The Victorian government is cracking down on real estate agents who illegally underquote property listings, imposing strict new guidelines on the industry.
The new guidelines aim to ensure agents use the most appropriate comparable local properties when determining a home’s likely price before auction, factoring in things like the dwelling’s age and any renovations. Consumer Affairs Victoria can ask for evidence from agents showing how they chose the three most comparable properties, and penalties apply for not providing these records.
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The move will be welcomed by homebuyers, as the practice of underquoting is rife across Australia, despite some jurisdictions such as New South Wales trying to outlaw it.
Property experts say widespread reforms are still needed to protect buyers.
What is underquoting?
Underquoting is an industry tactic used by some agents who advertise a property for less than the estimated selling price or the owner’s asking price. They do this to draw buyers in and drum up competition.
“Many people have the experience of going to auctions and the first bid is above the range that was predicted. Or the final bid is in the range that was predicted, and the vendor declines the sales because it hasn’t reached the reserve,” the director of the Australian Housing and Urban Research Institute, Michael Fotheringham, says.
A property selling above the range doesn’t automatically mean the tactic has been used, Fotheringham says.
How frequently does underquoting happen?
The head of consumer research at Finder, Graham Cooke, says while it’s hard to pinpoint the exact level, it is “a huge issue”.
“Everybody who goes to buy a home in Australia, especially if you’re in the auction market, is going to take it for granted that agents will deliberately underquote, with the aim of trying to get as many people into the auction, to heat up the negotiation and get a better price for the purchaser,” he says.
“It’s difficult to prove. In every case I’ve ever seen of a house selling in Sydney, it’s sold at significantly above what people were calling as the guide price.”
A recent Guardian Australia analysis of property sales data showed underquoting (here defined as any sale where the final price exceeds 10% of the pre-sale price guide) is more prevalent in Sydney (20% of sales) and Perth (18%), and least prevalent in Canberra, Hobart and Darwin.
The analysis found the mismatch between the price guide on property ads and the final sale price was worse for houses than townhouses or apartments and is much more likely when the property is being sold at auction than at private sale.
Is underquoting illegal in Australia?
It is against federal consumer law to underquote and most states have additional regulations to further discourage the practice
In NSW, agents who underquote can be fined up to $22,000 and lose their commission and fees earned from the sale of an underquoted property.
In Victoria, agents who underquote risk fines of more than $11,000 for each breach, or penalties of over $38,000 under the Estate Agents Act.
But Cooke says these regulations often don’t work – and underquoting keeps happening.
“There needs to be stronger regulation on this, you need to know a more realistic idea of what the price a property owner will sell at before you go to an auction.”
Fotheringham says there needed to be more oversight into how estimations are created.
In Victoria, Consumer Affairs received about 2,500 “contacts” regarding real estate agent conduct in the 2022-23 financial year; most related to underquoting. Contacts included inquiries and complaints.
Now agents who set a reserve price must look at the dwelling’s features like it’s floor and land size, zoning, and distance from key infrastructure. The estimate must be reasonable and consider the sale prices of three comparable properties listed on the Statement of Information for prospective purchasers.
Consumer Affairs Victoria will be able to investigate instances of underquoting.
What is the solution?
Industry experts say more regulation is needed to ensure transparency for buyers. Fahey Younger, a buyers agent says the industry currently self-regulates.
“We’re watchdogs of our own industry,” she says. “Most of the complaints come from other agents, because it makes us all look bad.”
She says repeat offenders are often known in the industry, but there was no way for buyers to check, and called for more powers for state watchdogs to investigate.
“It’s very difficult to find out if somebody has actually had a fine enforced,” she says. “I think a disclosure log would be really good. Public disclosure would be the best deterrent, because a lot of this stuff happened behind closed doors.”
Some say initiatives like RealAs, an algorithm-based property price predictor developed in conjunction with RMIT in 2011, could be used by governments or states adopting laws to improve oversight of how estimations are created.
While agents have been able to find loopholes in the Victorian rules, Fotheringham says having more regulation of comparable prices, and a body to investigate would help stamp it out.
“Actually, having some scrutiny over that, some accountability for that, seems like a pretty good way to go,” he says.
What can home buyers do to protect themselves?
If you are a prospective buyer trying to avoid getting stung by an unrealistically low price guide, you may be better off checking an automated price estimate for a property rather than going by the agent’s price guide.
Buyers should research comparable sales and speak to trusted professionals, Cooke says.
“Look at some of the historical price guides in your area and the prices properties sell for, and factor that into your estimation,” he says.
“Don’t spend money on a lawyer to review documents and then turn up to an auction where you have no realistic chance of actually getting the property.”
Younger says buyers in Victoria can also look through the comparative properties the agent has put up with the listing to see if they are realistic.
“For the most part, that statement of information tells you everything you need to know about the current market price, what is fair and where it should be,” she says. “And if they’re above the range that’s quoted, then that’s going to be an underquoted property.”
Cooke encouraged people to report suspected acts of underquoting to the appropriate government bodies in each state and territory.
“In a lot of cases, people don’t actually do that. And that’s the reason why this continues,” he says.
