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Outer limits: Potential liabilities for estate agents

Cover Story

Cite as: (2006) 80(9) LIJ, p. 33

Estate agents need to ensure their advertising practices comply with consumer protection laws.

By Toan Le

Estate agents need to ensure their advertising practices comply with consumer protection laws.
By Toan Le

The advertising of properties is an important aspect of a real estate business. In a competitive property management market, the financial success of many real estate agencies is built on the ability of their advertisements to capture buyers’ attention and interest in inspecting the property. A once-common technique used in the real estate industry to attract buyers’ interest in a property was to under-quote the likely selling price.

The legality of this practice was recently considered by the Federal Court in ACCC v Gary Peer & Associates Pty Ltd.[1] The decision by Sundberg J to declare that Gary Peer & Associates Pty Ltd (the respondent) had engaged in misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) (the Act), by falsely advertising the likely selling price of a property, put all estate agents on notice that their advertising practices needed to comply with laws that are aimed at protecting the interests of consumers.

The facts

Central to the case were two series of advertisements lodged in August and September 2003 by the respondent for the sale of a property in inner Melbourne. The August and September advertisements included the statements “PRICE GUIDE $600,000 Plus Buyers Should Inspect” and “PRICE GUIDE $650,000 Plus Buyers Should Inspect” respectively.

Both series of advertisements were published even though the vendors had given clear instructions to the respondent that they were seeking a sale price of between $780,000 and $800,000, and the respondent had appraised the property at $700,000.[2] In addition, changes to the advertised price of “$600,000 Plus” were made only after the vendors had rejected a genuine written offer of $750,000 on 27 August 2003 and had expressed their concern that the advertised price was too low and might not attract the right buyers. The property was passed in at auction for $781,000.

The applicant’s case

The Australian Competition and Consumer Commission (ACCC) alleged that the August and September advertisements had contained representations that the vendors were willing to sell the property for a price that was approximately or not substantially more than $600,000 or $650,000 and that the agent had reasonable grounds for making such representations.

The ACCC claimed that as this was never the case,[3] those advertisements were misleading and deceptive and, in making the representations, the respondent had contravened:

  • s52 of the Act which is directed at prohibiting corporations from engaging in misleading and deceptive conduct;
  • s53(e) of the Act which is directed at prohibiting false or misleading representations with respect to the price of services; and
  • s53A(1)(b) of the Act which is directed at prohibiting false or misleading representation concerning the price payable for the land.

The ACCC sought a declaration that the respondent had contravened those provisions and an injunction to regulate the respondent’s advertising practices for the next four years. In addition, an order was sought requiring the respondent to implement a compliance program.[4] 

The respondent’s submissions

The respondent did not dispute that it was acting “in trade or commerce” when it advertised the property.[5] The legal issues turned on whether the advertisements conveyed a representation as to the likely selling price and whether such representations were misleading and deceptive. In determining the first issue, it was essential to assess the words used in the advertisements in their whole context.[6] 

The respondent’s main submission was that the advertisements referred to the class of potential buyers invited to inspect the property and not to the vendors’ likely selling price or the estate agent’s opinion of the selling price.

To support this argument, the respondent contrasted the August and September advertisements, which had the words “Buyers Should Inspect”, with two other advertisements. One contained a bar chart divided into parts showing price ranges from $290,000 through $310,000 and $330,000 to $350,000, with the $310,000 to $330,000 range emphasised in black. The other advertisement was for five apartments in a single complex with a price guide stating “[f]rom $725,000”. By revealing the lowest price and the most likely price range that the vendors were willing to accept, the respondent argued the latter two advertisements were directed to the price of the property.[7] 

The respondent also used the auction/private sale distinction to submit that it would be unnatural to read into an auction advertisement a statement as to the likely selling price. In essence, the respondent argued that the selling price in an auction mode of sale is determined by the bidders and not by the vendor. As a result, it would be a departure from obligations for an agent to disclose the vendor’s likely selling price.[8] 

Finally, the respondent submitted that the information contained in the advertisements was merely an introductory feature and so should not be elevated to the status of a representation. This argument was supported by referring to Young J’s statement in Eighth SRJ Pty Ltd v Merity[9] that “it seems to me very difficult to allege that a newspaper advertisement which is designed primarily to tell people that a house is open for inspection should be construed as giving information other than preliminary information upon which a person should rely in order to enter into a contract”.[10] 

The decision

Sundberg J held that the advertisements had contained representations that were misleading and deceptive, contravening various provisions of the Act.

Section 52

By adopting the visually dominant phrase “PRICE GUIDE $600,000 Plus Buyers Should Inspect” or “PRICE GUIDE $650,000 Plus Buyers Should Inspect”, the advertisements had carried the representations that the vendors were prepared to sell the property for a price that was approximately or not substantially more than the stated price range and that the respondent had reasonable grounds for believing that was the case.

According to Sundberg J, the inclusion of the words “Buyers Should Inspect” did not deflect attention from the natural meaning of the phrase “PRICE GUIDE” – that is, it was a guide as to the selling price of the property.[11] The auction/private sale distinction was found to be not as clear-cut as the respondent had asserted, as a vendor may effectively disclose a likely selling price should the vendor wish to negotiate an early sale.[12] 

Furthermore, his Honour was not persuaded that the advertisement statements were merely “introductory”. In this respect, the statements made in the Pappas[13] and Eighth SRJ decisions were distinguished, as it was clear that words such as “Max living style with min maintenance” had little substance in them other than introductory puffery.[14] 

Conversely, the facts indicate that the vendors were aware that the price guide was directed at a likely selling price and the potential purchaser who had made a written offer of $750,000 on 27 August 2003 was certainly influenced by it.[15] 

The representations made by the respondent were representations as to future matters. As a result, s51A of the Act deemed those representations to be misleading and deceptive for the purposes of proving s52, unless the respondent could show it had reasonable grounds for making them. The respondent had failed to discharge this onus as it always knew that the vendors were not prepared to sell for less than $780,000 and it had appraised the value of the property at $700,000.

Furthermore, the respondent was aware that the property could have been sold for $750,000 before the September advertisements were lodged. It was not contested that $780,000, $750,000 or $700,000 was each substantially more than the advertised prices of $600,000 and $650,000.[16] 

Section 53A

In addition, the respondent had contravened s53A of the Act as the advertisements carried false or misleading representation about matters “in connexion with the sale or grant, or the possible sale or grant, of an interest in land”.[17] According to Sundberg J, the use of those words clearly indicated Parliament intended the prohibition directed in s53A to include pre-sale activities.

Section 53(e)

On the other hand, the respondent was found not to have contravened s53(e) of the Act, as Sundberg J agreed with the respondent that only the vendors could provide the service identified by the ACCC – that is, rights and interests in the property.[18] 

The penalty

Noting the respondent’s conduct could affect many members of the public, Sundberg J made a declaration that the respondent had engaged in misleading conduct in making the various representations.[19] The respondent was ordered to pay the ACCC’s costs.

Interestingly, an injunction and a compliance program order were not granted, as there was no evidence to suggest that the respondent was aware its advertisements were contravening the Act, no complaints were lodged, no person suffered a loss as a result and the auction was an isolated transaction.

But Sundberg J’s reasons for declining the additional orders suggest that estate agents engaging in the same conduct in the future can expect to face harsher penalties.

Amended Estate Agents Act 1980 (Vic)

The Trade Practices Act is no longer the only Act that can be used to prosecute the practice of deceptive under-quoting. Section 47A of the Estate Agents Act 1980 (Vic)[20] now requires an estate agent to ensure that the engagement states the agent’s estimated selling price or price range. This must be done before obtaining a vendor’s signature on an engagement to sell the property.

Section 47C of the same Act then prohibits the agent from marketing the property at an estimated selling price that is less than the estimated selling price or price range as stated in the engagement. The monetary penalty for contravening s47C is substantial.[21] 

As the new provisions came into effect in June 2003, after the occurrence of the conduct in this proceeding, s47C’s application was not considered. Interestingly, Sundberg J believed there to be a “serious question” as to whether the conduct in question would contravene s47C.[22] 

Perhaps s47C should be redrafted to clarify whether it is the agent’s or the vendor’s estimated selling price or price range that is stated in the engagement. It is not uncommon for the agent and the vendor to disagree on the value of the property. If such a situation arises, should the agent refuse to advertise the property at a price that is substantially more than the agent’s estimated price on the grounds that the agent may breach s47C?

On the other hand, taking this course would appear to result in the agent breaching reg 12 of the Estate Agents (Professional Conduct) Regulations 1997 (EAPCR), which prohibits an agent from offering to sell any real estate or business for a principal at a lower price than authorised.

The better view appears to be that the “price or price range as stated in the engagement” refers to the price that the vendor and agent have agreed on after considering all points of view. If the prospective agent and vendor cannot agree, the agent should decline to act for the vendor.

Implications for normal advertising activities

Without a doubt, the decision has delivered protection and certainty to prospective home buyers. The decision makes it clear that an agent’s advertised price must reflect the agent’s estimated selling price or the price at which the vendor is actually prepared to sell. In other words, there must be a factual basis for the advertised price.

The use of price range and phrasing like “Price Guide $600,000 Plus Buyers Should Inspect” would not protect the agent from contravening the consumer protection legislation and reg 12(3)(a) of the EAPCR 1997, when the agent knew the vendor would not sell below $780,000. An agent can construct a factual basis for its marketing strategies by taking certain precautions which the respondent in this case failed to take.[23] 

Foremost, the agent should obtain written instructions from the vendor about the price at which the vendor is willing to sell. This price or the estimated selling price range should be stated in the signed engagement to provide the agent with a factual basis to defend its pricing practices should an allegation of deceptive under-quoting arise.

In addition, the vendor should be encouraged to provide input into the marketing strategies of the property and written confirmation that the vendor will seriously consider all prices within the advertised price range should be obtained before advertisements are placed.

Finally, vigilant efforts are required to ensure that changes to the vendors’ reserve price are reflected in the representations made in advertisements. In particular, the advertised price range must not include a price that the vendors had previously rejected unless the vendors had indicated they are willing to reconsider that price.[24] 

The facts in this case demonstrate that adopting these sensible practices may not only protect an agent from legal liability but may advance the vendor’s interest by attracting the right class of prospective purchasers.

An important issue that may require further judicial consideration, however, is the degree of certainty or seriousness of an “offer”[25] before an agent/vendor is obliged to alter an advertised price/price range. Bearing in mind that the offeree may withdraw or refuse to sign a contract when it is presented, and that land contracts require greater formalities,[26] this issue has important practical implications for the marketing of real estate. No doubt, the courts will shed more light on this point in future cases.


TOAN LE is an associate lecturer at the Department of Business Law and Taxation, Monash University and a member of the Corporate Law and Accountability Research Group (CLARG).


[1] [2005] FCA 404.

[2] Note 1 above, at paras 18 and 61.

[3] Note 1 above, at paras 6 and 61.

[4] Note 1 above, at para 8.

[5] Note 1 above, at para 95.

[6] Note 1 above, at para 54.

[7] Note 1 above, at para 66.

[8] Note 1 above, at para 71.

[9] (1997) NSW ConvR 55-813.

[10] Note 9 above, at para 56,392.

[11] Note 1 above, at para 75.

[12] Note 1 above, at para 76.

[13] Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234.

[14] Note 1 above, at para 77.

[15] Note 1 above, at para 81.

[16] Note 1 above, at para 80.

[17] Note 1 above, at para 101.

[18] Note 1 above, at paras 90-97.

[19] Note 1 above, at para 106.

[20] Sections 47A and 47C were inserted into Part IV of the Estate Agents Act 1980 (Vic) by the Estate Agents and Sale of Land Act (Amendment) Act 2003 (Vic).

[21] A breach of s47C attracts 200 penalty units. For the 2006-07 financial year, the monetary value of a penalty unit is $107.43. See s5 of the Monetary Units Act 2004 (Vic) and Victoria Government Gazette G14, p680.

[22] Note 1 above, at para 110.

[23] The Real Estate Institute of Australia has issued Guidelines on the Trade Practices Act (2004), which prudent estate agents may wish to read. See http://www.reiaustralia.com.au/documents/REIA_Guidelines_on_the_TPA_as_at_13_August_2004.doc

[24] Note 23 above, at para 13.5.

[25] An “offer” may be made in a letter, over the phone or by word of mouth in the course of negotiations or mere conversations.

[26] See Walton Stores v Maher (1988) 164 CLR 387.

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