You would expect that real estate agents act in good faith and give you reliable information, but the reality is that many choose to manipulate the facts and figures to attract more buyers.
One of the things agents often do is called underquoting. This involves advertising a property for less than its realistic sale price in order to entice more potential buyers.
Underquoting is a common issue in the property industry and it can severely discourage buyers when their dream property sells for way above the ‘asking price.’ More than this, it is illegal.
What exactly is underquoting?
Everyone selling a property has a price that they are willing to accept if someone makes them an offer. Underquoting occurs when the real estate agent markets the property below this price. Their client will not accept an offer at this price, but the real estate agent knows that the lower price will attract more interest in the property.
This process is unethical and misleading because it does not reflect the seller’s wishes and it distorts market conditions.
Why do real estate agents underquote?
Put simply, to attract more buyers to their property. The more people that are interested, the higher the final sale price is likely to be. This creates a false impression that there is a lot of genuine interest in a property, but in reality, buyers who can’t afford the property are clogging the market and just making it harder for genuinely interested buyers.
How is it done?
Often an agent will advertise a property at one price, then slowly increase it until the auction or the proposed sale date. This is called step-quoting and makes people think there is a lot of interest in a property where there might not be.
Another common practice is to hide or make the estimated sale price hard to find on an online advertisement. Many agents also get away with underquoting by only providing verbal guidelines about a property instead of providing written proof of comparable properties.
Why is it wrong?
Many buyers heading to auction with a budget set around the estimated selling price are sorely disappointed when property sells far above their budget. This happens every weekend at auctions around Melbourne because people are misled about the price of property. This is extremely frustrating for buyers and leads them to distrust agents. They may become discouraged and waste valuable time and money pursuing properties that are unaffordable.
What can I do about it?
To protect yourself from underquoting, you should prepare yourself by doing your homework and asking for professional advice.
- Find comparable sales. Use realestate.com.au and search the ‘Sold’ section for houses in the same area, with the same number of bedrooms and bathrooms, and a similar land size to get an idea of how much you should expect to pay. Also keep an eye on the condition of the property, whether it is renovated or not, and whether it backs onto a freeway or is on a main road. All these things will affect the final sale price, and finding a comparable property is not as simple as finding a house in the same area with the same number of bedrooms.
- Ask a professional. Asking advice from someone who has extensive experience in researching property can give you a better indication of what a property is really worth. Buyer’s agents in particular are experts at finding and researching property, and using past sales and other factors to estimate how much a property on the market is likely to go for. Because they are unconnected to the sale, they can give you impartial advice that is in your best interest.
What to do if an agent is underquoting
If you suspect that a real estate agent is underquoting a property, you should speak up and file a complaint with Consumer Affairs Victoria. Make sure that you have evidence to support your claim so you can prove the misconduct. It can be difficult to prove in most cases, but hopefully by filing enough complaints, Consumer Affairs will realise this is a genuine problem and do something about it.
The fine for underquoting in Victoria is $31,000. Agents caught underquoting may also lose their commission for selling the home. You might think this would be a big enough deterrent but plenty of real estate agents get away with underquoting every weekend. In order to change the system and encourage more transparency in the industry, buyers like you need to speak out.
Figuring out the real estimated sale price
The most reliable way to figure out the estimated sale price is to hire a professional buyer’s agent who is experienced in doing this sort of research.
But you can give yourself a basic idea of the value of a property by searching for sold properties and keeping an eye out for these things:
- Location – real comparable properties will be a similar distance to things like schools, trains, main roads and freeways.
- Number of bedrooms, bathrooms, and any other extras like a pool, garage etc.
- Size of the block. The real value of property is in the land so square meterage is a pretty reliable indicator of price.
- Condition of the property – has it been renovated?
- Age of the building
All of these things will affect the price of the property and it is important to consider them all when researching comparable properties so you have an accurate idea of what it is likely to sell for.