Thanks to changes made to state laws in both New South Wales and Victoria in the past several years, it is much easier for buyers to find the property that matches their budget without spending time and money on potential homes that turn out to exceed their budget. Underquoting can cause buyers to attend auctions they wouldn’t ordinarily attend and potentially miss out on other auctions, so it is important to understand how changes to underquoting laws in some states in Australia have made a dramatic step in improving transparency within the real estate industry.
What is underquoting?
Sometimes known as ‘bait pricing’, underquoting is the practice of knowingly advertising the price of a property for sale on the market as lower than the true value of the home in an attempt to drive interest in the property. Passing off properties as ‘bargains’ means that potential buyers spend their time researching that property, potentially investing money in property inspections for that home and then either putting in a private bid or attending the auction for the property only to be very quickly left out of the running as the true value of the home is reflected in the bidding.
While this is a practice undertaken by a minority, it still exists despite both state and federal laws that pose significant repercussions for those who practice underquoting. Unfortunately, underquoting is a hard practice to prove without evidence of bait pricing (i.e. specific communications expressing an intention to mislead). Without evidence like this, the law relies on circumstantial evidence, such as a series of clear breaches over the course of time hinting at a pattern of underquoting, but even this can be hard to see through to real repercussions.
Understanding underquoting laws in your state
Only two states in Australia currently have clear underquoting laws: NSW and Victoria. NSW’s laws were introduced in 2016 and Victoria’s a year later. Underquoting laws differ in other states, but all states sit under the Australian Consumer Law, where a breach of the law can attract the greater of:
- $10 million, OR
- three times the value of the benefit received, OR
- where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months.
Underquoting laws in Victoria
In the first half of 2017, new legislation was introduced in Victoria to combat underquoting. The Estate Agents Amendment (Underquoting) Act 2016 means that real estate agents are given better guidelines by which to advertise a property, helping them to create a transparent industry and promote a healthy market. Under these laws, it is important for home buyers to know what to look out for.
- An advertiser of a property must present a Statement of Information in Victoria. An SOI provides an indicative selling price, with three comparable properties (or if not, the agent must state that they could not reasonably provide three comparable properties to come to a price estimate), along with the median sale price of properties in the local market. Make sure you keep your eye out for and use the SOI as a valuable tool in quickly identifying whether a property sits within your budget.
- An SOI must be provided in online advertising and at inspections.
- An advertiser can provide a single price indication or a range of 10% (i.e. between $200,000 and $220,000). They cannot use symbols (i.e. ‘$500,000+) or expressions like ‘more than’.
Underquoting laws in NSW
Agents do not have to provide an indicative selling price when advertising a property for sale in NSW, but if they do, they must not use symbols or phrases that can compromise the indicative selling price, while they also must provide evidence of how they came to that estimate to the seller.
The underquoting laws in NSW are arguably not as comprehensive in creating clear guidelines as those in Victoria. As they were the first state to update their underquoting laws, it is understandable that Victoria used these as a base on which to create a more comprehensive legal framework for agents to work by.
Underquoting laws in other states
Tasmania again relies on commonwealth law but there are indications that in private sale if a price/bid is declined, then marketing needs to reflect this as a result. It also has its own Property Agents and Land Transactions Act 2016, which states that:
“A general auctioneer must not represent in any way to someone else anything that the auctioneer knows is false or misleading in relation to the sale of property by auction.”
South Australia requires that words or symbols such as ‘plus/+’ or ‘mid-400s’ can’t be used with a single price, but a range is okay. Agents can’t change the estimated price on the agreement once it’s set. Lastly, the final reserve set for the auction can’t be more than 10% above the estimated selling price in the sales agreement.
In Queensland, there are no price indications allowed for auctions, but it is allowed for private sale as long as the ‘offers over’ reflect the minimum price sought by the vendor.
Western Australia relies on the ACL and commonwealth Consumer and Competition Law 2010 as well as having its own Real Estate and Business Agents and Sales Representatives Code of Conduct 2016, which requires that if an agent presents an indicative estimate of a property to a seller and want to represent that seller on the market, then they need to provide a written statement of the opinion, the reasons for them arriving to that opinion, and information on comparable properties and relevant market information to the seller.
What to take away from these underquoting laws
As a potential property buyer, Victoria’s laws support you more than in any other state in finding a property that reflects your budget as soon as possible. While underquoting can be difficult to prove, the fact that Victoria’s laws require agents to present their property price estimates to both vendor and seller puts buyers front-of-centre of the underquoting laws, rather than keeping the pricing behind closed doors.