Understanding Underquoting
When helping clients with their property search, it’s almost impossible to avoid a discussion about underquoting. Rarely does a topic create as much frustration and annoyance. Despite strong legislation against it, underquoting remains surprisingly widespread in Sydney.
What is Underquoting?
Underquoting happens when a real estate agent advertises or states a price lower than their reasonable estimate of the likely selling price recorded in the agency agreement with the seller.
An old saying among agents is:
“Quote them low, watch them go… quote them high, watch them die.”
Underquoting is used to attract more buyer interest and, ultimately, achieve a higher sale price for the vendor.
The typical process looks like this:
- Low Initial Price Guide: The property is advertised with a lower-than-realistic price.
- Increased Buyer Interest: The perceived bargain attracts more potential buyers.
- Heightened Competition: More buyers lead to fiercer competition and a higher final sale price.
Underquoting is unethical, illegal, and extremely frustrating for buyers. It erodes trust in the real estate process and leads to:
- Wasted time and effort inspecting properties outside your budget
- Wasted money on due diligence (e.g., building inspections, strata reports, legal reviews)
- Missed opportunities by waiting for auctions of underquoted properties instead of pursuing realistic options — particularly harmful in a rising market where delays can erode your buying power
Is Underquoting Common in Sydney?
In June 2023, NSW Fair Trading conducted 87 inspections of real estate agents:
- 57% (50 agents) were found non-compliant. Common breaches included:
- Lack of written records for verbal price guides
- Unreasonable estimated selling prices
- Failure to comply with conduct and supervision guidelines
- Repeat Offenders: 45 inspections were of previously non-compliant agents. Despite being warned, 34% were still breaching the rules.
- Penalties: Only 28 agents were fined, with total fines amounting to just $52,800 — an average of $1,886 each.
22 agents escaped with only warning letters or verbal guidance.
To put this in perspective, the average commission on a median-priced Sydney home ($1,110,660 at the time of the blitz) at a 2% commission rate is around $22,213 — making the fines a weak deterrent.
Our Experience
From what we see, heavy underquoting remains common.
While some pricing errors can be genuine, many agents blatantly underquote.
For example, a Northern Beaches property we recently inspected was quoted at $1.75M throughout the campaign. The day before auction, it was still quoted at this level — yet it sold for $2.5M, with a reserve of what we found out to be around $2.4M.
Underquoting Laws and Reforms
In NSW, consumer protection laws against underquoting are contained in the Property, Stock and Business Agents Act 2002 and Australian Consumer Law.
Additional reforms were introduced on 1 January 2016 to strengthen protections.
Under these laws, agents must:
- Include a Reasonable Estimate:
A price (or range) must be included in the agency agreement.- If a range is used, the top end must not exceed 10% of the bottom end. (e.g., $1.0M–$1.1M)
- Provide Evidence:
Agents must justify their price estimate based on:- Property features (location, size, condition)
- Comparable recent sales
- Economic conditions
- Market demand
- Other relevant factors (e.g., rezoning)
- Revise the Price if Needed:
If new comparable sale or buyer feedback warrants it, the agent must update their estimate — and update or retract any advertising. - Keep Written Records:
Any statements about selling price must be recorded.
Agents are not allowed to:
- Underquote: Quote a price estimate lower than their agency agreement estimate
- Use Inappropriate Wording: Phrases like “offers over,” “offers above,” or “$1M+” are banned
- Misrepresent Vendor Bids: At auction, vendor bids must be clearly identified
Failure to comply can result in:
- Fines up to $22,000
- Loss of commission and fees from the sale
Important:
Just because a property sells for more than expected does not automatically mean underquoting occurred. However, agents must be able to prove their price estimates were reasonable and evidence-based at all times.
More information is available on the NSW Fair Trading website.
How to Protect Yourself from Underquoting
Underquoting can be hard to avoid, but here’s how you can protect yourself:
1. Know Your Market
- Research recent comparable sales in your target area
- Attend open homes for similar properties
- Attend auctions to observe real selling prices versus initial price guides
- Compare agent price guides with actual sales results to identify patterns of underquoting
2. Be Skeptical of Price Guides
If a price guide seems too good to be true — it probably is.
Use your research to make independent assessments, not just rely on agent quotes.
3. Get Professional Help
Consider hiring a Buyers Agent.
They can:
- Provide independent property evaluations based on current market conditions
- Guide you through the sales process
- Assist with negotiations or represent you at auction
