Underquoting by real estate agents has been placed under the microscope in recent months in Australia. This trend has been the source of much complaint in recent times, especially in boom-markets like Sydney, where some agents were seen to be misleading prospective buyers into trusting them to give them a realistic price-guide; when in fact the agent knew all along the property would sell for a substantially higher price.
It works like this: a property type in a given suburb; let’s say a 2-bedroom semi in a popular suburb in Sydney’s inner west; is to go to auction in the coming weeks. Buyers can investigate recent sales history and observe the median price for such a property may be $900,000 (for example).
However, some agents, upon being contacted by buyers, have been caught out saying things like “I think this one could go for $750K – $800K”. A buyer who’s maximum top-end budget may be $800K; may then register to bid; believing that they have a genuine chance to pick up a property for possibly $100K below the median for that type, in that area.
The prospective buyer then investigates, does their due diligence, orders their building and pest inspection, valuations, and other ‘due diligence’ expenses; trusting that $750-$800K is a realistic price guide. This may set them back thousands of dollars, just to get to a point where they can confidently bid at auction.
Come auction day and the semi of course sells for $900K+. The buyer is frustrated; not only because their time was wasted, but their money too.
However, this is ultimately the buyer’s fault. Buyers must be wise to recent sales histories and conduct proper due diligence around this; so that they don’t get stung by misleading price guides.
Regardless, the issue of trust with sales estate agents comes to the fold. In ‘hot’ markets; sales agents don’t need to build relationships and rapport with prospects as much as they do in the ‘lean’ times. Hence, building a trust-based relationship with a prospective buyer may not be seen to be as important as simply getting an easy sale.
The issue of trust with sales estate agents is not a new one; this has been around for as long as property sales agents have existed. In fact, in a recent Roy Morgan Professions Survey; trust placed in real estate agents is on the decline, with real estate agents being named one of the least trustworthy professionals in 2015 (Roy Morgan Professions Survey data, 2015).
Further supplementary research goes on to reveal how important honesty and trust is; when working with sales agents:
· One-third (39%) of Australians rank ‘honesty’ as the most important trait in a real estate agent;
· 79% of Australians claim to have been shown a property that the agent knew they could not afford;
· 74% of prospective buyers say they have never seen a vendor agreement
However, a number of good things have developed in this space in recent times; to help minimise buyers from being stung by underquoting.
For instance, in Queensland; Sales agents are no longer allowed to offer Price Guides at all; for auction-listed properties. This is a step in the right direction, as it really does put the onus on buyers to do their due diligence at recent sales, to calculate what ‘ballpark’ an auction property is likely to be in, to enable them to bid confidently and realistically.
That said; Queensland is typically not an ‘auction-favoured’ state. Most homes remain to be sold at private sale (this sale type still allows agents to list a fixed price, a price range, or an ‘offers above’ price guide, at their leisure).
So, it is interesting to look at what is happening in markets where auction sales are the norm, and not the anomaly.
Such is an example in Sydney – home to the greatest volume of underquoting complaints – that we identified recent. Two Australian real estate agents, Danny Doff and Caleb Jarvis; both of Laing + Simmons Double Bay & Bondi, in Sydney, have responded to the NSW government’s crackdown on real estate underquoting by choosing to openly share vendor agreements with all prospective buyers.
“Property is the most substantial purchase a person will ever make, and therefore trust and transparency in the process is crucial,” says Danny Doff, Principal at Laing + Simmons Double Bay.
This is a marked change in the level of transparency that agents have historically offered to auction-based prospective buyers.
According to Caleb Jarvis; also of Laing + Simmons Double Bay; “Buying property isn’t a simple process. There are often endless inspections, legal fees and building reports and constant negotiation involved. People get to the end of this process and then leave empty handed, finding the property was outside their price range from the outset.”
It’ll be interesting to if other agents and their listing vendor clients follow this trend of greater transparency and managed expectations for all parties; up front.
Mr Doff concluded his insights to mention that “In the current market, it is a must for prospective property buyers to demand clear and trustworthy communication from their real estate agent to ensure they are maximising every dollar spent. We are urging all real estate agents across Australia to do their part, reinstate trust in the industry, and openly share vendor agreements with their clients,” concluded Mr Doff.
In particular markets like Sydney and parts of Melbourne, where the heat is arguably starting to come out of these markets; building trust with prospective buyers again will be critical as these markets transition into more uncertain capital growth in the coming couple of years ahead.