Potential homebuyers are turning up to auctions with “no chance in hell”, as underquoting agents use a loophole to avoid disclosing prior offers, market watchers way.
Would-be buyers have been left so frustrated chasing properties that end up selling far beyond their reach that they’ve shelved their home ownership aspirations altogether, agents have told NCA NewsWire.
Propertybuyer CEO Rich Harvey said potential Sydney buyers were walking away after being angry and annoyed at being priced out.
“I’m seeing a bit of pushback from the buyers that are going, ‘You know what? I just don’t want to participate in this market, I’ve had enough’,” he said.
Underquoting is the illegal practice of falsely advertising property or indicating it will sell for less than its estimated selling price.
In recent months, Victorian and NSW authorities have fielded dozens of complaints about underquoting as cashed-up buyers try to take advantage of record low rates and government incentives in a heated market in which demand outstrips supply.
Mr Harvey said some agents were naive about underquoting, while others were being caught out by the strength of the market.
“Underquoting definitely raises its head as an issue in this market because it appears as if properties are perhaps being underquoted, whereas it actually might be the market is actually just proving itself very strong and rising rapidly,” he said.
“I’ve seen some stuff go for $500,000, $600,000 over the price guide – and that’s like 20 or even 25 per cent.
“As buyers’ agents, we know which agents price their properties very close to what they’ve sold for, and we know there’s those that are notorious underquoters and we use that to our advantage.
“I’m not going to name names, but there’s still some that will definitely underquote quite deliberately.”
Hello Haus property negotiator Scott Aggett said agents in Victoria and NSW were “hiding” behind agreements signed with vendors not to accept offers prior to auction.
This meant any offers made beyond the quoted price were not being revealed to the market, so potential buyers rolled up at auction time not realising they’ve already been massively priced out.
That was not to mention the time, energy and money wasted reviewing contracts in the lead-up, Mr Aggett said.
He referred to offers he recently made of more than $1.7m for an inner Melbourne property quoted at $1.6m that were rejected.
The night before auction, the price guide changed from $1.6m to $1.7m, yet that quoted price was still below his rejected offers.
He ended up buying it on auction day for $1.91 million.
“I’m not bitter about paying more for the property, but all the buyers that turned up in the under $1.75m had no chance of buying that home,” he said.
“My belief is that is the bait advertising problem right there – agents need to disclose those prices.
“I’ve got a tonne of examples in Victoria.”
Mr Aggett said the situation was similar in NSW, with his recent offer of $2.32m for a northern Sydney home with a guide price of $2.15 million rejected before auction.
“The issue is that they’re not disclosing the offers that are made – even unconditional offers on contracts – so all the people going along to the auction two weeks, three weeks, four weeks later have got no chance in hell of buying that property because we’ve already had an offer knocked back well in excess of that top end of that range,” he said.
“For me, this is why you’re seeing there’s not many underquoting fines. There’s basically a back door for agents to hide behind.”
NSW Fair Trading received 44 complaints of underquoting between January to April this year – 23 in March alone.
NSW agents who commit an underquoting offence can be fined up to $22,000 and lose their commission and fees earned from the sale.
In Victoria, agents who flout underquoting laws risk a penalty of more than $31,000.
For more serious offences, such as setting an unreasonable estimated selling price or advertising a property below the estimated selling price, agents may also lose their sales commission.
National Property Buyers Victorian director Antony Bucello, who has 20 years experience in the Melbourne market, said while underquoting was once “rife”, these days most agents were doing the right thing.
Mr Bucello said properties significantly exceeding their quoted price were more a result of a competitive market than deliberate underquoting.
“You see a lot of shoulders dropping and there’s some jaws dropping at some results,” he said.
“The reserve prices are within their price guides; however, competition at the moment, particularly in Melbourne, is driving properties to prices where comparable sales evidence isn’t there.
“Many auctioneers aren’t even getting a chance to announce it’s reached reserve – it’s just going straight past it. That’s not underquoting.”
Real Estate Institute of Australia president Adrian Kelly said he would be surprised if underquoting was worse given the clampdown in Victoria and NSW in recent years in which large penalties were handed to agents.
Mr Kelly put the surging house prices down to large demand and low supply.
“There’s much fewer listings on the market, so prices are just jumping all over the place,” he said.
“If I was a young couple trying to buy something and missed out on five or six auction properties in a row, I’d certainly be getting frustrated as well, but that’s not deliberate underquoting in the truest sense.”
States and territories have their own laws relating to the conduct of real estate agents, and these complement federal consumer laws for misleading conduct or representations.
NSW Better Regulation Minister Kevin Anderson said buyers needed to do their homework by researching recently sold properties to get an idea of what selling price to expect.
While an agent does not have to publicly disclose a price while marketing a property, buyers should always ask them what their estimated selling price is and what the seller’s expectations are, he said.
A Consumer Affairs Victoria spokeswoman said underquoting laws brought in during 2017 and the enforcement action “greatly” raised public awareness of the practice.
The agency received 212 inquiries and complaints about underquoting between December 2020 to the end of February 2021 compared with 242 for the same period the previous year.
Since 2015, the agency has taken court action and accepted enforceable undertakings from 12 real estate agencies, with fines and court costs totalling more than $3.15m.