Fifty Shades of Underquoting

There are different levels of underquoting but when will it be considered unacceptable?

As the media keeps reminding us, we find ourselves in the midst of a Buyer’s market.  There are many aspects of this current market which also remind us of the current status; from lower than average auction clearance rates to reducing interest rates.  One of the many by-products of a buyer’s market though is a rise in actions against agents for agency underquoting.

 

Why is this?

Well – in a seller’s market, buyers and regulators are witnessing new record prices, demand driven by other super-motivated buyers and they are prepared to cut the agents some slack on their claims that the higher-than-anticipated-results were genuinely higher than anticipated (or market-driven by an aggressively buyer-driven, buoyant market).  However in a buyer’s market, the agents are finding that they have to pull every trick out of their hats to get buyers to come to the Open For Inspections and to be prepared to buy.

What is one of the most compelling reasons during a buyers market for any buyer to actually bid? The mere thought of getting a super-bargain! Hence many agents rely on painting a picture, albeit unfairly, of the potential for some lucky buyer to nab a fabulous bargain.

 

So how does this work within the law if the unsuspecting vendor is actually hoping for a fair market price?

First, we have to understand the rules and conduct that the agents and agencies must work within.

In Victoria, agents are bound to capture information legally on the Listing Authority document.  This is the multi-page duplicate official document which any agent has to co-sign with a vendor at the time of obtaining the authority to market and sell their property. The agent must declare a range which is representative of the appraised value that they put on the property and this range cannot span any greater than a 10% range.

For a private sale, the vendor may then state the price at which they are prepared to sell.  The agent is legally bound NOT to advertise a sale price which is below this figure.  “Offers Over X” and “$xx plus” are another story!  The reality is that they are practices which are not permitted, however these types of quotes are rampant in the market.

For an auction sale however, many vendors elect not to fill in their reserve.  They may be encouraged not to or they may choose themselves to be guided by the buyers’ feedback during the campaign.  What this means though is that an agent can list a ‘guide price range’ or an Estimated Price Range (EPR), Buyer Inquiry Range (BIR) etc which is NOT necessarily representative of the vendor’s actual expectations – and they are getting away with it.

Just simply Googling current media stories about agent auction under-quoting reveals story after story of massively under-quoted property results and reserve prices.  One case recently in the media showed a discrepancy of greater than a million dollars.  This loophole has existed for many years and it doesn’t appear to be changing.

 

So what are your options when it comes to dealing with this less-than-helpful practice?

Many action groups and individuals encourage buyers to contact Consumer Affairs.  We prefer to understand the market and rely on my own market knowledge and ability to appraise a property.  Every now and our team will challenge an agent and ask them “REALLY? You have GOT to be joking.  Show us which comparable sale result supports that range”, but in most cases we glean information about the agency itself, the sales campaign and the vendor’s expectations and then go about on our business to establish where we think the property sale price will actually land. It’s important to recognize what sort of quoting regime the agency does adopt – it’s fair to say that some appear to under-quote at the 50th shade of grey, whilst some don’t under-quote at all.  Then overlay that with the vendor’s position and expectations (not always so easy for a rookie to glean from the agents) and lastly, understand what the other buyers are doing and saying. If another buyer has made an offer on the property and it was rejected by the vendor, then the agent is legally bound to update their quoted price to be underpinned by that rejected offer.

Once a buyer has taken all of these aspects of the campaign into account and focused then on recent past comparable SALES (not other quoted sale quotes), they should be in a good position to formulate what sort of price will be required to buy the property. This does place the onus on the buyer, but my advice should save many buyers broken hearts, unnecessary building inspection costs and wasted time.

If you are in doubt about carrying out this work yourself, speak to a Buyer’s Agent.  All BA’s are either a qualified real estate agent or agent’s representative and will have experience in doing so.

Remember – the sales agent works for the vendor, not the buyer.