KEY POINTS:
Q. I am in the process of selling my house. My "bottom line" sale price is $650,000 and my real estate agent has recommended that we advertise the house as "Buyer Inquiries over $550,000." Is there anything wrong with this advertising?
A. In some situations, advertising a "Buyer Inquiry" price which is lower than what the seller is willing to accept may amount to misleading conduct under the Fair Trading Act 1986. Whether it actually is misleading though, will depend on the particular facts of the case.
The High Court recently looked at this practice in Commerce Commission v Whitehead, an appeal from a decision of the District Court. A real estate agent had advertised a property using the phrase "Buyer Inquiry Over $380,000". The house eventually sold for $405,000, which was below the vendor's starting bottom line of $410,000 (including a commission of $10,000).
The Commerce Commission, which enforces the Fair Trading Act, prosecuted the estate agent under the Fair Trading Act alleging the advertising was misleading about the "price payable for land". Even though the estate agent was sued we see no reason why the vendor could not also have been sued if they both agreed to the advertising campaign.
In the District Court, the judge decided a Buyer Inquiry price of not less than 90 per cent of an expected sale price is close to or in the vicinity of the expected sale price and therefore the Buyer Inquiry price in this case was not misleading. On appeal the High Court was asked whether the District Court's decision was correct.
The High Court was unwilling to endorse the District Court's 90 per cent rule of thumb in every case but nevertheless found an advertised Buyer Inquiry price would be misleading if the seller had a "bottom line" price below which they would not sell their property, which was 10 per cent or more above the Buyer Inquiry price. So, in the example above, if the Buyer Inquiry price is $550,000 and the vendor will not consider offers lower than $650,000 the Buyer Inquiry price is likely to be misleading and potentially in breach of the Fair Trading Act.
The Commerce Commission has also argued that whether a Buyer Inquiry price was misleading, needed to be considered by the response to a prospective purchaser's offer. If an offer was made over the Buyer Inquiry price and was not accepted, the commission argued, the advertising was misleading. The High Court sensibly rejected this submission, but did go so far as to say that the seller must "give serious consideration" to any offer over a Buyer Inquiry price unless it has unacceptable conditions. The High Court did not decide if the advertised Buyer Inquiry price of $380,000 in the Whitehead case was in fact misleading and sent the case back to the District Court for a final decision on that point based on all of the facts.
So what does this mean for you? It is risky to advertise a price which is more than 10 per cent below any bottom line offer a vendor will entertain at any point in time. There is also a risk to vendors and agents who state a Buyer Inquiry price, where the vendor is not prepared to seriously consider any offers made over that price and where the offer has acceptable conditions.
Overall however the court has offered no rule of thumb to simplify what is and is not misleading. It will still be a question of fact in every case. That this case was taken however, shows that the Commerce Commission, will be prepared to prosecute real estate agents where it considers there has been misleading advertising.
For buyers, that hopefully means that Buyer Inquiry guides will not be used to lure buyers to a property where the vendor's bottom line is much higher.
* The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
