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.
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.
Numerous buyers experience frustration when they participate in an auction and find themselves outbid.
This disappointment arises because they establish their budgets relying on the statement of information provided by the real estate agent, only to discover that the property’s actual value far exceeds the advertised price, catching them off guard.
The problem, however, does not originate from real estate agents; instead, it stems from lax enforcement and adherence to the laws by authorities: Consumer Affairs Victoria.
While it’s understandable that real estate agents may strive to maintain competitive prices to attract customers, there’s a need for action when their practices involve dishonesty regarding the actual value of the property.
Underquoting can occur when a property is advertised at a price that:
Under Victoria’s underquoting laws, estate agents and agents’ representatives have obligations relating to:
These laws complement the false and misleading representation provisions of the Australian Consumer Law (ACL). For more information, view our Advertising and representations page
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:
The Statement of Information must include:
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.
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:
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.
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:
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.
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.
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 Wise Real Estate Advice 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.
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
