When you start seeing stories on underquoting, it is a sure sign the property market is rising.
In a rising market, property buyers will often pay a price above the seller’s expectation. Sale prices rise and property starts selling over the estimated selling price (quote price) provided in the marketing. Does that mean the agent has underquoted the price? No… it just means it sold above both the agent’s and seller’s expectations.
So what is underquoting?
It is when the quote price is below the seller’s reserve price. Intentionally quoting a price below the reserve price is misleading and illegal but the reserve price often changes through the selling process so it can be complicated.
Why would owners / agents underquote the price?
It is difficult to know if underquoting makes any difference to the sale price at all. It is thought that underquoting the price encourages more people to engage in the property selling process. The seller and agent then hope this makes the property look more sought after and justifies the ultimate buyer to pay a higher price.
What are the actual underquoting rules?
There are many rules governing the process of selling real estate and underquoting is one of them. You can read the underquoting rules in detail here.
The main complaint about underquoting is buyers feel misled or tricked. They are told a property will sell for a certain price. They spend time, effort and money getting in a position to buy it, only to discover the seller wants a much higher price. The current rules do a reasonable job in protecting buyers but ultimately information is power.
A better solution.
Rather than get all caught up in the rules, it is more helpful for buyers to understand the market and be well advised.
Remember the selling agent is acting for the seller. They are working to get the highest possible price.
If you are about to spend hundreds of thousands (or millions) of dollars to buy a property, don’t rely on value advice from the person working to get the highest possible price for the owner. Even though it may feel like the agent is working for both parties to agree a deal.
Therefore, as a buyer, you should not rely on the quote price to determine the property’s value. The quote price is a helpful short cut to eliminate property well above or below your budget. After that, make your own value assessment irrespective of the quote price. Learn what determines a property’s value like the land and building area, location, layout, aspect, condition etc.
Here are my tips for buyers to avoid getting caught in the underquoting trap.
- Become a market expert – Spend lots of time inspecting and tracking the sale price of dozens of properties before starting to make offers or bid at auction.
- Appoint your own advisor or buyer agent to act for you if you feel you need help.
- Ignore the quote price and make your own assessment.
Consumer laws and general public expectations are for fairness and transparency in all dealings. There are disclosure requirements when buying everything from a car to a jar. There is obviously a requirement for sellers and agents to deal with everyone fairly. But both buyers and sellers can change their mind during a selling process and hence the rules get tricky. Sometimes owners don’t even know the reserve price at the start of a selling campaign.
No doubt at some point Consumer Affairs will feel compelled to update the rules. Apart from complicating the current rules further, there really are only two solutions which are.
- Ban any price guidance at all.
- Enforce disclosure of the actual reserve price.
Neither of these are ideal solutions. Both have wrinkles. Such as what if the seller changes their mind on price during the process. And does a market discussion, negotiation or even vendor bid constitute price guidance?
When demand is hot, price guides quickly become irrelevant. The best weapon for buyers is knowledge. Know your market, understand recent sales, and rely on your own independent assessments and not the owner appointed agent’s view.
The rules around underquoting are there to provide transparency, but no law can replace due diligence. A buyer that is fully informed on the market from their own research is far less likely to feel misled, and much more likely to secure the right property for them at the right price.
