Real estate cowboys face crackdown on false ads

By CHRIS DANIELS

David and Clarissa were checking out the housing market when an advertisement caught their eye - particularly the phrase "$280,000 plus."

But when they saw the house, it was obvious that $280,000 was hardly a fair offer.

The real estate agent later agreed with them that around $400,000 was more realistic, before trying to interest them in a $350,000 property around the corner.

Practices such as this have spurred the Commerce Commission to launch a crackdown on deceptive advertising.

The real estate industry says it is like any other, with a small minority using dubious methods.

Ross McPherson, acting manager of the Commerce Commission's fair trading division, said there were "major, systemic problems" in real estate that showed no sign of abating.

In one of the first prosecutions of a real estate firm under the Fair Trading Act, the Orewa Property Shop, trading as "The Professionals," was this week fined $3600 for using photos of sweeping beach vistas to advertise homes not on the beach.

The Orewa prosecution comes after more than a year of escalating action from the commission, which says that its attempts at educating the industry into compliance have failed.

That campaign involved the Real Estate Institute's organising seminars up and down the country to help agents recognise the limits on advertising. The commission then began issuing warnings to firms it thought were sailing too close to the wind.

Complaints continued, so the commission moved to making "settlements," where an offending firm admitted it had broken the law and promised there would be no recurrence.

One such settlement four months ago involved Whangaparaoa real estate firm Global Realty, trading as LJ Hooker, admitting indulging in almost the same behaviour as the Orewa Property Shop.

"Better than the Sharemarket!" screamed its advertisement in the local property guide. A photograph of the house for sale was shown set inside a large picture of Manly Beach.

The commission said it established: "The house in question at 27A Rakino Avenue is some distance from the beach at Manly (at least one kilometre away). There is no view of Manly Beach from the property and possibly only a very small and distant sea view."

Global Realty got off lightly, with a settlement. But Mr McPherson said that from now on, agents would be taken to court.

"The education does not appear to have worked. There has not been a decrease in complaints about the industry - in fact, there appears to have been an increase.

"They have had their chance. A lot of education has been put into them, both by us and their own institute. It's time to start putting them before the courts."

In David and Clarissa's case, the agent was not promising a paradise and delivering a dog.

The Northcote house was fantastic, it was just not as cheap as the advertisement indicated.

The practice is known as price banding, which involves real estate agents giving a low and high price, suggesting there is room for negotiation between them.

The commission considers it a breach of the Fair Trading Act if the vendor would never sell at the lowest price.

But Mr McPherson said the issue was not straightforward.



A price band of $210,000 to $230,000, when the vendor would not settle for anything less than $215,000, could be on the verge of breaking the law.

An agent could reasonably argue that such a band would not be misleading, as it was quite likely the vendor could eventually drop his or her minimum price to $210,000.

But a price band of, for instance, $150,000 to $210,000 would be misleading if the vendor's bottom line was $190,000.

"Would you honestly go down to $150,000? In our view, that's too much," said Mr McPherson.

People have complained to the commission after agreeing to sell their house through an agent and being horrified at the ridiculously low price advertised, which they would never sell at.

Graeme Woodley, vice-president of the institute, said his industry was no different from any other, in that it included a small minority of members prepared to use dubious methods to get a sale.

A concentrated effort had been made to educate members about the law, but there would always be some who paid no attention to the warnings.

The tough state of the housing market was no doubt partly to blame. Agents who were finding it tough to get people interested in any house were more likely to resort to exaggeration.

Institute figures show the industry has been in dire straits all year. Property sales in October were the lowest in five years. There were only 4887 sales nationwide, compared with nearly 7000 in 1996.

Industry players say the agents at the top end of the market, selling expensive homes, are not doing too badly. But most agents, who are trying to move cheaper family homes, are struggling.

Mr Woodley said the institute had been consistently warning its members to be careful when it came to advertising and using price bands.

Price banding was a practice that was imported fairly recently from Australia, he said.

He had heard of auctions advertised with "opening bids at $180,000" when the reserve price was much higher.

While someone might well bid at this price, the advertisement was dishonest.

When the dishonest agent got 20 people to attend an auction, and the honest person got none at all, it was tempting to start stretching the truth.

Senior property lawyer Alison Wallis, of Corban Revell solicitors, said the commission had made it quite clear that it took the practice of price banding seriously.

"I would advise real estate agents, in light of this view, to be very cautious when using the practice," she said.

Authorities are counting on the industry itself to dob in the cowboys.

The Orewa Property Shop's illegal beachfront advertising was reported to the commission by a competing real estate agent, a practice that does not surprise Mr McPherson.

"One thing that's happened as a result of the seminars is those who have attended them are far more aware of their responsibilities. We have seen an increase in competitors making complaints.

"That's fine, we've got no problem with that."

Competitors, as well as consumers, were hard done by when one member of an industry broke the law and used dishonest methods to attract customers.

Mr McPherson is blunt when asked how the commission will judge the success or failure of the crackdown on the real estate industry. "We will be happy with the industry when it starts indicating that it's complying with its responsibilities under the Fair Trading Act. And that goes for any industry."

Mr McPherson said buying and selling a home was one of the most important and expensive things a person could do.

The law was all about protecting the consumer from illegal tactics at the time of these decisions.

"Is there a bigger purchase that an average consumer makes in their lives? Not only does the industry have major, systemic compliance problems, but the potential detriment to consumers is huge, because it's the largest purchase that 99.9 per cent of us will ever make."