Underquoting, How Agents Are Getting Away With It.

Underquoting is the act of publically advertising the price of a property as below its estimated sale price, or how much the seller is willing to accept. The property market is of course speculative, but many real estate agents deliberately under-price their properties to entice buyers and drive up the price of the home.

 

This is a huge problem in the real estate industry, and gives many buyers the false impression that they can afford houses that are well above their budgets. Many buyers are frustrated when they lose at an auction because they set their budgets based on the statement of information the real estate agent provides, but are immediately blown out of the water because the property is worth significantly more than the advertised price.

 

The issue however lies not with the real estate agents, but their governing body: Consumer Affairs Victoria. It is only natural that real estate agents will try and keep their prices low in order to win over customers and be competitive in the market, but when it comes to being dishonest about the realistic price of the property, then something needs to be done.

Underquoting

Underquoting can occur when a property is advertised at a price that:

  • is less than the estimated selling price
  • is less than the seller’s asking price
  • has already been rejected by the seller.

Under Victoria’s underquoting laws, estate agents and agents’ representatives have obligations relating to:

  • the estimated selling price
  • comparable property sales
  • a Statement of Information for prospective buyers, and
  • advertising prices, terms and symbols.

These laws complement the false and misleading representation provisions of the Australian Consumer Law (ACL). For more information, view our Advertising and representations page

Source: https://www.consumer.vic.gov.au/licensing-and-registration/estate-agents/running-your-business/advertising-and-representations/understanding-underquoting

Some of the most common instances of underquoting include advertising a house below the seller’s asking price. Then when a buyer makes an offer around the advertised price, the real estate agent claims that other buyers have made better offers and suggests submitting a higher offer.

 

Another common time this occurs is at auction. The reserve price of a house is almost always much higher than the advertised price so bidders are misled to think that they have a fighting chance.

 

This kind of behaviour is rampant in the property industry and it seems that Consumer Affairs is aware of the issue, but neglect to monitor or enforce their own laws (Australian Consumer Laws).

 

All you need to do is attend one auction to see the problem. Selling agents will use the Statement of Information (a legal requirement) to misrepresent what the property is worth. There are certain rules about how to prepare a Statement of Information. Here are the guidelines from the Consumer Affair’s website:

Agents must prepare a Statement of Information, in an approved form, for each residential property they are engaged to sell, regardless of whether the property is advertised for sale.

The Statement of Information 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:
  • the agent’s 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 the agent did not take into account three comparable properties when setting the estimated selling price – a statement outlining that they reasonably believe there are fewer 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 and 12 months, and must not be more than six months old.

An agent selling vacant land with approval or plans to build a house or unit must complete the Statement of Information in the normal way and, if the land has approval for a house, use the suburb median price for a house; if it has approval for a unit, they must use the unit median price.

Source: https://www.consumer.vic.gov.au/licensing-and-registration/estate-agents/running-your-business/advertising-and-representations/understanding-underquoting

As property professionals, we constantly see real estate agents misuse the Statement of Information to drastically underquote the value of their properties. It’s as simple as using ‘comparable’ properties which sold below market value to justify price estimates. The issue is that the properties they use are not actually comparable when examined closely. Some real estate agents even convince a seller to lower their asking price to drive up the demand.

 

The process of valuing a property can be complicated and subjective to a certain degree, but when houses are constantly selling significantly above their estimate price, something is going wrong.

 

The Statement of Information is supposed to provide buyers with an indication of the expected price of the property, and an idea of what sort of offer they should be considering. But even a little digging into recent sales history shows there is seldom a correlation between the Statement of Information and the final sale price.

 

As buyer’s agents, we are constantly having to adjust the client’s expectations to meet the reality of the property market. Finding a quality house online and then realising you’ll have to pay $100,000 or more above the ‘estimated price’ is quite disheartening.

 

So why does Consumer Affairs ignore this issue if they claim to be aware of it?

 

Who knows? Maybe they’re not aware of the extent of the problem, or that it happens at hundreds of auctions every weekend. They clearly define underquoting on their website and outline how to present a proper SOI, but fail to enforce these laws.

Enforcement and penalties

If we decide to investigate an agent’s conduct, we may ask them to justify any pricing information that they gave to a seller or buyer, such as:

  • the estimated selling price
  • the indicative selling price, or
  • the comparable property sales selected by the agent.

Agents who do not comply with underquoting laws risk a penalty of more than $31,000 (200 penalty units).

For more serious offences – such as setting an unreasonable estimated selling price, or advertising a property below the estimated selling price – agents may also lose any commission received for selling the property.

We regularly inspect businesses to check that they are complying with our laws, or to investigate when there are signs that a business may not be doing so. For more information, view our About inspections page.

Sounds all well and good, yet real estate agents get away with exactly what they are describing on a weekly basis. A penalty of $31,000 seems like a reasonable deterrent but real estate agents have quickly learnt that Consumer Affairs do little to police this issue. Notice that Consumer Affairs has written ‘if we decide to investigate an agent’s conduct.’ This doesn’t seem like a rigorous approach to dealing with such a big issue. The instance of dishonest real estate agents being fined for this behaviour is far and few between.

 

At WiseREA, we have made several attempts to flag this issue with CA through their complaints process but have received no adequate response. Perhaps they are just lazy and think it is not worth investigating the obvious problem.

 

But it must be investigated because it is the consumers (i.e. Buyers), the people that Consumers Affairs are supposed to be looking out for, who suffer when real estate agents are allowed to get away with this behaviour. It aids in forming housing bubbles and creating a property market where properties are bought well above their market value.

 

 

We have recorded some auctions we attended in order to show the public how bad this problem is.


How to protect yourself from underquoting

 

As bad as the problem is, you still need to protect yourself from wasting time and over-paying for a property until Consumer Affairs cracks down on this behaviour. Here are a few things you can do:

 

  1. Consult an expert

 

Talking to a buyer’s agent or real estate agent not connected to the property will give you a better idea of what the property is really worth. Buyer’s agents are experts in researching property and have access to historical data which will give you a much better estimate of how much the property will sell for. Because they charge a flat fee, they don’t benefit from misrepresenting the price of the property and they will give you an accurate appraisal.

 

  1. Do your own research

 

It won’t take much too much effort to research sold properties on https://www.realestate.com.au/sold/ in the suburb you’re looking to buy in. Just look for houses with the same number of bedrooms and in similar condition, within a few kilometres of the property you’re considering, and you’ll quickly be able to tell if the real estate agent is being genuine or not.

 

  1. Ask real estate agents for evidence

 

Real estate agents should be able to explain to you how they came up with their estimated price. If they are unwilling to explain to you, hesitate or make excuses, you should be wary of dealing with them. You could report them to Consumer Affairs, but in our experience. This is ineffective.

 

 

 

At WiseREA we are dedicated to dealing in good faith and implementing best-practice when dealing with clients, real estate agents, and all the governing bodies – including Consumer Affairs. We expect the same in return, but that is simply not happening as Consumer Affairs continues to ignore this problem and neglects to enforce its own laws. We intend to hold CA accountable to their inaction so that we may begin to enforce the standards that are in place to make the property market an ethical and level playing field.

 

You’re actively in the market trying to buy a house. Your finance is approved and you’ve done all the hard work of attending open for inspections and finally found your dream home. Come auction day, the house sells $120,000 above the agent’s asking price.

You ask yourself ‘what happened?’ After a few months you realise there is a common pattern with agents and how they quote properties well below try market value.

At Wise Real Estate Advice, we ensure all boxes are ticked and that sincere care is taken when providing a buyer with the wise advice and action required throughout the buying process. To speak to one of our friendly buyer’s agents click here to fill out an enquiry form or just simply call us on 1300 00 WISE. 

By Mark Ribarsky

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