Aussie real estate agents accused of underquoting on price guides

With houses selling for hundreds of thousands of dollars above price guides and reserves, some claim there’s a widespread problem.

With a $250,000 deposit, Melbourne woman Grace Almeida has turned up to auctions ready to buy a home based on the price guides — but hasn’t even gotten a bid in.

The 22-year-old has been looking for a two-bedroom unit in south east Melbourne for the past three months.

She was lucky enough to have been left some money from her grandparents, but said she has also been saving for a home since she was 18.

Her first auction was for a two-bedroom unit in Surrey Hills in Melbourne. Its original price guide was $700,000 to $770,000, which was then upped to $730,000 to $800,000.

“It was pretty small and the kitchen and bathroom needed to be redone and it ended up going for $950,000,” she told news.com.au.

“I was waiting until it slowed down at around the $750,000 mark but it never slowed down. It’s just disheartening. It’s so much above what you expect it to be, so it’s like, what’s the point in showing up?”

And the practice of real estate underquoting is a problem that’s happening right across Australia, with Fair Trading recently announcing a crackdown on Sydney real estate agents who deliberately underquote property prices, with those caught out facing fines of up to $22,000 and the loss of their commission under the Property Stock and Business Agents Act.

Ms Almeida said that a couple of weeks ago she was interested in another property in the Melbourne suburb of Camberwell. The price guide was again amended from $680,000-$730,000 to $750,000-$800,000.

“It went to auction and once again I didn’t even get a bid in and it went for $890,000. The price guides are quite obviously not accurate … I think really you do need to add $200,000 on top of it to even be in an accurate range,” she said.

She said it highlighted the issue of misleading price guides as property prices continue to rise across Australia.

Buyers’ agents have said the issue is widespread, but one real estate agent with more than 20 years experience said it was in the “absolute minority”.

“Agents don’t need to do anything else other than list a property at the correct price and the market will do the rest,” the agent said.

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Grace Almeida has been

Are misleading price guides widespread?

Owning a house has always been a “dream” for Ms Almeida, who said she is still scrolling through property listings but is thinking it might be better to wait out the current market craziness.

“You get your hopes up and you get excited and then when there is no way you were ever going to be able to afford that property, it’s disheartening and you lose that motivation to keep looking,” she explained.

“It’s interesting, I thought I’m in a really fortunate position that a lot of people aren’t in. I hear a lot of people are trying to get into the property market with a 10 per cent deposit and even some of the schemes offer a 5 per cent deposit, so I thought I’m in great position that a lot of other people aren’t in. But that hasn’t materialised into anything. I thought I would be a bit more lucky actually securing a property from having that large deposit.”

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Melbourne buyers’ advocate Wendy Chamberlain, a fully licenced real estate agent who has been working in the industry for 24 years, claims misleading price guides was currently “widespread”.

She attended an auction for a client a week ago in Box Hill South and the property sold for $530,000 over the advertised reserve price.

“Around four weeks ago, we attended another auction on Box Hill South. The property sold for $510,000 over the top of the guide price. I am seeing this constantly with properties when hunting for clients at the moment,” she said.

Ms Chamberlain said at another auction she had $200,000 over the reserve to bid on a property with a price guide of $1.3 million, which ended up selling for $1.86 million.

“You’d think if showing up to an auction with $200,000 over the guide price, you would have a good shot at it,” she said.

Buyer's agent Wendy Chamberlain has called for the laws around price guides to be changed in Victoria. Picture: Supplied

How a price guide is determined

In Victoria, price guides need to be based on comparable sales in the past six months within a 2km radius of the home being sold.

Realestate.com.au figures reveal one in five Melbourne homes sold above their advertised prices in February 2021, but data from Victoria’s consumer watchdog does not reflect a rise in reported underquoting incidents.

Consumer Affairs Victoria received 212 complaints and inquiries relating to underquoting between December 1 and February 28 — down from 242 for the same period the previous year.

Ms Chamberlain called for the comparable sales period to be shortened down to three months in Victoria in the current market.

Sydney buyers’ agent Emma Cameron said underquoting on price guides is currently a “huge” and “widespread” problem in NSW too.

Price guides are meant to be based on recent comparable sales guides evidence, explained Ms Cameron, who has been in the industry for 10 years.

A buyer snapped up this two-bedroom property in Darlinghurst for $2.7 million earlier this month, surpassing its $1.8m asking price. Picture: Supplied

But given the unexpected and extraordinary price increases in the first quarter of 2021, many agents are possibly waiting for further evidence that the increased prices will be sustained and become the new norm before providing more accurate price guides, she said.

“The chronically low stock levels with more buyers than sellers is creating extremely competitive bidding and for some reason buyers have a fear of missing out mentality at the moment and these factors are also driving prices upwards,” Ms Cameron said.

“Incorrect price guides make buyers resentful of the selling agents for having wasted their time and resources and leaving them with a feeling of having been misled that the property was within their budget. There is a lot of buyer fatigue out there at the moment.”

She advises her clients to add 20 to 30 per cent on top of the price guide.

In Freshwater, a two-storey house at 4 Kooloora Ave sold under the hammer for a whopping $5.502 million, smashing its $3.8 million price guide in March this year. Picture: Supplied

There is however a difference between quoting low and underquoting, she added. If the price guide is not below the bottom end of what is written on the selling agency agreement, then technically the agent is not underquoting, she explained.

Only a ‘sinister few’ agents are doing misleading price guides

But Doug Driscoll, chief executive of Sydney real estate agency Starr Partners, said it’s the “absolute minority” and a “sinister few” who are using the illegal tactic of producing misleading price guides and the problem is not widespread in the industry.

“I can’t stress that enough. I don’t know of anyone or any competitor I have seen about the traps, who are culpable of this. In the event that such things transpire the onus is on Fair Trading to come down on people with an absolute tonne of bricks. We can’t tolerate this and I mean handing out heavy fines and taking away their licence,” he said.

“At the end of the day misleading people and giving them false hope isn’t right. Moving home is such an emotional experience at the best of times and we don’t want to get people’s hopes up only to get them dashed because of sinister tactics employed to generate more interest.”

Starr Partners CEO Douglas Driscoll said he hasn’t seen any widespread evidence of misleading price guides, particularly as the market is so hot. Picture: Jonathan Ng

Given how hot the property market currently is, this type of manipulation also isn’t necessary, he added.

“We are currently in the midst of a perfect storm. Agents don’t need to do anything else other than list a property at the correct price and the market will do the rest,” he explained.

“At this moment in time, agents aren’t selling properties — people are buying them. Agents don’t need to administer any underarm tactics and maybe call me naive but I haven’t seen any evidence of that.

“There are situations where you will see guide prices smashed and exceeded by several hundred thousands of dollars, but I don’t think it’s that the agents have misled. I think they have got it massively wrong and their finger is not close enough to the pulse.”

Mr Driscoll, who has worked in real estate for 20 years, said some of the prices being achieved are “blowing everyone away”, with the market unpredictable and moving so quickly.

“Agents are trying their best but there are results that defy logic … What tends to happen when people have FOMO is they do get carried away and pay way over the advertised price. We saw the same phenomenon in 2015 and 2016.”

For buyers, he advises that if a price seems too good to be true, than it probably is, and people should be conducting their own research.

“The public are more empowered than ever before. Consumers don’t have to take things on face value and the public have access to the same information as agents have,” he said. “Agents are no longer the gatekeepers of the information. We are in a fully transparent world now and my is advice don’t take things on face value. If you suspect you’re being misled, do your own research.”

Underquoting crackdown

In early April, Fair Trading launched a blitz on agents who deliberately underquote property prices, with inspectors turning up to agencies, auctions, and open homes across Sydney in a bid to catch agents falsely advertising property or indicating it will sell for less than its estimated selling price.

Those caught out face a hefty $22,000 fine and the loss of their commission under the Property Stock and Business Agents Act, with Fair Trading inspectors identifying 14 breaches while inspecting 33 sales agents in one week alone.

Better Regulation Minister Kevin Anderson also condemned the practice.

“With so many people in NSW looking to buy, the last thing that potential homebuyers need is to have their time and money wasted by real estate agents providing misleadingly low and incorrect price estimates,” Mr Anderson said.

“We will also be using this opportunity to educate the industry and ensure agents are crystal clear on their obligations under the law.”

Anyone who suspects an agent has deliberately underquoted can lodge a complaint online or call NSW Fair Trading.

In the year to September, NSW Fair Trading carried out a dozen compliance operations of real estate agents and issued almost $400,000 in fines.