By Kirsten Craze
Australian house prices are rising at their fastest pace in decades, which has presented many selling agents with a common question - how to keep price guides in line with such unprecedented demand?
According to CoreLogic's March Home Value Index, Sydney’s dwelling prices had the most rapid rise in the country, up 3.7 per cent in March and 6.7 per cent over the first quarter of 2021. Across NSW regional markets values were up 2.8 per cent in March.
As a result of demand far outweighing supply, agents and their vendors are navigating the unusual territory of adjusting price guides, sometimes more than once, during a marketing campaign.
Buyer fear of missing out leads to fear of underquoting
In 2020, Byron Bay’s house price shot up 37 per cent to $1.68 million - the highest median growth in the country according to Domain’s House Price Report.
Principal at Belle Property Byron Bay/Lennox Head and Chairperson of REINSW’s Residential Sales Chapter, Braden Walters, said such conditions naturally lead to talk about underquoting.
“It’s easy to beat up an agent for underquoting in a hot market, but it is the agent’s job to get the best result for the vendor. It’s not underquoting if the sale price far exceeds the guide price because there are multiple parties pushing the price up. The public needs to be made aware of the difference and the true definition of underquoting,” he said.
“Agents need to make sure they keep their guide aligned with the market feedback and any changes in the estimated selling price throughout the campaign. Just be honest with your estimate, and the guide price. That’s the best, and only way, to work in the long term,” he said.
Craig Marshall, director of Marshall Chan Yahl and Committee Member of REINSW’s Residential Sales Chapter, said such a fast-moving market poses challenges.
“It is a bit tricky because you must prove what your price guide is by comparable sales. But certain properties, which are very sought after, have gone up 10 to 20 per cent in just a couple of months,” he said.
“If the market goes up in a matter of weeks, that's just the market and you won't get in trouble for that. Can you imagine an auctioneer saying ‘So we're quoting $2.1 million but now we're at $2.3 million so we have to stop the bidding. You can't do that!’ However, if you can't prove what you think it's worth, that’s when you're in trouble,” he said.
A new way of doing business
Although new underquoting laws came into effect five years ago, markets haven’t moved so fast since that time. When changes to the Property, Stock and Business Agents Act 2002 came in on 1 January 2016 there were some very particular rules made around pricing.
No longer can agents advertise a home with words or symbols such as “plus” and “+” and expressions like “offers over” and “offers above” were also banned. When it comes to ranges in the advertised price, they must be within a 10 per cent bracket.
Agents must also update price estimates throughout the campaign if the reasonable estimate changes. For example, if a genuine buyer offer is higher than the quoted price then the agent must update online listings or verbal price advice given to buyers.
“I think most buyers do understand the 10 per cent rule. The problem at the moment is that the market is going up more than that in a couple of weeks. That’s when it becomes difficult; because you can still be quoting what’s realistic but buyers are pushing it 10 per cent more - then suddenly you’re 20 per cent out which is not the agents’ fault. It's just that buyers are going crazy,” Mr Marshall said.
What goes up, just might come down
As prices skyrocket, so do vendors ’expectations. A seasoned agent knows that booms don’t last forever and as values begin to soften, sellers’ price hopes usually remain high.
“The problem arises when owners start going above where buyers are going. Their expectations are that if prices are going up 10 per cent, then they want 20 per cent more. It's just not going to keep going up. So, it’s a matter of spending time with vendors and explaining the whole situation to them so you can manage their expectations to be realistic,” he said.
“People have got to understand we're calling this a bubble, so it's not going to last forever. Maybe in six months, or even three months, we'll be going the other way and having to have meetings with owners explaining that the market is going down,” he said.