By Rich Harvey, CEO & Founder, propertybuyer.com.au
I’ve been working in real estate for a long while now and so not much shocks me these days, but the scourge of underquoting has gotten so bad that I can barely believe it.
Take the house in Sydney’s inner-southwest that recently went to market with a guide price of $1.7 million, which seemed adequate given it needed a bit of work and was on a small block, but somehow managed to fetch $2.25 million at auction.
Or the pokey and tired semi in the city’s inner west that was guided at $1.85 million and sold for almost $2.4 million prior to auction on the back of heated competition among a few motivated buyers.
Or the incredibly unremarkable brick dwelling on a good-sized block in a middle ring western Sydney suburb that was guided at $2.2 million to $2.4 million because of its development potential and raked in almost $3 million when it went under contract.
There’s market momentum, where high demand and low supply results in homes selling for a healthy margin above the guide, and then there’s pure and simple underquoting.
These real-life examples I’ve just offered are far from isolated incidents. I’m seeing it everywhere and the influx of frustrated and fed-up clients I’m meeting are too. Underquoting to this extent is absolute rife in the market at the moment. It’s blatant, frustrating and seemingly unavoidable.
It comes at a price
Not only is it potentially devastating for would-be buyers who’ve pinned their hopes on a home they could never really afford, but it costs them money and could see them miss out on other viable opportunities.
Just think about everything involved with seriously pursuing the purchase of a property.
Whether it’s your first home, you’re upgrading, you’re downsizing or you’re investing, you spend a lot of time searching out listings that fall within your budget. Each hour of your time is worth something and anyone who’s in the market will know that you clock up plenty every single week.
Then there’s the back and forth with agents, attending inspections, doing second walk-throughs, getting your finance ready so you can act and more.
But on top of the cost of your time, there are building and pest inspection reports to be purchased and contracts to be reviewed by lawyers ahead of auction.
Several underquoted properties you waste your time on could easily be the equivalent of thousands of dollars in unnecessary expenses.
If you don’t wind up buying, then it’s back to the drawing board. But perhaps worse, when you’re really attached to a listing or you’re simply fed up with looking, you could be pushed into a position where you’re paying more than you want to, simply because of the pressure of fake competition.
The laws aren’t working
The practice isn’t new. It’s been going on for decades now, where selling agents offer a guide that’s lower than what the vendor wants. It’s a practice designed top to unrealistically increase the pool of potential buyers and create the illusion of competition, thus helping drive up the eventual price.
At various points in recent times, it’s gotten so bad that some states have introduced new restrictions to try to stamp it out. However, the level of fines imposed are obviously not a significant deterrent.
Price guides in Victoria must be displayed on all advertisements, meaning you won’t see the words ‘contact agent’ where a dollar amount should be. They must also be justified with recent comparable sales.
In both New South Wales and Queensland, guides must also be justified with recent comparable sales and they must also be agreed on before the vendor signs an agency agreement.
But clearly, the measures put in place simply aren’t working, otherwise you wouldn’t have properties going to auction, reaching the guide and being passed in because it’s not what the vendor wants. And you certainly wouldn’t have homes selling for half-a-million dollars above the guide… hot market or not.
How we beat underquoting
Some of the underquoting going on is extreme, like the examples I provided, while in others we’re seeing it in the magnitude of 10 per cent to 20 per cent, and sometimes more. But it’s happening – and it’s across the board.
Some agents become notorious for it. There’s onesome larger big agencies in particular that are regularly cursed by those buyers who’ve been in the market for many moons.
Regardless, it all becomes a confusing mess for anyone trying to buy a home or an investment who can’t get a handle on the actual lay of the land.
Avoiding underquoting isn’t just about looking at a property’s attributes and determining its values. It’s about knowing how particular sales agents – and agencies – price their properties at the start, and then what they’re likely to actually sell for.
As buyer’s agents, we track this data and know our local patches intimately. We hone in on the trends to get a sense of what price a home is really likely to achieve, so we’re not wasting our time, but more importantly, our clients’ time.
It’s also about knowing the intrinsic real-time value of a suburb or a region, determined by current levels of buyer demand, the types of dwellings that are particularly sought-after, demographic shifts and more.
As independent buyers’ agent, we provide extensive appraisals of markets for our clients so they can get a true and accurate sense of what their budget might get them. These appraisals are typically within a three per cent accuracy of sale prices.
We also help our buyers avoid the nightmare scenario of lost time, dashed hopes, wasted money and paying too much. In a market dominated by underquoting, a buyer’s agent is your unbiased and accurate guide through the confusing mess.
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