Advertising house for $20,000 less than expected 'not misleading'

Howard Morley

A real estate agent has escaped conviction in a groundbreaking case over how close the advertised price guide to a home must be to the price the seller hopes to get.

Agent Timothy Whitehead advertised a home in the Wellington suburb of Northland at "buyer inquiries over" $380,000 though he knew the owner's bottom line was $400,000.

He was charged by the Commerce Commission under the Fair Trading Act for making misleading representations.

But Judge Bridget Mackintosh ruled that the advertised price was close enough to the amount the owner expected so as not to be misleading.

"In my view an advertised price guide of not less than 90 per cent of an expected sale price is clearly a price that is close to, or in the vicinity of, the expected sale price," her written decision said.

Consumers Institute chief executive David Russell said the ruling was "disappointing".

"You can be sure if it was a retail shop that advertised its price at 10 per cent less than they were actually going to charge, then they would breach the Fair Trading Act," he said.

"The only difference here is that it is a bidding situation so the sale price is not known.

"The real estate agent knows bloody well they are not going to accept the lower price."

Mr Russell said the case had established a clear precedent.

"If you see 'buyer inquiries over', or whatever silly term they use, you can add 10 per cent to it and if you pay much more than that, then it's off to the Commerce Commission."

Mr Whitehead said he was pleased the court had found he did not engage in misleading conduct.

"Negotiation is integral to real estate transactions, and that is a different sale concept to buying food or clothing where you expect to pay the price asked," he said.

The president of the Real Estate Institute, Howard Morley, said there was often not an exact price on a property and some were hard to put an exact figure on.

He believed the industry had been more careful about "price banding" in the last couple of years but the practice allowed parties to negotiate where vendor expectations were much higher than buyers wanted to pay.

"The Commerce Commission has been saying for some time the gap has been too big so now there is a ruling it's quite legitimate."

Property valuers could be out by 10 per cent on the worth of a property and that was considered to be reasonable.

It would not be acceptable for an agent to use "buyer inquiries over" if the gap was more than 10 per cent and in most cases it should be much less.

At the time he was charged, Mr Whitehead was working for Harvey Group member Celestine Realty in Wellington. Ross Barraclough, a director of Celestine and Harveys, had defended Mr Whitehead, saying he was trying to sell a house initially advertised at $450,000 which drew little buyer interest.

A disgruntled would-be buyer had complained about the price advertised.

Kensington Swan senior associate Hayden Wilson worked for Mr Whitehead in the initial stages of the case and said the judgment provided clarification.

"Assuming that it doesn't get appealed, I think it will set a precedent in terms of that it tells real estate agents what they can and can't do," he said. "It also tells buyers who are looking at adverts, when they see a 'buyer inquiry over' they now have a clear signal about what price they can expect."

The Commerce Commission said it was too early to comment.