Buyer Beware: Under-quoting Still Rife in the Australian Property Market
Have you ever spent time and money inspecting a property advertised within your budget, only to watch it walk out the door for more than 10% to 20% above the price guide? You might have just experienced firsthand under-quoting in the Australian property market.
In an interview with the Sydney Morning Herald back in 2007, I quoted that the level of under-quoting across Australia was outrageous and purchasers were being led up the garden path. Despite recent reforms in New South Wales and Victoria to crack down on under-quoting, we still see it happen within Australia’s real estate industry.
What is Under-quoting or Bait Advertising?
Under-quoting, or bait advertising, is where a real estate agent deliberately represents a property to the market at a price significantly lower than the agent’s selling price, market valuation or the vendor’s price indications. The agent does so to create the illusion of a bargain, intended to attract a large pool of prospective buyers and generate a greater sense of competition for the property.
On the other hand, the would-be buyer is convinced they found the perfect property within budget. Hours are then wasted inspecting the property and thousands of dollars are spent on building and pest inspections and legal searches, only to later be largely unsuccessful in multiple offers or outbid at auction. Buyers who keep missing out on properties cannot afford to spend time researching and money on building and pest inspections before bidding and expose themselves to great risk as a result.
Not only is the buyer left deceived and empty handed, the billable hours of the financier and solicitor are wasted, and other compliant agents suffer unfair and improper competition. Other agents may miss out on prospective buyers to purchase their properties and the actions of one agent can cost the profession dearly in credibility and heighten the distrust of agents.
Current Legislation on Under-quoting in Property:
Although laws vary slightly from state to state, Australian Consumer Law (ACL) prohibits real estate agents from making representations about property prices that are false or misleading or are likely to mislead or deceive. The purpose of these laws is to prevent prospective buyers from wasting valuable time and money with inspections, reports and auctions due to erroneous information about price expectations.
While it is not uncommon for sale prices to exceed the price quoted in a marketing campaign, legislation in NSW and Victoria allows for a 10% difference between the minimum amount the vendor will accept and the final reserve price. For a $1 million property, that is within $100K. Of course, the minimum amount may be hard to determine, but the agent knows exactly what it is, being agreed upon in agent appointment agreement (form 6). To quell any doubt in the minds of the agent, written beside the dotted line is: Bait advertising is an offence under the Australian Consumer Law. Similarly, a professional agent should have no trouble pricing within 5% to 10% of the sale price. Unfortunately, many agents still do, with 89 agents penalised by NSW Fair Trading in 2018 with fines up to $22,000 in NSW and more than $30,000 in Victoria, in addition to potentially forfeiting the commission from the sale.
Rather than impose similar penalties, agents in Queensland are prohibited from making any price guide representations to potential buyers to mitigate the risk of under-quoting. Ultimately, neither have stopped the practice and agents today are more likely to avoid quoting a price entirely and advertising properties at expressions of interest. Instead, the agent can provide the details of nearby sales selected at their discretion, further reducing the clarity for would-be buyers.
How to protect yourself from under-quoting in the Australian Property Market:
- Recognise: While agents have an obligation to endeavour to obtain the highest possible price for their vendor, they must operate in accordance with the law. You should expect a variety of acceptable and legal sales tactics but must understand when things are being taken too far.
- Research: Keep up to date with market conditions and recent comparable sales to efficiently determine whether a property is priced realistically. If in doubt, call and ask real estate agents or buyers’ agents who are not involved in the sale for a true estimate of market value.
- Consult a Professional: After 20 years in the industry, we have seen countless buyers engage in negotiations and spend money on properties that were never within their price range. If you want to ensure your money and time is not wasted on unsuitable properties, engage a buyer’s agent to act on your behalf who will be able to find the most suitable property for your budget, and deal with agents so you don’t have to!
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