By KIRSTEN CRAZE
RESIDENTIAL SALES CHAPTER DRIVEN CONTENT
Although underquoting is illegal and can attract hefty fines, seasoned agents say it still happens in New South Wales. NSW Fair Trading has fined more than 200 agents in excess of $500,000 (since rules were tightened in 2016) for deliberately understating the value of property. Despite amendments to the Property Stock and Business Agents Act 2002 (NSW) in a bid to stamp out the dodgy practice, one recent case in Victoria has shown that more could be done north of the border to extinguish the unethical exercise.
A word of warning from Victoria
One real estate agency in Melbourne’s east, Fletchers Blackburn and Canterbury, was fined $880,000 for underquoting - more than double any commission that the agency would have made from the 22 sales in question. The agency was fined $40,000 for each property underquoted - the highest penalty ever handed out in Victoria. In New South Wales, agents who commit an underquoting offence can only be fined up to $22,000.
Reportedly, Fletchers’ marketing strategy was to advertise properties at a price below their estimated price or provide a “price on application” option. In the later stages of their marketing campaigns, the Fletchers office would increase the price guide, but not up to the vendor’s price range. Ultimately, reserve prices for the properties were much higher than their advertised price.
The Fletchers agents were found to have sent emails to vendors explaining that the price quoted “is not the sale price” and it “gets the phone ringing, email enquiries and buyers through the front door” as well as “it is better to start low and lift the quote”.
The Federal Court of Victoria found that Fletchers’ conduct was deliberate, amounting to intentional and misleading marketing.
Lessons for New South Wales
Thomas McGlynn, Head of Sales with BresicWhitney and REINSW Residential Sales Chapter Committee Member, said while underquoting has been minimised in New South Wales, there is still room for improvement.
“The industry has sharpened up in relation to how it communicates price guides. First, because legislation has tightened up what you're allowed to do and not allowed to do, but secondly, I think the consumer has had a part to play. They want to deal with real estate agents who are a lot more transparent,” he said.
Mr McGlynn added that a leaf could be taken out of the Victorian book by making local agents more accountable.
“The biggest difference between the states is that Victoria is required, through the law, to provide a statement that not only says what they’ve told the owner, but they also need to provide evidence to support that. In New South Wales we have moved to the point where what we tell the seller should be the same as what we tell the buyer, however, we're currently not required to back that up and show the buyer recent and comparable sales or provide the reasons why we're quoting the price were quoting,” he explained.
Underquoting in a rising market
With prices rising by thousands of dollars a month in certain micro markets, some agents may be fearful of being tarred with the underquoting brush.
“It's a challenge we're dealing with because the ferocity of the market over the past 12 months has played a part in the perception that price guides aren't always accurate,” Mr McGlynn said.
“The more transparent we can be with buyers and with sellers around price, the better,” he added.
A fast-paced market definitely breeds confusion and frustration according to Mr McGlynn.
“I’ve experienced situations where the agent has done the right thing with regards to their discussions with sellers and the buyers. But then the auction has taken the price into another level where neither the agent nor the vendor were expecting it to go,” he explained.
“Competition is competition, and you can't control that, but what you can control is the information you're giving to the sellers and the buyers.”
Baiting buyers and conditioning vendors
Betty Ockerlander of McGrath Epping and REINSW Residential Sales Chapter Committee Member said bait advertising and underquoting is a numbers game that just doesn’t add up.
“New South Wales could go further to match what Victoria is doing. That extra level of transparency would put a stop to these lazy agents,” she said.
“I had a case recently where a tradesperson we know overheard an agent telling her vendors ‘We have to do this to get the crowd in. Don't worry, I’ll get more money than that, but we just have to start it here to bring the buyers in’. It's just so wrong,” she said.
“What they're doing is stopping buyers from looking at other properties. They’re using this as a strategy to do less work and basically leaving it to whatever happens at auction. But if you do it properly and actually speak to qualified people then there are a lot more hours involved for the agent,” said Ms Ockerlander, adding that agents with a short term view mistake quantity for quality.
“You can have a really good auction with just two people if they’re qualified buyers. Unfortunately, vendors who haven’t been prepared properly don’t necessarily think that's a good auction, they want to say ‘I got 38 registered!’ but 36 of them weren’t really in it because they were told the wrong price. They’re the ones who will be bitterly disappointed that not only have they missed out on that property, but others in the meantime,” she said.