Are these the cases of real estate agent misrepresentation, or a buyer simply wanting to get out of a contract?
Real Estate Agent Misrepresentation: Underquoting
Melbourne businessman John McMurrick is suing eastern suburbs real estate agency Kay & Burton over advice that he says lost him $1.5 million on a Toorak mansion.
Mr McMurrick, a former Liberal Party donor, says Kay & Burton director Ross Savas told him he could sell the 46 Canberra Road property for between $7.5 million and $8 million after renovating it, but it only raised $6.5 million because the agent failed to take into account the effect a flooding overlay would have on its value.
The case comes amid growing scrutiny on the estimates real estate agents make. Melbourne real estate agency Hocking Stuart was this week hit with Victoria’s biggest-ever fine of $330,000 for underquoting the price of property sales to potential buyers.
Marketing a property for sale at a price that is less than the seller’s asking price, or if this is not known, the agent’s estimate of the likely selling price, is commonly known as underquoting.
Underquoting occurs when a salesperson:
- advertises a property is available for sale at an amount that is less than the vendor’s asking price or auction reserve price;
- advertises a price that is less than the salesperson’s current estimate of the likely selling price;
- advertises or continues to advertise a price that is less than a genuine offer or expression of interest by a prospective buyer that the vendor refused; and
- gives an inaccurate appraisal of the current market price of a property.
“Neither Ross Savas nor Kay & Burton disclosed to John McMurrick any factors which could impact adversely on the ability to achieve a sale in the price range as advised,” says Mr McMurrick’s writ, lodged with the Supreme Court of Victoria in February. “Because of the [flooding overlay], John McMurrick could not have expected to achieve the sale price estimate, and further or alternatively was not likely to achieve the sale price estimate.”
Mr McMurrick purchased the Canberra Road property through Kay & Burton for $3.9 million in March 2012, spent $4 million in renovation and holding costs, but only got $6.5 million when he sold the renovated four-bedroom dwelling in February last year. It was only in May 2014, when Mr McMurrick was having problems selling the property, that Mr Savas said the overlay – a planning instrument governing use of an area subject to flooding risks – was the cause, Mr McMurrick alleges in the writ.
He is seeking damages to cover his loss of nearly $1.5 million.
In its defence document, Kay & Burton says Mr Savas told Mr McMurrick in 2012 that the property could only sell for between $6 million and $6.5 million after renovation. It says Mr Savas was not requested to disclose any factors that could affect the sale price and it says Mr McMurrick knew of the overlay before buying the property.
It also shows the potential difficulty for real estate agents when they give advice about a property to a buyer when they are being paid by the vendor of the same property.
Real Estate Agent Misrepresentation: Loss of Deposit
In another case, a woman is suing a father, his son and a real estate agent after claiming a house she bought had a pontoon 1 metre too small for her boat.
Mrs Simpson signed a contract to buy the house in March for $1.875 million, documents filed in the Supreme Court in Brisbane show.
The lawsuit claims the pontoon is inadequate. In June her lawyers tried to rescind the contract after she became aware the pontoon was only 5 metres and her boat could not be lawfully moored permanently.
Lawyers for the vendor said no references were made in the contract about a permanent mooring and a float brick was being installed to meet her requirements.
After she did not go through to settlement, her $187,500 deposit was forfeited. The property later sold for $1.655 million.
Jordan Williams, of Kollosche Prestige Agents, was the real estate agent. The advertisement for the property said it offered a pontoon and “sheltered moorings”. When she inspected the property the pontoon was almost complete.
Documents say Mrs Simpson would not have moved into the house and made improvements had she known about misrepresentations over the pontoon.
The claim seeks refunding of her deposit, a declaration the sale contract was void, damages, interest on damages and costs.
What is Real Estate Agent Misrepresentation?
An advertisement will be compliant with advertising laws if it meets the test of truthfulness and does not attempt to hide or not disclose important information which would otherwise assist the prospective purchaser to make an informed choice.
Consequently, important information should not only be disclosed clearly using language that the reader will understand, but also not be hidden in the fine print.
Similarly, any limitations or exclusions in the offer being made should be disclosed and should not be hidden in the fine print.
The Court has adopted the following as a test to what is misleading “the advertiser must be assumed to know that the readers will include both the shrewd and the ingenuous, the educated and the uneducated and the experienced and inexperienced in commercial transactions”.
Agents cannot avoid liability simply by claiming that the buyer or consumer should have made reasonable enquiries and checked the information provided. Agents are responsible for their words and actions in their dealings with their clients.
Real estate watchdog Tim O’Dwyer says that making accusations of real estate agent misrepresentation is one of the more common ways buyers seek to cancel contracts. A real estate agent or seller’s misleading and deceptive conduct may allow buyer to terminate contract. In Nifsan Developments Pty Ltd v Buskey & Anor  QSC 314 (Nifsan), the Supreme Court decided that due to misrepresentations made by an agent on behalf of a developer, the contract for sale of a penthouse apartment was void. Representations were made regarding views that were held to be misleading and deceptive conduct, and the deposits were successfully returned and the contract made void.
In Queensland, a contract for sale of property will be considered void where:
- the evidence makes it clear that representations have been made;
- that the buyer has relied on those representations; and
- an agent made the representations on behalf of the developer, who knew they were false and were made with the intention to mislead.
Tim O’Dwyer cautions buyers to always read contracts carefully and to seek independent legal advice before signing anything. This is ultimately far less costly than litigation in court after the contract has been signed and can save you a lot of heartache and money.
If you need advice regarding a property transaction, please contact us for your free, ten-minute phone consultation.