Under the Fair Trading Act 1986, which statement about advertising property prices is correct?
Correct Answer
A) Price indications must include any GST payable or state clearly that it is extra
The Fair Trading Act 1986 prohibits misleading representations about price. Where GST applies, for example a new build sold by a GST-registered developer, a price that leaves GST out without saying so misleads buyers about what they will pay. Price indications must therefore include any GST payable or state clearly that GST is extra.
Why This Is the Correct Answer
The Fair Trading Act prohibits misleading representations about price. Where GST applies, such as a new build sold by a GST-registered developer, a price that leaves out GST without saying so misleads buyers about what they will pay, so it must include GST or state clearly that GST is extra.
Why the Other Options Are Wrong
Option B: The vendor's auction reserve must be published in the advertising for the auction
A reserve is confidential to the vendor; nothing requires it to be published, and publishing it would undermine the auction.
Option C: A comparative market analysis figure can be advertised as the guaranteed sale price
A CMA is an estimate, not a promise; advertising it as a guaranteed price would itself be a misleading representation.
Option D: A price range can be as wide as the agent likes, because ranges are only opinions
Rule 10.4 of the Client Care Rules requires an advertised price to reflect the pricing expectations agreed with the client, so a range cannot be set at will.
Deep Analysis of This Compliance Question
This question tests understanding of the Fair Trading Act 1986's consumer protection requirements in property advertising. The Act prohibits misleading or deceptive conduct in trade, which extends to how property prices are advertised. GST inclusion is crucial because properties sold by GST-registered entities (like developers or commercial property owners) must clearly indicate whether GST is included in advertised prices. This prevents consumers from being misled about the true cost. The principle connects to broader consumer protection frameworks that require transparency in all commercial dealings. Understanding these requirements is essential for real estate agents as non-compliance can result in Commerce Commission enforcement action, fines, and damage to professional reputation. This also links to the Real Estate Agents Act 2008 requirement for agents to act with due care, reasonable diligence, and in good faith.
Background Knowledge for Compliance
Most home sales by private owners carry no GST, but GST can apply where the vendor is GST-registered and supplies the property in the course of a taxable activity, as with a developer selling new homes. Commercial property is often sold 'plus GST (if any)'. The Fair Trading Act 1986 prohibits misleading price representations, and rule 10.4 of the Client Care Rules requires an advertised price to reflect the pricing expectations agreed with the client.
Memory Technique
Think 'GST: Given or Stated'. If GST is payable, the price either includes it or says clearly that it is extra, so no buyer is surprised at signing.
When you see questions about price advertising, immediately think 'Got to Show Total' and look for the option that requires full price transparency including all applicable taxes and charges.
Exam Tip for Compliance
For Fair Trading Act questions about advertising, always choose the option that promotes maximum transparency and consumer protection. Look for requirements to disclose all costs, fees, or conditions rather than options allowing concealment or broad discretion.
Real World Application in Compliance
A real estate agent is marketing a new apartment development where the developer is GST-registered. The agent advertises units 'from $650,000' but doesn't mention that GST of $95,000 must be added to each purchase price. Buyers attend the sales office expecting to pay around $650,000 but discover the true cost is $745,000. This violates the Fair Trading Act as the advertising was misleading about the total purchase price, potentially resulting in Commerce Commission investigation and penalties for both the agent and developer.
Common Mistakes to Avoid on Compliance Questions
- •Thinking an auction reserve has to be disclosed
- •Advertising an appraisal or CMA as a promise
- •Leaving GST out of a developer's price without saying so
Related Topics & Key Terms
Key Terms:
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