By Rich Harvey, CEO & Founder, propertybuyer.com.au
The property market is running at extraordinary pace right now. Record growth is fuelling banner headlines about value gains across the nation. Buyers are dealing with FOMO while sellers are sitting pretty.
That may seem like all good news to many property owners and agents, but these sorts of conditions also bring about some unfortunate consequences – and there’s two particular scourges I’d like to see wiped out.
It’s the practices of over and underquoting because they’re damaging to the real estate industry.
What is overquoting and underquoting?
In hot markets the competition for listings is intense. Invariably there’s always too many buyers and not enough stock, so those agents who can win over sellers in the first place do very well.
When pitching for a listing, agents give potential sellers an idea of the price they believe they can achieve. Unfortunately, there are some agents who feel the need to overquote what they truly think the market will pay for the property. These agents are trying to ‘buy the listing’ by playing to the seller’s emotional desire for more dollars.
Once they’ve got the job and advertise the property for sale, they’ll use responses from the market to recondition the seller and talk down those lofty price expectations. In all likelihood, a sale will eventually occur at the more realistic price.
Underquoting is the reverse side of the coin. When taking a property to market in NSW and Victoria, the selling agent must provide a price guide for the property based on comparable sales. In NSW they have got the option of providing an indicative price range, but that range can show no more than 10 per cent variance from the top figure to the bottom figure.
Underquoting sees some agents purposefully advertise a price guide substantially lower than what will be realistically achieved in the market. This is done to create as much competition as possible. It builds the frenzy and looks good when reporting back to the seller about the extent of interest in the listing. Now, there are all these purchasers thinking they have a chance to buy the property for ‘X’ dollars, when there is actually no way that will happen.
The damage done
There are several reasons why overquoting and underquoting are bad news for the market, industry and all stakeholders.
1. Legalities
Providing unrealistic price guides when advertising properties for sale is against the law. If it can be proved an agent has underquoted and they are convicted of the practice, they not only lose their commission but are also be liable for substantial fines – $22,000 in NSW and $31,000 in Victoria.
In addition, agents are supposed to adjust advertised price guides based on buyer’s responses during the marketing campaign. The law says in NSW:
“A real estate agent must, as soon as practicable after revising the estimated selling price, take all reasonable steps to amend or retract any advertisement published in relation to the property that includes an advertised selling price for the property that is less than the revised estimated selling price (section 73(3)).”
So, based on this, let’s say an agent receives an offer before auction of $2.4 million on a property that’s advertised with a $2.1 million price guide – but they decide to take the property to auction anyway. What should the agent do regarding the currently advertised price expectation?
Well, they should amend the advertised price guide immediately so low bidders know they’ll be blown out of the water come auction day. Unfortunately, many won’t because they want the auction to be well attended and have a frenzied feel.
2. Wasted time and money
Misquoting a property either up or down will result in unnecessary stress and hardship for many of the stakeholders involved.
For sellers, overquoting can see them holding out for an unrealistic figure when they’ve received an entirely appropriate offer for their home. The protracted sales process will burn off legitimate buyers, and needlessly add to the expense of advertising and marketing.
Buyers are also hurt in terms of time, effort and expense by these practices. Underquoting will see potential purchasers include a range of properties in their short list that are well outside their budget. All those hours spent driving to locations and inspecting homes they’ll never have a chance of owning. All that exhausting effort. Not to mention those who go a step further and commission expert reports in advance of an auction. Building and pest inspections, town planner’s options – you name it. All wasted money because they aren’t really in the running.
3. Bad for the industry
Perhaps worst of all is that misquoting brings the industry into disrepute.
These practices build a mistrust of agents among buyers and sellers. Purchasers learn to ignore price guides. Vendors who to cling to that higher price expectation soon become disgruntled and frustrated by an agent who can’t achieve the figure they said they would.
The process of trading property becomes a chore, and the reputation of all agents is damaged by those who misquote.
Protecting yourself from overquoting
For both sellers and buyers, the best way to avoid becoming a victim of misquoting is to apply fearless and frank scrutiny to the research and evidence you’re provided by an agent. Try and be unemotional (I know it’s hard) about the property and what can be achieved.
For purchasers, I implore you to rely on independent professional advice.
Here’s where an experienced buyers' agent comes to the fore. We know our markets and can be very accurate with our price predictions.
At Propertybuyer for example, we pride ourselves on striving for market appraisals that are consistently within three to five per cent of the eventual sale price. This means our clients are armed with excellent intel when making important decisions on how to proceed.
We can also sort through potential listings quickly, and easily identify those properties which have been underquoted to the market. The saving in time and grief for our clients is enormous.
In addition, our trusted relationships with local agents helps us cut through the hype. We understand the game and can give you a huge advantage in the negotiation.
So don’t be a victim of overquoting. Instead, utilise the skills of a professional with the local know how to help you secure your property at a fair figure.
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