property’s built-in area to be approximately 2,765 sqft.
Eventually, the couple did not purchase the property and had to forfeit the option fee and cancel the bank loan they had applied for, resulting in them incurring a penalty fee. They filed a civil suit against the owners as well as Salesperson B and C, and though the suit was subsequently settled, the couple still suffered a net loss as a result of Salesperson B’s actions.
Salesperson B was charged with the following:
Breach of paragraph 6(3) read with 6(4)(c) of the CEPCC for misrepresenting to potential buyers that the built-in area of the property was 4,000 sqft when it was not.
Breach of paragraph 6(3) of the CEPCC for excluding her estate agent from the transaction.
Salesperson C was charged with a breach of paragraph 6(3) of the CEPCC for excluding Salesperson B's estate agent from the transaction.
Both salespersons pleaded guilty to the charges. Taking four other charges into consideration, CEA’s DC sentenced Salesperson B to a four-month suspension and a financial penalty of $5,000 for both proceeded charges. Salesperson C was sentenced to a two-month suspension and a financial penalty of $2,000.
Industry Perspective
By Bruce Lye
Co-founder and Managing Partner
SRI Pte Ltd
Mistakes on listing platforms may inadvertently be made when salespersons are faced with numerous demands amidst a hectic work schedule. Given these risks, it is essential that salespersons make it a routine to verify information prior to commencing any marketing activities.
Misrepresentation is a false statement or non-disclosure of material fact made with the intention of inducing a party to enter into a contract. The following are common violations which occur when a salesperson:
Fails to use reasonable care when ascertaining the truth of a material defect (Negligent Misrepresentation);
Makes a representation of a material fact that he/she did not know to be true or false (Innocent Misrepresentation); or
Intentionally misleads a party to induce them into a contract (Fraudulent Misrepresentation).
Salespersons play a crucial role in verifying information about a property as buyers often rely on representations made by salespersons about a property’s size. Situations in these two cases can be avoided if salespersons do their due diligence by performing thorough research, not just limited to floor area but also essential information like annual value, master plan outlines and maintenance fees, to be able to provide their clients with accurate information.
Failure to verify the accuracy of property information
The salespersons in these two cases should have performed independent checks to verify the actual size of the properties when facilitating the potential transaction for their client, instead of affirming information that was not been verified. For instance, in the second case, the misrepresentation on GFA of the landed property could have been avoided if Salesperson B did a floor plan requisition from the Building and Construction Authority (https://www.bca.gov.sg/pps/) to find out the actual GFA prior to marketing.
Failure to convey all purchase offers
When undertaking an appointment or instruction from a client to sell a property, it is imperative for salespersons to convey all offers to their clients. Salespersons are obliged to act ethically, honestly, fairly and in the best interest of their clients. Salespersons B and C had failed in their fiduciary duty towards their client by failing to communicate the $2.83 million offer. Further, Salesperson B had no apparent authority to destroy the option fee cheque that the prospective buyer had passed to her without first consulting her client.
Information accurate as at 18 May 2021