The Victorian government is taking a stand against a controversial practice in the real estate industry: underquoting. This move aims to protect homebuyers from a widespread issue that has been plaguing the market. But here's where it gets interesting - will the proposed guidelines make a difference, and can they truly eradicate this problematic tactic?
Underquoting is a strategy employed by some real estate agents, where they advertise a property's price lower than its estimated selling value or the owner's asking price. The goal? To attract more buyers and create a competitive environment, potentially driving up the final sale price.
Michael Fotheringham, director of the Australian Housing and Urban Research Institute, sheds light on this practice: "Many people experience auctions where the opening bid surpasses the predicted range, or the final bid aligns with the predicted range, yet the vendor declines the sale due to not meeting the reserve price."
However, Fotheringham clarifies that a property selling above the predicted range doesn't automatically indicate underquoting.
Graham Cooke, head of consumer research at Finder, emphasizes the prevalence of underquoting in Australia, especially in the auction market. He states, "It's a huge issue. Everyone buying a home, especially in the auction market, assumes agents will deliberately underquote to attract more bidders and drive up the price."
A recent analysis by Guardian Australia reveals that underquoting is most common in Sydney (20% of sales) and Perth (18%), while it's least prevalent in Canberra, Hobart, and Darwin. The analysis also found that the price mismatch is worse for houses compared to townhouses or apartments, and it's more likely to occur during auctions than private sales.
So, is underquoting illegal? Yes, it violates federal consumer law, and most states have additional regulations to discourage this practice. In NSW, agents who underquote face fines of up to $22,000 and may lose their commission and fees from the sale. In Victoria, agents risk fines over $11,000 per breach or penalties exceeding $38,000 under the Estate Agents Act.
Despite these regulations, Cooke argues that underquoting persists. He believes stronger oversight is necessary, stating, "You need a more realistic idea of the price a property owner will accept before attending an auction."
Fotheringham agrees, emphasizing the need for more scrutiny in how price estimations are created. In Victoria, Consumer Affairs received approximately 2,500 "contacts" regarding real estate agent conduct in the 2022-23 financial year, with most related to underquoting.
The new guidelines in Victoria require agents setting a reserve price to consider factors like the dwelling's floor and land size, zoning, and proximity to key infrastructure. The estimate must be reasonable and based on the sale prices of three comparable properties listed in the Statement of Information for prospective buyers.
Consumer Affairs Victoria will have the power to investigate instances of underquoting.
Industry experts like Fahey Younger, a buyers' agent, advocate for more regulation to ensure transparency for buyers. She says, "We're watchdogs of our own industry. Most complaints come from other agents because it reflects badly on all of us."
Younger suggests that repeat offenders are often known within the industry but there's no way for buyers to check. She calls for more powers for state watchdogs to investigate and proposes a disclosure log to publicly disclose fines and penalties.
Some propose using initiatives like RealAs, an algorithm-based property price predictor developed in conjunction with RMIT in 2011, to improve oversight of price estimations.
Fotheringham believes that increased regulation of comparable prices and an investigative body could help eradicate underquoting. He states, "Having scrutiny and accountability seems like a good approach."
So, what can homebuyers do to protect themselves? Cooke advises prospective buyers to research comparable sales and consult trusted professionals. He suggests checking automated price estimates for properties rather than relying solely on agents' price guides.
Younger recommends that buyers in Victoria examine the comparative properties listed by the agent to assess their realism. She states, "The statement of information provides valuable insights into the current market price and what's fair. If the properties are above the quoted range, it's likely an underquoted listing."
Cooke encourages people to report suspected underquoting to the appropriate government bodies in their state or territory. He believes that reporting is crucial to putting an end to this practice.
The Victorian government's crackdown on underquoting aims to restore transparency and fairness in the real estate market. While the proposed guidelines are a step forward, only time will tell if they effectively address this controversial issue. What are your thoughts on underquoting? Do you think the proposed measures will make a difference? Share your opinions in the comments below!
