Underquoting – it’s a term you’ll want to be aware of if you’re looking to buy real estate.
When selling a property, real estate agents are meant to provide a reasonable estimate of its selling price, based on factors such as location, architectural design, potential future use of the property, market demand, comparable recent sales and seasonal and economic considerations.
Underquoting occurs when an agent falsely advertises a property, or tells a buyer they expect it to sell for an amount that’s less than their actual estimated selling price in the agency agreement they have with the seller.
This is an offence under the Australian Consumer Law, and also under some state laws. Fines can vary in different parts of the country, but in New South Wales property agents can lose their fees and commissions and be fined up to $22,000, according to NSW Fair Trading.
Despite the fines, underquoting appears to be happening pretty regularly.
A spokesperson for NSW Fair Trading told Canstar their team had carried out 79 inspections of real estate agents in March and April so far, and identified a total of 53 breaches. During this period, Fair Trading issued 37 Penalty Infringement Notices to real estate agents, including 10 for underquoting offences, totalling $20,900 in fines.
This is part of a “crack down” on property underquoting by NSW Fair Trading inspectors, who have been sent out to regularly attend auctions and open homes across Sydney suburbs in recent weeks.
Sydney-based buyers agent Lauren Goudy told Canstar underquoting may occur intentionally where an agent wants to create more interest in a property, to have as many buyers competing as possible.
But as long as an agent lifts their quote during the advertising process as offers come in, then they are being genuine and honest to the public, she said.
“If they keep their quote at that low level even though they know the interest is much higher, that’s misleading,” the Rose & Jones buyers agent said.
Property market boom or underquoting crisis?
The problem for unsuspecting buyers is, it may be difficult to spot if a price is underquoted or if the higher-than-expected selling price is actually the result of intense competition between buyers. We are in the middle of a property market boom, after all.
Ms Goudy said an agent’s quote may be genuine, but if they are relying on comparable sales from even six months ago, those prices will often already be outdated as an estimate of what a similar property might sell for today, due to the rapid price growth we’ve seen across much of the country this year.
“Something that’s transacted six months ago in the Sydney market is probably going to be 10% minimum out of accuracy,” she said. “You’re going to need to add 10%-15% on top of that price.”
To give an example of how rapidly prices are changing, Ms Goudy said she recently saw a semi-detached property in the eastern Sydney suburb of Waverley sell for $650,000 more than the nearly-identical home next door, in a matter of just six weeks.
The properties had the same layout, were of the same era and were both unrenovated, and were like “comparing apples with apples”, she said.
28 Varna Street was first on the market in mid-February, guided at $2 million initially with the quote lifted as offers came through, Ms Goudy said. It ended up selling for $2.671 million.
By the end of March, 26 Varna Street was initially guided to sell between $2.4-$2.5 million based on the sale next door, but went for $3.322 million.
The buyers agent said it was buyer competition that drove the second property’s price so much higher, and it proved why it’s so important to look at the most recent sales possible, even at properties in neighbouring suburbs, for a more comparable sale price estimate.
She said two weeks prior to the sale of 26 Varna Street, a property in a neighbouring suburb sold for $3.7 million, which indicated 26 Varna Street could very well go into the ‘3s’.
How to pay a fair price in today’s market and protect yourself from underquoting
According to NSW Fair Trading, if a property’s final sale price is higher than the initial advertised price, this does not necessarily mean underquoting has taken place. It could simply be the result of a change in what could have been reasonably predicted, such as if there’s intense competitive pressure between buyers.
So how can you protect yourself from paying too much for a property?
“Avoid relying too heavily on an advertised sale price. Treat the information as a guide and research the property and recent comparable sales in the area,” a NSW Fair Trading spokesperson told Canstar.
It’s also a good idea to know the highest price you’re willing to pay, consider any related or ongoing costs you may face, and visit a number of different properties and auctions to get a gauge of what’s going on in the current market.
Buyers agent Ms Goudy said her best tip for buyers shopping around in today’s market was to look at the most recent and comparable sales in all the surrounding suburbs, as well as the suburb you want to buy in.
“I would say to buyers that if they want to prepare themselves for underquoting situations in the best way possible, don’t just go by what the agent’s saying,” she said.
“Do your own research, be really familiar with all the transactions going on in that area – not just necessarily in your price bracket but slightly below and slightly above – and different types of properties, just so that you really understand the depth and strength of that market.”
She said at the moment it may be worth trying to buy properties prior to auction, or purchasing off-market where there’s less competition, to get a fairer price.
If you suspect that an agent has breached any underquoting laws, either directly to you or through marketing material, you can lodge a complaint online or call NSW Fair Trading on 13 32 20 (if the property is in New South Wales), or contact your state’s consumer protection agency.