Crackdown on real estate underquoting in Victoria

UPDATE: REAL estate agents caught underquoting Victorian properties could be stripped of their commission and cop hefty fines of up to $30,000 in a bid to help frustrated house hunters.

MP Jane Garrett and VicRoads announced the completion of the Vic Governments safety improvements to Sydney Road. Picture: Brendan Francis

REAL estate agents caught underquoting Victorian properties could be stripped of their commission and cop hefty fines of up to $30,000 under proposed reforms.

Under the State Government crackdown, agents would be banned from advertising properties with “offers over” and “price-plus”, instead having to provide a single figure or a 10 per cent price range.

RELATED: Hocking Stuart Richmond to face court

REIV calls for education for agents as authorities probe underquoting complaints

They would also need to revise a property’s estimated selling price within 24 hours if they received an offer in writing that was higher than the advertised price.

Agents would be required to provide prospective buyers with a “fact sheet” for any advertised property detailing three recent comparable sales, the estimated price for the home and the median price for the suburb.

If requested by Consumer Affairs Victoria, agents would need to provide evidence to justify their choice of comparable properties. The onus would also be on agents to prove they’re not underquoting with evidence about how they arrived at a property’s advertised price.

Fines for the dodgy practice could double to $30,000 under the proposed new laws, and agents would also risk losing sales commissions.

The changes would apply to residential private sales and auctions, not rural or commercial.

Consumer Affairs Minister Jane Garrett said the changes were not about limiting competition for homes or limiting house prices: “We will be making sure there is a clear paper trail as to how the agent and a vendor have come up with what they advertise the house price for,” she said.

“Unfortunately, the victims of that practice are people just desperate to buy their first home or move to a suburb they want to move into and they are spending months and months having their dreams dashed by this unfair practice.

“I think we will change the culture of this industry with what we are proposing.”

Ms Garrett said it was common for houses to be underquoted $100,000 to $150,000 under the reserve each weekend in Melbourne.

“Sometimes the market will be hot and it’s just hot. Sometimes a house just captures the imagination and it just flies,” she said.

“But at the moment what we know is there’s too many houses being advertised at too low a price, enticing buyers in, and they are getting their hopes dashed.”

The government intends to introduce the new laws later this year.

Underquoting is difficult to prove.

While an agent cannot advertise or quote a price that is below the seller’s reserve price, the agent’s own estimate or a genuine offer, there is no obligation on a seller to tell the agent their reserve price before auction. In a hot market, it can be higher than the advertised price.

Property industry experts have largely backed the changes, saying they will bring transparency and consistency to the property sale process.

David Morrell said there would still be “many ways to get around (underquoting)” and agents should instead be required to disclose their vendor’s reserve price at the beginning of a selling campaign.

“The angst underquoting causes is insurmountable — we’ve seen people walk away from auctions in tears. (Underquoting agents) are playing with people’s emotions,” he said.

Veteran agent and former REIV ethics committee chairman John Keating agreed a more effective solution would be for vendors to be forced to disclose the reserve price from the start of the campaign.

“The intention is good but it’s only a small step in the right direction,” Mr Keating said.

“As long as the vendor can change their reserve price at any time up to signing of a contract, the system will be open to rogue agents to easily manipulate the market and conceal the prices they know their vendors really want.”

He said the fact sheet that would be required could be easily manipulated by providing incomparable properties against the listing.

He said it wouldn’t be feasible for Consumer Affairs to inspect every property, needing large teams of property value experts for the task.

Victoria’s peak real estate body — which collaborated with Ms Garrett’s office over several months on the reforms — says the changes would “greatly benefit” prospective homebuyers.

REIV chief executive Enzo Raimondo said they were a significant step towards bringing transparency and consistency to property sales.

Harcourts chief executive Sadhana Smiles also believed the changes would bring consistency to the property sales process.

But Ms Smiles said what appeared to be underquoting was often a product of the market, and Melbourne’s auction market had seen rampant price blowouts in recent times.

“In the market we’ve had in the past 12 months, you’ve had active buyers who are willing to push prices up because they’re keen to get a home,” she said.

“It’s an emotional process. I’ve attended hundreds and hundreds of auctions ... and how many times do you see a wife telling her husband ‘bid more, we’re not going to lose this property’.

“I don’t believe there are rogue agents out there doing it deliberately.
“I do think we need to be a little more agile in understanding what the market’s doing.”

Ms Smiles said “good agents” were already providing thorough information for buyers and vendors.

Ten major underquoting investigations are underway following a series of Consumer Affairs Victoria inspections of franchisees from larger real estate agencies through to smaller operations.

The watchdog viewed 100 cases from last spring’s selling season and will look at another 100 cases in autumn.

CAV has examined more than 940 sales files to date.

The organisation has lodged court action against one Melbourne real estate agency this year, when it brought 11 charges against Hocking Stuart Richmond relating to the marketing of properties in and around the Richmond area in February.

The case is set to resume in the Federal Court in July.

WHAT IS UNDERQUOTING?

Underquoting is when an agent misleads a prospective buyer about the likely selling price of a property. It is illegal but very difficult to prove.

An agent cannot advertise or quote a price that is less than the seller’s reserve price or the agent’s own estimate. The agent also cannot advertise or quote a price that is below a genuine offer.

But there is no obligation on a seller to tell the agent their reserve price before auction and in a hot market, it can be higher than the advertised price.

THE CRACKDOWN

— Agents will be required to deliver a new fact sheet for buyers detailing recent comparable sales for a property, the median price for the suburb and their estimated sale price for the property

— Agents will need to revise a property’s estimated selling price if they receive an offer in

writing that is higher than the current advertised or estimated price

— “Offers over” or “price-plus” advertising to buyers will be banned, with the selling price only

provided as either a single figure or a price range that must fall within 10 per cent of the upper and lower limits

— Agents could be fined $30,000 and have their commission forfeited if they’re found guilty of underquoting

— The changes would apply to residential private sales and auctions, not rural or commercial