Regulation is the Name of the Game
You may be familiar with the term “underquoting”. It is commonly passed around in the property industry and is probably the most misunderstood. More importantly, it is one of the most widely and covertly used sales tactics.
So what is underquoting? According to Consumer Affairs Victoria (CAV), the definition of underquoting is “when an agent misleads a potential buyer about a home’s likely selling price”.
In recent months, the Victorian Government has introduced a string of new policies to help property stakeholders and homebuyers make their investment decisions easier and more transparent.
On 1 May 2017, a new legislation will come into effect.
Under the Estate Agents Amendment (Underquoting) Bill 2016, agents will have to provide prospective buyers with an information fact sheet, known as a Statement of Information, for the property being sold at auction or by private sale.
The Act also dictates how property agents are to determine estimated selling prices for vendors as well as require those estimates to be revised if a higher written offer has been received and rejected by the seller. (REIV, 2017)
The Victorian Government imposed the new legislation after consultation with the Real Estate Institute of Victoria (REIV). The shake-up will entail better protection against misleading conduct and help homebuyers in their house search.
REIV Chief Executive Gil King said the act would help ensure buyers were on par with sellers: “This new legislation is designed to be effective in both a rising and falling market and will ensure prospective buyers have access to the same information as the vendor”.
In a separate statement, Minister for Consumer Affairs Marlene Kairouz said: “Our new laws will help ensure Victorian house hunters don’t waste time and money on properties they can’t afford” (REA, 2017).
What to look out for
All agents must provide a Statement of Information to prospective purchasers with necessary details that must match the legislation’s criteria.
The Statement of Information must include the suburb or town’s median selling price for the type of property being sold (house or apartment) as well as the period of time used to determine the median selling price (such as quarterly or annual).
Additionally, brief details of the sale of 3 comparable properties taking into account the age, condition, size and location of the property. Should the estate agent consider there are fewer than 3 comparable property sales, a declaration to that effect must be included.
In metropolitan Melbourne, the 3 comparable sales must be located within a 2km radius of the property being sold and have been sold within the previous 6 months. In regional Victoria, the 3 comparable sales must be located within a 5km radius of the property being sold within the previous 18 months.
Lastly, the indicative selling price must be expressed as a single figure or a price range of no more than 10 per cent. Words or symbols in advertising such as ‘offers above’, ‘from’ and ‘+’ have been banned. Agents are required to promptly update advertising, within 24 hours, if the seller rejects a higher written offer to purchase the property or the agent’s price estimate changes (REIV, 2017).
Despite the raft of changes, there are detractors believing the new laws will not completely eradicate underquoting. Underquoting is illegal but it very difficult to prove.
There are no obligations on a seller to inform the agent of their reserve price before an auction and in a hot market, it can be higher than the listed price.
Veteran agent and former REIV ethics committee chairman John Keating commented: “The only way to stop underquoting is to require vendors to disclose their reserve prices at the start of selling campaigns” (Herald Sun, 2017).
Before beginning your house hunt, here are some tips on how to navigate the property markets:
- Perform research on the market value of properties in your preferred areas by searching the internet, attending auctions, monitoring auction results and speaking with a variety of estate agents.
- Refer to an agent’s estimated selling price only as a guide; the agent represents the seller but must be fair and honest with buyers.
- Ask the agent to justify their advertised price. They should have knowledge of the market in the area to support their estimate.
- The seller is unlikely to set their auction reserve price until the day of the auction. The reserve price decided on the day might be above the advertised price.
- Do not allow emotion to cloud your judgment and be realistic about the likely selling price.
(Tips taken from Consumer Affairs Victoria, 2017)
You Come First
Should you need further advice, feel free to consult our property management team at Xynergy Realty. With over 25 years of industry experience, we can provide you with an unparalleled depth of practical and technical knowledge of property markets and wider trends in the real estate industry.
- Herald Sun Australia
- Consumer Affairs Victoria