What is Underquoting?
Underquoting is when a selling agent states or publishes a price for a property that is less than their reasonable estimate of the property’s likely selling price contained in the agency agreement with the seller. It is used as a tactic to increase interest from buyers and ultimately result in a higher selling price for the vendor.
” quote them low, watch them go… quote them high, watch them die….”
Underquoting can cause interested buyers to waste time and money on inspecting properties, getting reports and attending auctions based on misleading estimates of the selling price. It’s also illegal.
Buying a property is likely to be the biggest financial investment most people will ever make. It’s a stressful time and buyers have the right to expect that a real estate agent will market a property ethically and professionally.
Underquoting Reforms for NSW residential property
To better protect consumers from the practice of underquoting, on 1 January 2016 Fair Trading introduced new laws. These laws require selling agents to use their skills to make a reasonable and fair estimate of the likely selling price.
Under the legislation agents are required to base their estimated selling price on evidence, such as recent sale prices achieved for similar properties in the area also taking into account factors like location, architectural design, potential future use of the property, current market demand and market conditions. They are no longer allowed to use vague price statements like “offers over” or “offers above” and they must also keep a record of all the prices they have quoted for a property. If the agent has new evidence indicating a change in the estimated sale price they are required to update the estimated selling price in the sales agreement as well as all advertising, communications and marketing materials.
When real estate agents are inspected by Fair Trading officers they must provide appropriate documentation to show they have complied with the laws.
The role of the seller’s appointed agent to achieve the highest possible price on the property owner’s behalf does not mean they should manipulate buyer interest with false price information.
Agents who commit an underquoting offence may be fined up to $22,000 and could lose their commission and fees earned from the sale of an underquoted property.
Be aware that, simply because a property sells for more than expected, this does not mean underquoting has occurred. Sometimes competitive buyer behaviour can result in a much higher sale price than what an agent could have reasonably estimated. However, the law now requires an agent to be able to show that their estimate was reasonable, up-to-date and evidence-based.
How to protect yourself from Underquoting
- If the selling agent provides an estimate, don’t take it as gospel. You need to do as much research as possible. Visit as many open homes as you can. Attend their auctions and get a feel for the level of competition and the actual selling prices achieved. Compare this to the estimate given to you by the selling agent. Extensive research is key to understanding the market and to developing a good understanding of a what a property is actually worth. The more research you do, the more able you will be able to determine if an agent is underquoting.
- Consider hiring a Buyers Agent to guide you through the sales process. Buyers Agents are experts in estimating what a property is worth in the current market conditions and will be able to
What you should NOT do:
- Don’t rely on prices that seem too good to be true. If the price seems to good to be true, it usually is! This is where your knowledge of the market (gained above) can help you.
- Don’t rely on one person’s judgement. You need to talk to other buyers and licensed property professionals and do your own research.
Engaging Homesearch Solutions Buyers Agent is a good way to protect you from underquoting. Our extensive experience and property databases ensure you will have the most up to date pricing and market information available.