If you feel you’ve been misled by an agent underquoting a property’s price, you’re not the only one.
I’ve been to many auctions where the property sold for hundreds of thousands of dollars above what the agent had quoted?
And I know many disappointed prospective buyers who have missed out at auction by being misled by agents’ quoted price ranges.
The same happens when you make an offer close to what the agent indicated on a private sale, only to be told the owner is looking for considerably more.
Just to make things clear…
The practice of underquoting is where agents lure potential purchasers to look at a property (usually for sale by auction) with the suggestion that the property will sell for much less that they believe it will.
Underquoting is not when the agent thinks a property is worth $800,000 and advertises it as such – it’s “on the market” at auction at $800,000 and it sells for $925,000 – that’s not underquoting – that is the the competitive market at work and the result of using a good auctioneer.
Underquoting is illegal and many would say unethical, but it certainly still occurs today.
What is the rationale behind underquoting?
The aim is to attract a larger number of buyers and create a greater sense of competition for the property at auction.
However, many would argue that agents would be better off by quoting accurately to attract buyers who have the financial means to buy the property rather than those who are unable to afford the price range that the vendor desires.
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Underquoting is illegal.
New underquoting laws were introduced in NSW in January 2016 designed to stop real estate agents understating property prices.
But agents still managed to get around the rules.
As a result, last October a loophole that has been exploited by real estate agents to skirt underquoting laws was closed by the NSW government.
Agents found guilty of under quoting have been liable to forfeiture of any commission or fees from a sale, in addition to an existing penalty of $22,000.
Now its Victoria’s turn...
In Victoria underquoting has become such an issue that Consumer Affairs Victoria has cracked down on agents and changed its laws to make it easier for buyers to estimate a property’s price.
Effective as of 1 May 2017, Victorian real estate agents face a raft of new laws as the state government clamps down on underquoting.
- Estimate prices must be reasonable and take into account the sale prices of three properties that an agent considers to be the most comparable property of sale
- The estimated selling price must be included in the sales authority (the document that gives the agent permission to act on the seller’s behalf) and be a single price, or a range. A range must not vary by more than 10% e.g. $500,000−$550,000
- Banning of words such as ‘from’, ‘plus’, and ‘offers above’
- If the estimated selling price changes because it ceases to be ‘reasonable’, an agent must inform the seller in writing, update the sales authority and advertising
- The advertised price would also need to be updated within one business day if a higher offer is rejected at any time.
Statement of Information
Agents must also prepare a Statement of Information, which must be:
- displayed at all open for inspections
- included with online advertising
- given to a prospective buyer within two business days of a request
- updated if there is a change in the indicative selling price.
The Statement of Information must include:
- an indicative selling price for the property. This may be a single price or a price range of up to 10 per cent. It must not be less than:
- your estimated selling price
- the seller's asking price
- a price in a written offer that has already been rejected by the seller.
- details of the three most comparable properties, including the address, date of sale, and sale price;or - if you did not take into account three comparable properties when setting the estimated selling price - a statement outlining that you reasonably believe there are less than three comparable sales within the prescribed period
- the median house or unit price for the suburb. This may be for a period of between three to 12 months, and must not be more than six months old.
These new laws will mean that from May buyers should be able to rely on correct information to make an informed decision, and hopefully we will see a diminishing, if not an end to the inconvenient and often costly practice of underquoting.