Earlier this year we brought you a round-up of the issues facing estate agents in Victoria. One of the issues we highlighted was Consumer Affairs Victoria’s (CAV) investigations into underquoting. On 6 October 2016, the Federal Court handed down its first judgment arising out of those investigations, ordering Hocking Stuart (Richmond) Pty Ltd (HS Richmond) to pay a penalty of $330,000 for underquoting on 11 properties during 2014 and 2015.
HS Richmond carried on a small franchise business as a real estate agent, having entered into a franchise agreement with Hocking Stuart Pty Ltd. The proceedings against HS Richmond were commenced following a wider investigation by CAV into underquoting.
At the hearing in August, HS Richmond admitted to engaging in misleading or deceptive conduct and conduct involving making false and misleading representations by underquoting on the price range in the advertising and marketing of the 11 properties.
Following the admissions by HS Richmond, CAV submitted to the Court that HS Richmond should lose the commission it collected for the sales and be fined an additional $50,000 for each instance of underquoting resulting in a penalty of around $750,000.
HS Richmond submitted that no financial penalty should be imposed having regard to, among other things, the adverse publicity it had suffered, its admissions of facts which saved the Court the need for a hearing and its agreement to pay CAV’s costs of the proceedings.
When determining the appropriate penalty Justice Middleton considered, among other things:
- the seriousness of the conduct and the circumstances in which it took place
- whether there were any previous instances of underquoting
- the size and financial position of HS Richmond
- any profits made as a result of the contravening conduct
- HS Richmond‘s cooperation with CAV’s investigation
- the adverse publicity suffered by HS Richmond.
When considering these factors, Middleton J accepted CAV’s submissions that underquoting was a serious issue and was conduct that should not be treated lightly. HS Richmond had deliberately made price representations which were intended to create ‘the illusion of a bargain’.
Middleton J noted the practice of underquoting meant many consumers were likely to have been ‘significantly inconvenienced, disappointed and deceived’ and other vendors were likely to have missed the opportunity to get potential buyers into their properties.
In the circumstances, Middleton J concluded the appropriate penalty to be imposed was $330,000, representing a penalty of $30,000 for each instance of underquoting. Middleton J noted the penalty effectively took away the commissions received from the sale of the relevant properties (which totalled $148,044) and imposed a further penalty for the contravening conduct.
Underquoting continues to be a key focus for CAV with plans announced earlier this year to reform the price disclosure obligations under the Estate Agents Act 1980.
Accordingly, as discussed in our earlier update, estate agents should take particular care when:
- estimating the selling price of a property, for the purposes of their written authority
- making representations about the potential selling price of the property to both sellers and buyers.