Mr Koo and his girlfriend wanted to purchase a property for their future matrimonial home. As their savings were moderate, they set their target at flats costing between $1 million and $2 million.
Agent A took them to inspect several flats. One of these had an area of 400 square feet. It was built and occupied only three years before, and was situated in a quiet and pleasant neighbourhood. The asking price was $1.8 million. The agent did his best to convince them to take it, calling it a steal and claiming that two or three clients were already haggling over the terms. If they really liked the flat, the agent said, they should pay a deposit quickly. Agent A also suggested that Mr Koo should make a large deposit so as to be sure of getting the flat. As the soon-to-be wedded couple liked the flat very much, Mr Koo drew a cheque of $200,000 and signed a provisional agreement for sale and purchase.
Three days later, Mr Koo was informed by his solicitor that he could not contact the vendor. It was also discovered that the flat was purchased in 1997 for $3.8 million and was mortgaged to a bank, then re-mortgaged to a finance company in 1998. Three months before, the owner was already behind in his mortgage repayments. Now a total of over $4 million was owed to the bank and the finance company. In the meantime, the owner could not be found and the agent turned out to be unlicensed and his whereabouts were unknown. The bank was in the process of repossessing the flat, and the savings Mr Koo used for buying a matrimonial home went down the drain.
Under the Practice Regulation, as soon as they accept a listing, estate agents have to possess the prescribed property information including subsisting encumbrances of the property. The mortgage and second mortgage of the flat in the case above should have been stated in the Property Information Form supplied to the purchaser.
Further, before the signing of an agreement for sale and purchase, the agent acting for the vendor has to carry out a land search at the Land Registry and provide a copy of the land search to the purchaser. In case of doubt, a clause should be inserted in the agreement specifying that the whole of the deposit should be stakeheld with either the vendor's or the purchaser's solicitors until the vendor has proved that he can redeem the property. The agent acting for the vendor should also urge the latter to furnish proof of repayment on his own initiative, so that the deal may proceed smoothly.
As shown in the above case, Mr Koo acted carelessly in entrusting the transaction to an unlicensed agent, thus incurring heavy losses. As the sales and purchases of properties often involve large sums of money, everyone involved, the vendor, the purchaser and the agent, should go about it carefully.
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