The once frequent practice of underquoting, in order to unfairly attract buyers, is hopefully behind us.
Consumer Affairs introduced new regulations in May 2017 to shut it down.
Since then a few real Estate Agents have been prosecuted in widely publicised cases. One Melbourne company was fined $880,000 for retrospective offences dating back to 2015.
Underquoting had to end
Consumer Affairs moved against underquoting because it was manipulative. For some Real Estate Agencies it had become standard procedure. Some agents argued that underquoting is not deceptive, because home buyers have to do their homework during the process of finding and viewing properties for sale. And this gives then a realistic idea of values.
Some Real Estate Agents would argue that if a price keeps rising past its quoted value, during an auction, or with successive offers when it’s a private sale, then that is just market forces in play.
But in the cold light of day, underquoting is not just unfair to buyers, but also to other Real Estate Agents.
Any agent who underquotes pulls buyers away from other properties that have been quoted correctly. Then, when attending an auction with hopes to purchase, those buyers simply get blown out of the water.
Underquoting when the market is moving
But Real Estate Agents can find themselves between the proverbial rock and the hard place. Because in a moving market it’s not always simple to place an exactly accurate value. Almost every weekend in Melbourne there’s an auction where the reserve is smashed by up to 10%. So did underquoting apply there or was it just a rising market?
Melbourne home values increased across 2017 by 10%, sometimes this winding upward in home value can jump out and show itself a bit unexpectedly. If it’s a heated, rising market, some buyers will leap in and pay 20% or more over the estimated value to secure that really desirable property.
And the water can become muddied. Buyers might look at a home quoted at $1 million and figure that it’s likely to be underquoted, then add 20% or 30% on top of the million, and then just figure the home’s not worth it. To counter this type of buyer reaction, a Real Estate Agent will then quote a similar property at $750,000 knowing buyers will add 25% or so, bringing the home up to its realistic value of around $1 million.
It’s much better to have a system where clarity is the goal and the playing field has a level starting point.
After that, market forces will still play their role.
Real Estate portal price listings can blur values
Also muddying the water is how prominent property websites structure price search criteria. The way they cluster price ranges does little to help Real Estate Agents quote accurately.
An example of this is how Realestate.com.au’s price search increments above $1 million previously went up in increments of $250,000. Of more recent times this has been adjusted to $100,000 increments.
Above $2 million, the increments previously rose by $500K increments now they been asdjusted to $250K ikncrements.
Above $3 million, they previously went up in $1 million increments – not it’s been adjusted to $500K increments. Therefore, previously when a buyer has a $3.5 million budget to buy a property they had to key in a $4 million price search as a maximum price. No Real Estate Agent wants to have a property slotted in a higher price/search category simply by default, just to fit in with a web search mechanism.
So with new underquoting regulations brought into play the key real estate portals have also fallen into line.
The new regulations mean quotes must be tighter
The rules introduced in May 2017 require that a ‘Statement of Information’ accompanies all online advertising and also displayed at the open-for-inspections.
This is in line with how the current mandatory Disclosure Statement is displayed.
The Statement of Information covers Sections 47AF of the Real Estate Agents Act of 1980 and includes:
• An Indicative Selling Price, presented as a single figure, or, within a 10% range.
• The median sale price for the suburb. Median estimates can differ a bit, depending on the source. The source must also be indicated.
• Three comparable property sale examples have to be provided, from within a two kilometre radius and the last six month period.
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