In 2016, a real estate agency was fined $330,000 plus $80,000 in legal costs for “creating the illusion of a bargain”.
What was the trick? These market magicians made 11 Melbourne properties look like an absolute steal. One Richmond home was listed for $800,000-$880,000 – before selling for $1.102 million. Abracadabra!
Somehow, despite the introduction of new crackdowns by officials, and despite the fines, underquoting is still happening. And according to some agents in the field, it’s just part and parcel of selling stock.
Underquoting is the practice of advertising a property for a price that is below the amount the vendor is willing to accept.
For example, in 2016, Village Real Estate Agency in Newport, NSW was fined for advertising a property for $770,000, even though the vendors weren’t willing to accept a price below $950,000.
Tricks of the underquoting trade
Listings like “$600,000+” or “offers above” are classic underquoting tricks that serve to dupe both property investors and homebuyers alike. Incidentally, they’re now banned in some states of Australia.
Underquoting has been an illegal tactic for some time, but crackdowns on the trade are revealing a shocking number of agents are still doing it.
The number of complaints to Consumer Affairs Victoria jumped from 123 in 2014 to 339 in 2016, which has led to the creation of a special taskforce to tackle the growing problem. The same reforms are happening throughout Australia.
While we know that most agents do the right thing and wee don’t want to start throwing real estate agents into the same reputational slimepool as car salesman, but the fact is that underquoting only benefits the agent.
Why? Because it’s a manoeuvre that generates buzz, fills an open home and draws big numbers on auction day. It creates apparent competition for the property – except most of the parties competing have no real chance of winning, if the list price is unrealistically lower than the vendor’s reserve.
What harm does underquoting really do?
While it may seem like a great tactic to get more people to an auction for Vendors, the hurt parties are both the buyer and the seller.
Buyers waste enormous amounts of time inspecting, deciding, offering and crossing their fingers for a property that is never really on the cards at all.
Sellers have to wade through countless ridiculous offers, since agents are required to show the seller every offer received.
Underquoting affects the market as a whole, too. Other sellers who are doing the right thing and offering a reasonable sale price are missing out, and dropping prices to generate new interest or match the new bargain market.
There will always be push-and-shove in property transactions. Everyone wants a bargain, and sellers want top dollar. But it should be an ethical business, without dirty campaigns.
The good news is that new state-based crackdowns on underquoting will raise awareness amongst agents and buyers.
For now, your best bet as a buyer and seller is to protect yourself. That means:
- Doing your research on the local market so you know what’s ‘normal’.
- Being wary of major bargains. Often, they’re an indicator that the property is problematic, poorly located or a victim of underquoting.
- Reporting suspected underquoting to the authorities, for example, the Office of Fair Trading in your state or territory. It’s the only way to start stamping out underquoting for good.
And to the vast majority of agents that are on the right side of the law, doing whats best for vendors and sellers… our hats off to you!
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