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

    Real Estate agents told to drop pricing tricks

    18.02.06
    By Anne Gibson

    Real Estate agents who trick house buyers by advertising false low prices have been given a warning by the Commerce Commission to stop the practice or face legal proceedings.

    To show it is serious, the commission is bringing court action against one agent next month.

    The commission and the Real Estate Institute are concerned that potential buyers are being fooled about price expectations on some houses advertised under the "buyer inquiry" format. That can happen when agents advertise houses at well below the minimum price the vendor hopes to sell for.

    As a result, disgruntled house hunters waste time investigating properties they mistakenly believe they can afford.

    Real Estate Institute president Howard Morley condemned misleading property advertising, saying any agent who acted deceptively deserved punishment.

    "There's no room for misleading and if this has been done, those who are doing it need to be brought to task," he said.

    The commission is taking agent Tim Whitehead to court for allegedly making misleading suggestions about the price a house would sell for.

    Mr Whitehead is to appear in the Wellington District Court on March 22.

    The commission claims that he advertised a property with a "buyer inquiry over" or "buyer inquiry of" $380,000, even though he knew the vendor would not accept less than $400,000.

    At the time, Mr Whitehead was working for Harvey Group member Celestine Realty on Kent Tce, Wellington.

    Ross Barraclough, a director of Celestine and Harveys, defended Mr Whitehead, saying he was trying to sell a house initially advertised for $450,000 which drew little buyer interest.

    A disgruntled buyer - not the vendor - had complained about the price advertised.

    Mr Whitehead refused to discuss the case.

    Mr Barraclough said advertisements were placed in the Dominion Post and Property Press in early 2004 asking for buyers from $380,000 at a time when the market was fiercely competitive.

    "I don't believe anyone was hurt. A friend who is a barrister said it was the best thing we could ever do to give some price guidance because otherwise people are just flying blind."

    The commission said it had decided to prosecute Mr Whitehead and seek a settlement with Celestine Realty, although Mr Barraclough also denied the commission had sought any settlement with Celestine.

    A commission spokeswoman said Mr Whitehead had pleaded not guilty to breaching the Fair Trading Act when he made an initial appearance last year. In 2000, the commission launched a campaign to eliminate misleading price banding, saying it considered the Fair Trading Act had been breached if the vendor would never sell at the lowest price on the band.

    Australian real estate ethics crusader Neil Jenman said the buyer inquiry deception had been so widespread there that the Australian Competition and Consumer Commission took legal action.

    "Agents believe that lying on price is almost essential. How else, they argue, do they attract sellers other than by over-inflating the likely selling price and how else can they attract big crowds of buyers other than by under-quoting the likely buying price?"

    But Gary Ahearn, a director of the RE/MAX NZ real estate chain, said the case against Mr Whitehead dated back two years and criticism of buyer inquiry advertising was not entirely justified because an initial price expectation could change through the sales process.

    He cited his own case of selling an Australian home for $85,000 less than he originally asked because he had found a house in New Zealand.

    "Agents need to educate the buying public that if they ask for a range, we can't be stuck to it and if vendors give a price range, then that range should be flexible," Mr Ahearn said.

    He called for the institute to take a firm stance. "Don't hold the agents to the range."

    http://www.nzherald.co.nz/section/st...ectID=10368976
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    This is Brilliant..... I support this action being taken... I viewed a property recently with a BEO of $365,000 and upon further enquiry I find out that the vendor actually has an expectation of around $440,000.

    I believe the agents are very dishonest and gutless not to put a price on houses. These guys are supposedly "professionals" and they want to be treated as professionals so they need to act accordingly. They say they use BEO because they have no idea what the market may achieve on a particular property, but they should know, I know the difference between a $365,000 house and a $440,000 and so do they.

    Aston

    Comment


    • #3
      This should also extend to RealNZ and other web based searches.
      When you enter a price range that you are looking for, properties with higher prices also come up...
      Christiana (Lekker22)

      Comment


      • #4
        I’m the last person to support agents.,..
        but in this case a 20K mismatch on 400K home is not a big deal.

        What’s that… 5%?

        ...who cuts it to the line by 5%.

        There is a large likelihood of a 5% shift …
        Even if it’s 2.5, by both parties.

        This is a daft prosecution…

        Now a 15 % variance on the other hand… I could see that as actionable.

        Comment


        • #5
          This pending court case grabs my attention. McDuck has already jumped in to make a very valid point, one which I was also going to make. As I like the sound of my own voice, I will elaborate on his post and add some more thoughts of my own.

          First, we all have to be careful not to jump to conclusions. There may be more to this, and to Aston’s example, than meets the eye. Trial by media, TV or propertytalk.com can be grossly unfair. But based on what we have been told, I feel a little sorry for
          Mr Whitehead and the agency he works for, Celestine Realty. Some comments follow.

          The agent’s primary job is not to say what a property will sell for, or even to give a valuation – that is a valuer’s job. He does though need to know to a reasonable degree of accuracy roughly where the market value is, and he needs to advise his client, nearly always the vendor accordingly. The agent needs to market the property so as to obtain the best available price, unless he has clear instructions from the vendor otherwise.

          It is impossible for him to say what the final sale price will be, and very difficult in a volatile market even to be accurate to within about 10%. There is a comment in the article about how vendors will change their minds on price while the property is on the market. This is just one of numerous potential variables. So, again, how can the agent be expected to state categorically what the final sale price will be, or indeed what the vendor’s expectations are?

          Mr Jenman is quoted as saying that agents are liars. Blunt language like this appeals to the ill informed masses who flock to buy his books. The more savvy will realise that nothing in life, especially not in real estate, is that black and white. The property industry is nearly always characterised by various shades of grey.

          To return to the examples we see here above. I believe they are quite different. In Aston’s example, the price mentioned by the agent and the final sale price are so far apart that questions would certainly need to be asked of the agent.

          The example with Mr Whitehead is not that far apart, as McDuck says. I believe the agent was within his rights to state that price as a starting point, especially when you consider the multitude of ways the situation might change.

          Who can say that they have never told a lie, or given misleading information to a seller, a buyer, an agent, a lawyer perhaps too, at some time during your career as an investor. It happens all the time. I have often said: “I’ll offer $300,000 and that is my absolute top.” (But known that I will pay $320,000, but the situation suggests that I might get away with $300,000).

          Anyway, to cut myself short here, in summary, I think this agent will rightly feel aggrieved if he is found guilty. Unfortunately I am not the Judge nor am I on the jury.

          xris

          Comment


          • #6
            Advertising house for $20,000 less than expected 'not misleading'

            Advertising house for $20,000 less than expected 'not misleading'
            Thursday July 6, 2006
            By Anne Beston and NZPA

            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.

            Source: NZ Herald (7 July 2006)

            Comment


            • #7
              Hi All,

              What do you think of this?

              I'm not quite sure what to think. The judge's written decision included the claim that "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". I think that this will be likely to mislead potential buyers. If the agent in question had asked for buyer inquiries over $360,000 this would still be within 90% of the vendor's bottom line - yet I think that $40K is quite a way off.

              However, we have all heard stories of vendors who say that they will not sellf for less than $N, but then end up doing so. And you don't hear of anyone complaining about paying less than the advertised price for a house.

              Just my thoughts, which as I say are all over the place on this one.

              Paul.

              Comment


              • #8
                Hello SuperDad,

                Thanks for bringing this article to us. It follows directly from an earlier thread started when the agent was first charged. There were some comments on that charge at the time.

                http://www.propertytalk.com/forum/showthread.php?t=5933&highlight=whitehead

                Moderators…any chance of combining the two threads?

                I have to admit to a slight feeling of smugness having just reread my original opinion on this case and then having read the Court’s decision. It is interesting to read David Russell’s comments on the Court’s findings. For somebody whose opinions I have until now respected a lot, I think he has let himself down here by making statements which, in my opinion, defy commonsense. To compare the sale and advertising of goods in a shop with that a $300,000 home, and say they are both the same, is quite silly. For that reason I cannot but agree with the comments of Howard Morley.

                Perhaps the saddest thing about all this, is that the Commerce Commission could have chosen to use as a test case any number of other very clear cut example of misleading marketing techniques. Instead they used Mr Whitehead. An ‘innocent’ man was put to a lot of unnecessary trouble and worry simply for doing his job and in the end the CC did not get a finding in its favour anyway.

                The only positive thing to come out of this is that a clear guideline (10% leeway) has been given which will give some certainty to the Real Estate industry and to the general public. That may have been the CC’s intention all along, but why did they have to go about it in such a clumsy and amateur way?

                xris

                Comment


                • #9
                  This is a hard one to judge because people continue to move the post's when in negotiation for a property.

                  The price could be $400,000 one day and $380,000 the next.
                  Also there is a lot more to negotiation than the price, but I think that if we are going to have a rule then within 5% would be fine.

                  Steve

                  Comment


                  • #10
                    I think the commerce commission has missed the point - the price for a property is the price between a willing seller and a willing buyer - so the price will always vary depending on both sides circumstances - in this case 5% seems very very low - I always add 10-20% to a property's BBO . . Its the same with cars - my car may be worth $10k - but if I am leaving the country tomorrow I may well sell it for $7k - even if previously I said I would take no less than $9k... Houses are the same but people are more emotional about them. If commerce had won this we would be back to no prices - I know agents cant advertise with a range unless they will accept any price in the range so what are they left with ?

                    I'd be much more interested in the Commerce Commisision chasing up the professionals used for due diligence who get it wrong and therfore cost the the buyers lots - e.g. why is there no proper standards for building inspectors ? Perhaps Commerce could fund some courses on negotiation - many white middle class NZers seem incapable of negotiating without making it personal - I found that all that time negotiating in the markets of India and SEA way useful when I got into buying real estate in this country !
                    Lis:

                    Helping NZ authors get their books published

                    Comment


                    • #11
                      Originally posted by xris
                      Moderators…any chance of combining the two threads?
                      Done.......
                      Lisa

                      Comment


                      • #12
                        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."
                        Why do you think there is an expectation that there would be a new case for the Commerce Commission if the price paid is more than 'buyer inquiries over price' + 10%, or am I reading that wrong?

                        Is there a case to answer if you overpay from the price advertised?

                        Comment


                        • #13
                          Now that there is a precedent, there will be some certainty.

                          Where you see BEO $x, add 11.11111 percent to arrive at the vendor's "absolute bottom line" and go from there.

                          cube
                          DFTBA

                          Comment


                          • #14
                            Originally posted by cube
                            Now that there is a precedent, there will be some certainty.

                            Where you see BEO $x, add 11.11111 percent to arrive at the vendor's "absolute bottom line" and go from there.

                            cube
                            Nice work cube

                            Comment


                            • #15
                              Originally posted by cube
                              Now that there is a precedent, there will be some certainty.

                              Where you see BEO $x, add 11.11111 percent to arrive at the vendor's "absolute bottom line" and go from there.

                              cube
                              Hello cube,

                              I am not sure if this is meant to be humorous because if it is not it is not logical and misses the point of the Court's decision. Many buyers following that rule would probably end up paying a lot more than they needed to, much to the delight of the vendors concerned.

                              I think we need to remember that this was a District Court decision which may be appealed by the CC to the High Court. The laboriously plodding steps of the law moves on, and on, and on.

                              xris

                              Comment

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