By Phillip Leaman

20 November 2018

On 15 November 2018 the Federal Court handed down its decision concerning the case of Director of Consumer Affairs Victoria v Melbourne South Eastern Real Estate Pty Ltd.

What was the case about?

The case involved 20 breaches of the Australian Consumer Law for underquoting. The Agency had used ‘blind pricing’ in realestate.com.au listings and some display pricing which was not consistent with advice given by the agent to vendors. Blind pricing is the search parameters entered into by an agency on an online listing site so when a person searches (in this case, realestate.com.au) within a price range, certain listings which meet that criteria come up and listings outside that criteria are excluded. A purchaser who is looking for a house between $400,000 and $500,000 would enter that search parameter and hope to receive results for listings with an expected price in that range. The Court has found that the use of blind pricing is a representation by agents to prospective purchasers as to future matters and actionable by the Director of Consumer Affairs if agents get it wrong.

The conduct complained about was from 2014 to 2015, prior to the introduction of the new underquoting laws and Statements of Information. However, the case is a timely reminder of the problems that agents face when dealing with vendors and prospective purchasers.

What did the agent do wrong?

The agency had provided market appraisals to vendors with a certain price range. An authority was then entered into disclosing an estimate selling price. In some cases, the agent’s estimate selling price was not consistent with the market appraisal. In other cases, the vendor had provided instructions on the Vendor’s expectations on price and in one case, the vendor has specified categorically to the agent that they would not sell below a particular price. Notwithstanding the various prices, the blind or display pricing was in most cases substantially below the relevant selling price that the agent believed the property would sell for.

In disregard to the market appraisals, the agency in the 20 cases included blind pricing which was either less than the market appraisal, less than the estimate selling price or less than the likely sale price.

How did the case get determined?

The case was not heard on the merits as the agency and the Director of Consumer Affairs agreed on the orders including the penalty and it was up to the Court to consider whether the orders were just in the circumstances. What is useful is that the case highlights the Director of Consumer Affairs Victoria and the Court’s attitude to the use of blind pricing and the giving of market appraisals. The case also highlights what the Court and the Director considers to be representations to prospective purchasers and what is a breach of the Australian Consumer Law.

The Director of Consumer Affairs did not provide any evidence of actual loss or damage incurred by consumers. Had they provided such evidence, the penalties imposed may have been more substantial.

The Court found that the agent made representations to potential purchasers of the properties that the likely selling price or market value of each of the properties was the price or price range, which was generated in search results to those purchasers by reason of the blind price attributed to each property by agents employed by the agency.

What was ordered?

The agent was ordered to pay between $30,000 and $38,000 per contravention being a total of $720,000 which was approximately 3 times the amount of the commission obtained by the agent for the 20 properties sold. The agent was also required to implement a compliance program and a public notice would also be issued concerning the conduct.

The Court found that the fixing of blind prices on realestate.com.au involved deliberate conscious conduct, and conduct which occurred after having given quite different advice to vendors about what the market value and likely selling price of the properties were.

The Court found that the use of blind pricing, particularly when there was no prices displayed on the listing was capable of being more misleading, because it was a practice entirely hidden from consumers and was an attempt to conceal the underquoting from consumers and the regulator and more disturbing than underquoting on visual pricing on listings.

There were declarations of contraventions of Section 18 and Section 30 of the Australian Consumer Law.

It is important to note that there were several of the 20 cases of underquoting which had substantial underquoting issues. However, the Court found that one being a less extreme example was still sufficient to be underquoting and a breach of the Australian Consumer Act. The example was as follows:

  • An appraisal was provided with a selling price in the range of $420,000 to $462,000;
  • The three comparable properties had a sale price of $505,000;
  • The agent’s estimate selling price in the authority was $420,000 to $462,000;
  • The agent’s estimate selling price was reduced at some point to $395,000 to $434,000;
  • The vendor’s reserve noted on the authority was $480,000.
  • The property was advertised with a display price and a blind price. It started with $450,000 plus. The Court found that the price was appropriate and not a breach. However, a couple of weeks late for one day, the display price was dropped to $390,000 plus. The next day it was increased to $450,000 plus. Two days later it was dropped to $390,000 plus. The next day it was increased to $395,000 where it remained at that price until sold at auction for $452,500. The blind price used was $420,000 initially and then for the period up to the auction was $350,000.

The problem with what the agent did was the use of the $350,000 blind price. It is unclear from the case why the agent changed their estimate selling price to $395,000 but in hindsight and given the auction result, there is an argument that the estimate selling price should never have been dropped below the $450,000.

What can agents learn from the case?

Agents need to be careful when providing a market appraisal and ensure that the market appraisal represents a fair and genuine review of what the estimate selling price might be. Any prices provided in listings and blind pricing search parameters need to be consistent and in line with the indicative selling price.

It is important that every agency implements an underquoting compliance system. This system should include:

  1. Practical training which each employee undertakes with regular refreshing of that training on a yearly basis;
  2. Checklists and file reviews by someone other than the agent to ensure that all agents and staff are complying with the Estate Agent’s Act and the Australian Consumer Law and dealing with any issues of non-compliance before you are audited;

Does this case change an Agent’s obligations post the Estate Agent Act underquoting laws being introduced?

Whilst the indicative selling price in a statement of information now openly provides a representation to prospective purchasers of the likely selling price of a property, the case against agents can only be strengthened in a breach of the use of blind pricing. Agents need to ensure that they give consistent information to vendors and prospective agents so that market appraisals are consistent with estimate selling prices on authorities and which are consistent with indicative selling prices, display prices and blind pricing. The issue for agents will be when market conditions or interest in the property changes between when the various representations are made. There needs to be careful thought and evidence to justify changes in pricing representations. Had this conduct occurred post the underquoting law changes, there would have been further penalties imposed.

 

Tisher Liner FC Law have developed a comprehensive underquoting compliance package for agents which can be implemented to staff. We can also conduct training to agents on the issues faced by agents in complying with the Estate Agents Act and the Australian Consumer Law. Please contact Phillip Leaman for more information on the compliance package or training if you require assistance.

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