When a Real Estate Agent advertises a property at a price that is less than an estimated selling price, less than the sellers asking price or a price the seller has already rejected, it is known as Underquoting.
In short, 'underquoting' is when an agent intentionally or recklessly advertises a property at a price that is less than the vendor is willing to accept as a genuine offer.
The practice of underquoting is sometimes referred to as Bait Pricing because the agent's intention is to attract greater interest from potential buyers. Unfortunately this is a common practice in the Australian real estate industry.
Step Pricing is another unscrupulous practice undertaken by agents when a property is advertised at a low quote to attract potential buyers and then the agent gradually increases the price until auction day or the proposed sale date.
Most agents provide a Guide Price for properties they have listed for sale. The guide price can be posted on websites or in printed material. Guide prices can be a single figure price or a price range.
The key goal of a guide price is to achieve the best possible price for the seller by advertising their property to the largest possible audience.
The guide price does not necessarily indicate the price the property will sell for because the sale price is dependent upon the bidding at the auction.
In September 2019, the Victorian Government revised 'underquoting laws' to require agents to compare properties more accurately in their guide price.
Victorian real estate agents must prepare a 'Statement of Information' using the relevant approved form for each residential property that they are approved to sell. But this does not apply to primary production properties (farms, orchards etc) or commercial and industrial properties.
The Real Estate Institute of Victoria (REIV) backed the revised Victorian laws. The CEO of REIV, Gil King, stated that there are "very few agents who still engage in the heartbreaking scourge of underquoting."
However, Cate Bakos, President of the buyers' agent lobby group REBAA, maintains that while the stricter laws may deter some agents from underquoting, it didn't go far enough.
Ms Bakos says the new legislation is "still insufficient to quash underquoting practices. It still relies on the agent selecting comparable sales that are genuinely comparable." She maintains the changes do not stop agents from picking out compromised location addresses and different zoning types in their price comparisons.
(in AFR. 19 September 2019)
Reforms in NSW now mean that real estate agents who underquote may not only lose their commission, but they may also face fines of up to $22,000.
Agents will be required to maintain diligent record-keeping of conversations and methods of estimating the sale price. Advertisements that feature the terms "offers over" or "offers above" will be prohibited under the new regulations under the Property Stock and Business Act.
Under the new legislation, agents must quote prices within 10% of the lowest figure which will ensure that home buyers are not mislead to invest in property that is out of their price range.
Regular stories about properties that sold at auction for close to double their reserve price have put a spotlight on the Queensland real estate industry practice of 'underquoting'.
In March this year, Purplebricks was ordered to pay a penalty of $20,000 by the Queensland Office of Fair Trading after claims that the group had misled consumers.
Purplebricks is essentially a pared down version of the traditional real estate agent, dispensing with some of the expected agent services such as a personal relationship or a comprehensive marketing campaign. You pay a lower, fixed fee but if your property doesn't sell, Purplebricks still keeps your upfront payment.
However, the specific act that Purplebricks was convicted under was a Commonwealth Act and not Queensland laws.
It appears that neither the Queensland Government nor the Real Estate Institute of Queensland ('REIQ') have made any moves similar to New South Wales or Victoria to change laws to get rid of the 'scourge of underquoting'.
A Reserve Price is a hidden minimum price that the seller is willing to accept for an item. In a Reserve Price auction, the seller is only obligated to sell the item once the bid amount meets or exceeds the Reserve Price. A seller can lower, but cannot raise the reserve price.
Ms Bakos suggests underquoting could be dealt with by requiring vendors to state their reserve price. The agent would have a right to change the reserve price but changes must be implemented and reflected in the quote as a price guide.
Patrick Bright of EPS Property Search, a NSW buyers' agent, also supports the publishing of the reserve price for a property that is for sale.
"It has been argued 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.
Not only does real estate underquoting waste time and money, it also creates frustration amongst buyers who anticipate paying a certain price for a property only to be outbid or disappointed at auction.
Underquoting leads to mistrust between buyers and agents as many buyers are unwilling to trust the agent's quoted price prior to the sale."
It is even more frustrating, when a buyer's bid gets rejected for being below the vendor's reserve price, even though it is above the real estate agent's quoted range.
Allegations of underquoting often escalate when property markets begin to rise.
Intentionally or recklessly providing a misleading sales price estimate is a Breach of Australian Consumer Laws (ACL).
If you believe that an agent has underquoted the estimated sales price of a property, you can consult your local authority and file a complaint. Ensure that you can provide evidence that you consider the agent has provided false or misleading comparable sales prices in their 'guide price'.
On the eastern seaboard, your complaints regarding 'underquoting' of property prices or other real estate agent transgressions can be directed to:
Consumer Affairs Victoria
Fair Trading NSW
Office of Fair Trading – Queensland Government
Nila Sweeney. Victoria tweaks auction laws as market revives. Australian Financial Review. 19 September 2019
Researched, Compiled, Composed and Written by Dr Steven Gration – September 2019