You’re actively in the market trying to buy a house. Your finance is approved and you’ve done all the hard work of attending open for inspections and finally found your dream home. Come auction day, the house sells $120,000 above the agent’s asking price.
You ask yourself ‘what happened?’ After a few months you realise there is a common pattern with agents and how they quote properties well below try market value.
In Victoria, under quoting laws were revised and enforced by consumers affairs in May 2017. Below is a summary from consumer affairs website.
There are also new penalties for estate agents and agents’ representatives who do not comply with underquoting laws.
Down Load Under quoting facts sheet, by Consumer Affairs Victoria.
With the market increasing in demand it can be extremely hard to determine the exact price for a property, as someone may value the property a lot more then someone else, and the willingness they are prepared pay more for a property.
Currently the auction market has been the strongest that it’s ever been in 32 years.
If a real estate agent understands and knows a particular area and know houses for a long period of time, then they will be able to quote a property quite accurately. However, many do not understand it completely as the market conditions are changing and the needs and wants are also changing all the time.
People need to understand that in the real estate market the price is determined by what people are willing to pay, and the people value houses are differently.
While it can be difficult for agents to put an accurate price on a house, it has been said that if they cannot provide an estimation within 10 per cent of the selling price, then they should stick with selling cars.
The interaction of buyers and sellers are the ones who end up determining what the selling price will be. As it is all about the willingness to pay.
It is quite often that home sellers give the agent instructions including; increasing the reserve price to a certain figure, and advertising the reserve price only at the auction.
Many real estate agents can often get quite frustrated when they are given instructions on how to do their job, as many real estate agents have worked in the industry for many years and understand the going price for properties in a particular suburb. Therefore, if prices seem to be underquoted it could be a result of being instructed by the property owner.
Many experts have said the poor pricing quoting is an indication of the whole industry. That the problem lies with the educational qualification, and the way people are taught.
However, it is wrong to think that it is solely the educational department fault for under-pricing of properties. Read our articles on ‘White Lie’s told by Real Estate agents,’ ‘Do real estate agents lie? and ‘negotiating on property price’ for more information.
Many people to this day use the expression that a ‘fish rots from head down’, well in the real estate industry it is quite common for long established businesses to purposely underquote in order to bring as many potential buyers as possible. Meaning that we should not just blame real estate agents for the prices, however look at the business as a whole.
The problem with under quoting is that even though it is illegal, it is practically unenforceable. Many agents have found loopholes by pulling down estimates before auction day to avoid any official allegations of wrongdoing.
Although rife in particular suburbs, it is important to note that not all agents in all areas practice underquoting. The problem facing diligent agents in high underquoting areas is the reduced interest they receive in their properties as a result. Underquoting expects a higher turn out to inspections and auctions with more people believing the property is within their price-range.
As with everything in life it is important to do your homework. The best way to avoid the trap underquoting presents is to research the area and similar properties thoroughly to go in with eyes wide open knowing the realistic price range a property is expected to achieve.