Harsh consequences for underquoting

6 December 2018

In a recent underquoting blitz, NSW Fair Trading fined 89 real estate agents. the maximum penalty for this crime is $22,000.

Peter Moran from Colin Biggers & Paisley Lawyers says a recent decision made by the Federal Court of Australia in a case against an agent for underquoting is an important reminder of the consequences of engaging in this illegal practice.

In the decision*, the court found that a selling agent had (in property magazines and on websites) made various representations to potential purchasers about a number of properties they were marketing. Specifically, the agent had represented that:

The vendors were prepared to sell for the price range advertised
The vendors had instructed the agent to sell for a price in the range advertised
The agent was of the opinion the properties would be sold at the price range given
The likely selling price, or market value, of the properties was within the advertised range

However, prior to making these advertised representations, the agent had completed appraisals for the properties at substantially more than the price ranges advertised. As well, it was found that, prior to the advertisements being placed, the agent had received:

Interest from potential buyers for prices substantially more than the ranges advertised
An offer by a potential purchaser of one of the properties at a price substantially more than the range advertised
Instructions from vendors not to sell the properties below a price that was itself substantially more than the advertised price range
A signed authority from the vendors to this effect

Serious contravening conduct

Justice Murphy found that the agent's conduct was “plainly deliberate”.

“It advised vendors that underquoting was a strategy to heighten buyer interest and it deliberately provided false price estimates in the authorities so as to provide cover for itself against a charge of underquoting,” His Honour explained.

“It was intended and was apt to create the illusion of a bargain. It involved the deliberate creation of an enticing, but illusory and misleading, marketing web for the sale of nine homes.”

The judge recognised that, by now, potential property buyers should be taken to be aware that it is illegal for real estate agents to underquote in the residential property market.

“This will affect their reaction to price representations made to them. The practice of underquoting may significantly inconvenience, disappoint and deceive prospective buyers,” he said. “The practice of underquoting also affects the interests of other vendors and real estate agents who comply with the law and do not engage in underquoting. They suffer unfair and improper competition and may miss out on getting prospective buyers to purchase their properties as a result.”

Legal compliance comes first

One of the arguments raised by the agent in the case was that it was their responsibility to obtain the best result for their vendor clients, and this created a tension with its obligations under the legislation. Justice Murphy rejected the agent’s submission saying that while agents have an obligation to endeavour to obtain the highest possible price for vendors, they must operate in accordance with the law.

His Honour went on to say that he didn’t accept that it was likely that the agent had engaged in underquoting only for the benefit of vendors. “I infer that [the agent] was well aware that [they] stood to commercially benefit from the contravening conduct,” he said.

The result The case serves as a timely reminder of the severe consequences that may potentially flow from engaging in underquoting. Here, the Court restrained the agent from advertising in a manner that misled and directed them to publish corrective advertisements. The agent also received a pecuniary penalty of $160,000 and was ordered to pay legal costs.

Lessons from the case

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*Director of Consumer Affairs Victoria v Manningham Property Group Pty Ltd [2017] FCA 1448

DISCLAIMER: The information contained in this article provides only a general overview of the subjects covered. It is not intended to be taken as legal advice or advice regarding any individual situation and should not be relied upon as such.