‘It’s bulls**t’: Sneaky sales tactic costing homeowners plenty

Shock new research has revealed how damaging a controversial real estate agent practice designed to drive up prices really is.

Home seekers are being leeched of precious property buying budget through underquoting practices that are illegal in some states but remain difficult to police or prove, new analysis shows.

The study of recent sales has laid bare the extent of selling agent underquoting – revealing that the practice is costing potential buyers thousands of dollars in wasted research.

Sam Powell, head of research at Hello Haus property advisory, said underquoting was making buyers dig into their deposit to pay for pre-offer research.

“Underquoting” is the practice where agents deliberately quote price guides that are significantly lower than what they expect to realistically get for the property through a sale or auction.

The practice is usually done in the name of driving up competition for the property. This puts pressure on interested home seekers, resulting in higher offers and a higher sale price.

Price guides are often quoted low to attract more buyers and increase competition, especially at auctions.

“It’s hard enough for purchasers to squirrel away funds for their deposit without this selling strategy,” Mr Powell said.

“Then (they are) depleting these savings by thousands through, what we consider, an unfair means.”

Hello Haus analysed 226 property listings nationally from early June to mid-October, with 112 of those becoming confirmed sales.

Their analysis revealed an average variation between agent appraisals and eventual sale prices of 7.3 per cent.

Hello Haus’ own pre-sale assessments of value on the same properties varied by an average of just 0.4 per cent from the eventual sale prices.

Underquoting was most dramatic in Sydney where variations between the agent’s indicative price and eventual sale price ranged from seven per cent to 17 per cent across most sales.

Agents have defended their price guides, arguing that a shortage of stock has often led to impulsive or emotional offers at auctions. Picture: Gaye Gerard

NSW legislation permits agents to quote a price guide within 10 per cent of the estimated sale price provided in the agency agreement made with the vendor.

One of the most divergent list versus sold prices was reported in beach suburb Bronte, where the agent’s guide of $3.3m was exceeded by $700,000 – or 17.5 per cent – when it eventually sold for $4m.

Hellos Haus reported that underquoting was also occurring in Victoria, another state where protections are meant to be in place to prevent home seekers from shelling out research money unnecessarily.

“In a recent example, we were approached by a buyer from Victoria with a firm $860,000 price limit looking at a property advertised for $830,000 to $890,000,” Mr Powell said.

“The buyer had already paid for legal advice and was about to order a $700 building and pest inspection.

“A call from us to the agent revealed they’d already received several offers in excess of our buyer’s budget, and that the seller wouldn’t agree to any offer below $900,000.

Buyers have complained that competing at an auction costs money in prior research fees and that underquoting means this money is spent on the wrong properties.

“Our own assessment confirmed an end sale price for the property would likely be $950,000. That’s a long way off the advertised figures.”

Mr Powell said buyers were paying a high price for agents underquoting infractions.

“The problem is that potential buyers wooed into the sale race by the underquoted guide price can spend a huge chunk of their savings preparing to bid at auction or put forward an offer despite the fact they have no chance of securing the property,” he said.

“This money is burnt up by pre-advisory legal fees, town planning reports, building inspections and other services. All wasted time and money that eats into their deposit and makes them less competitive when the next opportunity comes along.”

One home seeker, who didn’t want to be named because he feared retaliation from agents, said underquoting was becoming blatant and agencies no longer feared the repercussions.

“In the unlikely event they get reported, all they get is a slap on the wrist. It’s not enough to stop what they’re doing,” he said.

The house hunter said underquoting had cost him money as he registered for multiple auctions in the Sutherland Shire area that he later found out were well beyond his budget.

Sam Powell head of research at Hello Haus.

“When the price guide is $1m but the auctioneer asks for an opening bid of $1.3m and the final bid is $1.4m, you know the system is broken,” he said.

“Each auction is money. You have to pay a solicitor, get a building report, drive there. It all adds up. It’s reached the point where price guides are meaningless. Why even bother if it’s bullshit?”

The home seeker, who is still looking for a home, said he was beginning to hate estate agents and auctioneers.

“What I hate is that even the nice agents are doing it because all the other agents do it. I think the agents in the Shire are the worst.

“They’re parasites. And the auctioneers are just the puppets. The agents are pulling all the strings.”

Agents have, in the past, defended their price guide quotations by pointing out that it can be difficult to predict what homes will likely sell for in a rising market with a severe shortage of stock.

It has also been argued that home purchases are emotional decisions and it can be difficult to know with certainty what price any given home seekers would be willing to pay.

Mr Powell said more transparency in the listing process would help put an end to the practice.

“I believe an ideal fix would be to make public the estimated price quoted to the seller in the agency agreement.

“In the same way house plans, contract conditions and town planning information can be included in the listing, so too should be the documented price the agent has suggested to the seller in their formal agreement.

“While sellers can choose not to accept that price during negotiations, it adds transparency to the advice they’re receiving.

“Also, buyers need to complete a realistic due diligence on value before they engage sundry professionals like lawyers and building inspectors.

“A comprehensive study of comparable sales is essential. The difficulty is taking the emotion out of the comparison process.

“Having a professional with the skill and mindset to accurately assess value on your behalf is the best way to avoid the disappointment of missing out on a property.”

Originally published as ‘It’s bulls**t’: Sneaky sales tactic costing homeowners plenty