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Empower Wealth Blog post by Empower Wealth

Underquoting Is it a Myth or Does it Exist

“Quote it Low and Watch it Go”

This is the term used by some real estate agents in the past but is now becoming extinct with updated legislation from the REIV coupled with large penalty fines. The truth is, many people buying at auction and within the general public are not aware of the relevant authorities and peak bodies that are trying to stamp out this practice. For instance, a listing/selling agent must by law under section 47a of the Real Estate Act write within the sale authority the correct figure or price range they honestly believe, in their professional opinion, the property will most likely sell for. They also need to include comparable sales of properties within the surrounding area to substantiate their quoted range.

All of this supporting documentation must be supplied within the file and can be independently audited at any time by consumer affairs, who have the right to enter any real estate office state wide at any time and conduct a surprise inspection or audit of any file they wish. Whatever the figure or range the agent arrives at will be a baseline and by law the property cannot be advertised for less than the lower figure in that range.

The agent’s range they put on a property also cannot be bigger than 10% from lowest to highest and the advertised price range cannot be quoted at more than 15% from lowest to highest.

So when you, as a purchaser, see a property advertised for $600,000 to $660,000 and the property sells for $810,000 at auction, is that always the agent’s fault? Remember they are working for their vendor/seller and if a purchaser is willing to pay more than $100,000 extra to secure a particular property at a competitive public auction, would they say no?

What us, as a buyer’s agent, along with most of the general public would like to see in terms of property regulation is the condition that the reserve price has to be within the advertised quoted range. The issue here is the vendor often sets the reserve price on the day of auction or the night before based upon the level of interest or number of people who have inspected the property. We can attest to a lot of agents giving feedback to their vendors along the auction campaign. Let’s say the quoted range is $600,000 to $660,000 then come the day of auction the vendor gets emotional or perhaps sees some dollar signs in their eyes and sets the reserve price at a heavily inflated price such as $770,000. Meanwhile the agent has been telling prospective purchasers all the time about the quoted range from day one. Once the reserve price is disclosed, the public then blame the individual real estate agent and the industry in general for underquoting.

One of our Buyers Agent recently attended an auction on behalf of a client and we had a maximum budget to buy of $780,000. The quoted range for the property was $690,000 to $740,000 with all discussions with the agents suggesting a probable selling price of somewhere around the mid 700’s. After doing all of our due diligence and comparable sales analysis, we arrived at an appraisal similar to the agents, only to become aware on the day of auction that the son of the owners wanted to take control of the situation and set an unrealistic high reserve price of $835,000. Needless to say this literally killed the auction and it failed to sell on the day but it did sell eventually a week or so later at a much discounted price.

That is the story of underquoting from a property insider and an unbiased independent perspective. It really does pay to get some professional and independent advice and have an expert negotiate your next purchase. Tread your own property path carefully and make sure you or your buyers agent have done sufficient due diligence prior to buying.

 

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