Real estate practices scrutinised

Media Release

Issued 20 December 2002-03 / 090

Real estate practices scrutinised:
High Court rules on fair trading breaches

In a High Court case taken by the Commerce Commission, Grenadier Real Estate Limited has admitted breaching the Fair Trading Act with respect to misleading advertising of a Lyttleton property for auction in November 2000.

Prior to the auction, advertising stated “Bidding from $110,000” when the rateable value of the property was $205,000 and the vendor expected a sale price of $230,000-$240,000. In addition, advertising following the auction stated that “Bidding reached $190,000” when all bids were vendor bids.

Director of Fair Trading, Deborah Battell said the Commission is challenging advertising practices within the real estate industry, specifically advertising that uses techniques such as ‘bidding from’ and ‘price banding’.

“The Commission considers that these practices are being used in some cases to try to entice interest in a property by giving an unrealistic signal as to what a property might sell for. If used improperly, these practices can be misleading and in breach of the Fair Trading Act,” said Ms Battell.

This result reinforces the findings in two recent judgements against Palmerston North real estate agency Century 21 Morris Realty and its agent Bette Ireland that real estate agents must accurately reflect a vendor's price expectations when advertising property.

In the Christchurch High Court yesterday, Justice John Hansen ruled against the Commission’s third cause of action against Grenadier relating to the manner in which Grenadier conducted the auction. In particular, the Commission had alleged that Grenadier’s method of signalling vendor bidding was likely to mislead people into believing that bids been received from other genuine prospective buyers.

Justice Hansen did agree, however, that an auctioneer’s terminology and conduct should never imply to people attending auctions that bids are genuine when in fact they are not.

Accordingly, the Commission will continue to monitor the way auctions were conducted.

“The Commission also notes that the Real Estate Institute is developing a code for the conduct of auctions and the Commission sees that as an opportunity for the industry to improve compliance with the Fair Trading Act”, Ms Battell added.

ENDS

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