Underquoting refers to the behaviour of some real estate agents who tell potential buyers that a property will be sold for a lesser price than the seller of the property has set as a reserve price or the agent’s estimate of the likely sale price.
Underquoting is a problem for buyers, as they are the ones who carry the cost when a property is marketed well below the vendor’s reserve price. Buyers bear the cost of building inspections and other research expenses in addition to wasting their time, for properties they have no realistic hope of buying. Agents would often lay the blame for underquoting on “greedy sellers”, but often both agent and seller were responsible.
Although consumer laws require agents to base a price estimate on current market value, which in practice requires the agent to undertake a study of recent comparable sales, some agents chose inferior properties as their ‘comparables’ to justify the underquote. Over the past several years the technique was reported as being widespread, creating community unease.
However, State/Territory Governments have been tightening the rules and enforcing them. This means that underquoting is quite rightly becoming a problem for vendors and agents who do not comply with the new rules.
Since January 2016, New South Wales agents are required to document for each vendor an estimate price or price range plus the ‘comparables’ evidence. This refers to the set of properties in the area on which the agent has based her or his price comparisons in calculating the price range.
In South Australia, vendors are required to put a ‘minimum acceptable price’ in the sales agency agreement. The property cannot be advertised below the value of the higher of the agent’s estimate and the vendor’s ‘minimum acceptable price’. In addition, the vendor’s final reserve price cannot exceed 110% of the vendor’s minimum acceptable price.
In Victoria, the government is aiming to enforce the underquoting laws already in place. In recent months, a number of estate agencies were audited by Government officials who reviewed correspondence between agents and vendors to find evidence of underquoting. Several prosecutions are reported as currently underway.
Prospective sellers need to keep in mind that not only agents will be prosecuted if underquoting is uncovered. In South Australia for example, false representation in advertising by any party could lead to a $5,000.00 fine and a one year jail sentence. So if you are going to sell property this year, make sure you familiarise yourself with the rules, do your research and set a realistic price.
The material in this blog is general in nature. It is made available on the understanding that OzPropertyLaw is not thereby engaged in rendering professional legal advice. Before relying on the material in any important matter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.