Public reserve prices, tougher penalties: A plan to tackle underquoting

The Real Estate Institute of Victoria, like the communities our sector serves, is keenly interested in and committed to transparency and fairness in the property market.

The Age’s investigative effort into the issue of advertised property prices and underquoting, analysing more than 26,000 sales results, represents one of the most comprehensive datasets examined in this debate and demands a meaningful response from the industry and the government.

While the REIV acknowledges the validity of the dataset, we must make the point that this data does not unequivocally prove underquoting at a systemic level. The fact that a property sells above its quoted price range does not, in itself, mean it has been underquoted.

Consumer Affairs Victoria’s own Underquoting Taskforce data shows that, over a period in which more than 30,000 auctions were conducted, fewer than 50 fines were issued.

This suggests that while breaches do occur, and the REIV denounces those who deliberately and egregiously break the rules, the majority of auction results above the quoted range are the product of competitive bidding in a dynamic market, not deliberate deception.

While the regulations currently in place applying to property pricing represent the best version of the rules we’ve had, and we would argue the best anywhere in the country, the REIV believes the enforcement regime is blunt and ineffective.

Agents are penalised in the same way for minor administrative errors, such as a missing file note, as for deliberate and systematic underquoting.

This undermines the credibility of enforcement, punishes inadvertent mistakes, and does too little to deter wilful breaches. We advocate a more proportionate approach: harsher penalties for those who deliberately flout the law (suspension/cancellation of licences), and more leniency for genuine administrative oversights.

There are practical reforms that could significantly improve transparency for buyers without undermining the legitimate interests of sellers.

There is growing interest across the sector in the disclosure of reserve prices before auction. A fact that is often overlooked in the debate over this issue is the incredible complexity of pricing expensive items (properties) in a subjective and dynamic market.

Therefore, reserve price disclosure should happen later in a sales campaign. Sellers need the opportunity to test the market and receive feedback before locking in a figure.

The provision of building and pest reports to all registered buyers is standard in the ACT. This information, provided by the vendors to buyers at no cost, gives a clear understanding of the property’s condition and removes a significant barrier to informed bidding.

If implemented, reserve price disclosure and mandatory building reports would make Victoria’s property selling system among the most transparent in the world, and the REIV would support their introduction. The public frustration with underquoting is real and justified. No buyer wants to waste time and money, feel misled, or endure the emotional toll of an auction where they never had a chance of success.

But beneath that frustration lies a deeper truth: disappointment at missing out on a home is often driven by the broader reality of housing affordability.

We are living through the most acute housing affordability crisis in history. Melbourne remains one of the 10 least-affordable housing markets in the world.

Even with median prices plateauing over the past two years, too many Victorians are locked out of ownership altogether. As further interest rate cuts take effect, we should expect Victorian property prices to increase, further compounding the issue.

When the supply of housing is limited, competition is intense. More competition means more properties sell above quoted price ranges and reserve prices, regardless of whether underquoting is occurring. In other words, underquoting is a symptom of a market under pressure, not the root cause.

If we are serious about reducing the gap between buyers’ expectations and final sale prices, we must increase the number of homes in our housing ecosystem.

That means unlocking more land for development, removing planning bottlenecks, supporting investment in Victoria’s property sector and encouraging a diversity of housing types. These are the reforms that will address the heart of the affordability crisis.

The Victorian government’s Housing Statement, delivered in September 2023, made commitments to deliver on those reforms. As we approach the second anniversary of this announcement, too little progress has been made.

The REIV is committed to upholding the integrity of Victoria’s property market. We support robust laws against underquoting, stronger penalties for deliberate breaches, and practical reforms to make price expectations clearer for buyers.

But we also urge policymakers, media, and the public to keep focus on the structural challenge of supply. If we devote as much energy to solving the housing shortage as we do to debating underquoting, we can deliver a fairer, more transparent, and more accessible market for all Victorians.

Jacob Caine is interim CEO of the Real Estate Institute of Victoria.

The Opinion newsletter is a weekly wrap of views that will challenge, champion and inform your own. Sign up here.