“Quote ’em low, watch ’em go; quote ’em high, watch ’em die” – an old phrase around the game of selling, and one that many property buyers or sellers may have experienced. But that is all about to change with the new underquoting legislation that comes into effect in Victoria on May 1.
Underquoting is a misleading practice that has been used in the past by real estate agents to lure a buyer to a property listed for sale or auction. How it works goes a bit like this: the agent quotes a price lower than what the property may be worth or lower than what the vendor may have instructed the agent they will take in order to create competition to attract as many ‘qualified’ buyers as possible. It’s a big and ongoing issue currently being addressed by many states of Australia.
In Victoria, where property prices have risen rapidly over the past 18 months, and where there has been evidence that underquoting has been rife for over a decade, Consumer Affairs Victoria has made moves to stamp out the practice by introducing legislation which comes into effect – 1 May 2017.
According to CoreLogic product architect Logan Lincoln who’s working with the Victoria government on the changes, “While the final guidelines have just been released this week by Consumer Affairs Victoria, CoreLogic has been working on a reporting tool to allow agents to quickly find comparable sales and create a compliant statement-of-information.
He added, “We’re working hard to ensure this tool will be ready in time for the 1st of May when all new listings will require a Statement of Information.”
So, what is Underquoting?
CoreLogic State Director Victoria, Geoff White says, “Underquoting can be a destructive tactic that not only tarnishes the industry as a whole and impacts heavily on buyers and sellers who are often tricked into spending big bucks on pre-property inspections; but it can also attract the wrong buyers to the property, causing considerable frustration for all concerned.”
He also added, “Ultimately, the only beneficiary of this tardy illegal practice is the agent who abuses customer trust in order to potentially embellish their profile.”
As defined by Consumer Affairs Victoria (CAV), underquoting occurs when an agent misleads a prospective buyer about the likely selling price of a property. Underquoting may also occur when a property is advertised or quoted to a prospective buyer at a price that is less than:
- the seller’s asking price or auction reserve price,
- the agent’s estimate of the selling price, or
- A genuine offer or expression of interest.
How is Consumer Affairs Victoria combating underquoting?
Following an increasing volume of Consumer complaints, CAV established Taskforce Vesta to examine the extent of the practice. The task force examined a number of properties for sale in Victoria, monitoring 200 properties online, and once sold, inspectors visited the selling agent’s office to examine sales files and other documentation, looking for underquoting breaches. Of the 200 properties, 176 were eventually sold, with:
- 27% sold within the agent’s estimated selling price,
- 30% sold between 0.1% and 10% above the estimated selling price,
- 26% sold between 10.1% and 19.9% more than the estimated selling price,
- 7% sold at 20% or more than the estimated selling price, and
- 10% sold at less than the estimated selling price.
Whilst these statistics are more likely in a buoyant market, according to CAV there have been instances of underquoting from the investigations undertaken. And so, new laws aimed at kerbing underquoting will come into effect.
What are the changes?
The changes to the Estate Agents Act 1980 will require agents to provide prospective buyers with an information statement about the property for sale, which includes:
- Three recent comparable sales (if metropolitan Melbourne, these properties must be sold within the last 6 months and located within 2 kilometres of the property for sale, and if outside of metropolitan Melbourne, these comparable properties must be sold within the last 18 months and located within 5 kilometres of the property for sale.),
- An indicative selling price, and
- The median price for the suburb.
The new laws will also:
- Ban advertising price ranges of more than 10 percent,
- Ban words or symbols in advertising such as ‘offers above’, ‘from’ or ‘+’, and
- Require advertising to be promptly updated if the seller rejects a higher written offer to purchase the property, or the agent’s price estimate changes.
According to Consumer Affairs Victoria, ‘real estate agents caught engaging in underquoting will face penalties of more than $31,000 (the equivalent of 200 penalty units) and risk losing their sales commissions. CAV will have new powers to require agents to demonstrate how they arrived at a property’s estimated selling price’.
Commentary provided by CoreLogic Australia.