Editorial: Setback for honesty in house sales

Opinion

The Fair Trading Act seems explicit enough. No person, it says, shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. How that applies in the real estate industry is proving a headache for the Commerce Commission. For every advance it makes in the interests of consumers, there is a setback. This week, it learned that its latest attempt to clip the industry's wings had come unstuck in the Wellington District Court.

In the commission's sights are real estate agents who, under the "buyer inquiry" format, advertise houses at well under the minimum price the vendor hopes to get. Understating the likely sale price in this manner increases the prospect of attracting a big crowd of buyers. But the galling outcome for some people can be time and effort wasted investigating a property they believe, mistakenly, they can afford.

The case before Judge Bridget Mackintosh concerned an agent who advertised a Wellington home at "buyer inquiries over" $380,000, although he knew the owner would not accept less than $400,000. The judge ruled that the advertised price was close enough to the amount the owner expected 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," she said.

Unsurprisingly, the ruling has dismayed consumer advocates. To a degree, it contradicts a District Court finding concerning a Palmerston North agency several years ago, which decreed that real estate agents must accurately reflect a seller's price expectations when advertising property. In that case, a prospective buyer wanted to spend $80,000 and was unaware that the homeowner would not sell for less than $93,000. The agent involved was fined more than $16,000 for wasting the home-buyer's time.

The significance of Judge Mackintosh's ruling is that it implants a 90 per cent guideline. It is reasonable to ask, however, whether she has not been unduly generous to the real estate industry. David Russell, of the Consumers Institute, thinks so. "You can be sure if it was a retail shop that advertised its price at 10 per cent less than it was actually going to charge then it would breach the Fair Trading Act," he said.

The two are not directly comparable. Negotiation is part of the house sale process, and the final price is not known. But sellers who do not know what their house will fetch, or who expect strong bidding, are usually advised by agents to opt for the fluidity of either the tender or auction process. Both provide considerable leeway for changed expectations.

In cases of more straightforward sale, it is debatable whether the price put on a property should be any different to what the owner will accept. When this is not the case, and false low prices are advertised, prospective buyers are bound to be deceived. Doing the misleading are real estate agents who know they will not sell at the low price.

Judge Mackintosh has sought to mitigate the annoyance and inconvenience to the potential buyer by formulating a 10 per cent guideline. But it is difficult not to conclude that her ruling sits oddly with the wording of the Fair Trading Act.

Whatever the peculiarities of the real estate industry, it cannot expect to be immune to the central thrust of that legislation. Close enough should not be good enough. The industry's reputation, as well as the interests of its customers, would be enhanced by the elimination of any notion of misleading pricing.