Underquoting has been a hot topic of conversation in real estate circles in NSW and Victoria recently, with changes to the law and public crackdowns on some high profile agents.
As buyers’ agents, we have been very curious to see how the new legislation in NSW will impact agent behaviour and whether buyers will find it any easier to interpret their price guides. Members of my team and I attended some of the REINSW’s industry briefing sessions and observed that, while many sales people embraced the changes and agreed that all stakeholders need greater clarity, some others were simply looking for ways to get around the new rules and continue underquoting as before.
The REINSW has taken a front-foot approach in educating their member agents on how to comply with the new laws that came into effect on the first of January this year. They recently published an “Underquoting Quick Guide” in their Real Estate Journal and I felt that the buying public could benefit from understanding the sort of loopholes that rogue agents will look for.
1. Determine the estimated selling price*
Under the Property, Stock and Business Agents Act 2002, you are required to include an estimated selling price in your agency agreements. This estimated selling price is your reasonable estimate of the likely selling price for the property. You can express it either as a single price or a price range. If you use a price range, the highest price in the price range cannot exceed the lowest price by more than 10 percent.
The rogue’s loophole: On the agency agreement a rogue agent will put the lowest range that they think they can get away with. They might even explain to their vendor why they need to do this and why the range on their agency agreement will be less than they really expect. Their promises to their vendor will be verbal of course.
How to identify a rogue: Ask them why they are quoting this price guide. If they can’t give a clear answer and waffle a lot about “buyer feedback” you might be dealing with a rogue.
2. Evidence the estimated selling price*
You must provide the seller with evidence of how you reached the estimated selling price for the property. You must also record and keep on file any and all relevant information that shows how you determined the estimated selling price to be reasonable.
The rogue’s loophole: They will “justify” their low price estimate by finding recent sales that are not as good as the property they are marketing.
How to identify a rogue: Ask for their list of recent sales and see whether you agree that these properties are a fair comparison.
3. Regularly revise the estimated selling price*
During the course of the marketing campaign, market changes or feedback from potential buyers may indicate that the estimated selling price is no longer a reasonable estimate of the likely selling price. If this is the case, you must revise the estimated selling price. NSW Fair Trading advise that you should review your estimated selling price on a weekly basis and consider if the estimate is still reasonable.
If you do revise the estimated selling price, you must give written notice to the seller of the revised estimated selling price (whether that be a single price or price range) and provide them with evidence to support the reasonableness of your revised estimated selling price. You’ll also need to amend the agency agreement to reflect the revised estimated selling price.
And don’t forget that you will need to take all reasonable steps, as soon as practicable after revising the estimated selling price, to change or withdraw any advertisement or marketing material displaying a selling price that is different to the revised estimated selling price.
The rogue’s loophole: It’s unlikely that a rogue agent would go through the hassle of documenting everything required to reduce the estimated selling price if they have put a low range on the agency agreement in the first place. But the requirement to revise the estimated selling price is a golden opportunity for a rogue agent who couldn’t initially convince their vendor to agree to a low price range on the agency agreement. On the flipside, they can avoid having to increase the estimated selling price by discouraging offers and claiming that buyers are giving “feedback” at a lower price.
How to identify a rogue: The rogue agent will do everything in their power to avoid taking any pre-auction offers. They may say that the property HAS to go to auction or they may be terrible at returning phone calls and responding to emails. If you make a pre-auction offer that is above their price guide put it in writing. If the vendor rejects the offer they will have to increase their guide by law.
4. Use the right terminology*
The Act now bans the use of phrases such as ‘offers above’ and ‘offers over’ when stating or publishing the estimated selling price. It also bans the use of any similar words or symbols. However you can use phrases such as ‘price guide’, ‘auction guide’, ‘bidding guide’ or ‘price estimate’, as long as your published or stated price or price range complies with the Act’s other requirements.
The rogue’s loophole: This is all just semantics. Just because the words “offers over” or “above” can’t be used doesn’t mean that there is no invisible plus sign after a published price guide.
How to identify a rogue: Most rogues will publish the bottom price as their guide. The intention remains as it always was – to be under where they think it will sell. (But please don’t take this tip to infer that all agents who quote the bottom price are rogues…) We have also seen some creative terminology that a few agents are using in order to get around the new rules.
5. Record selling price statements*
You are now required to keep a written record of any and all prices you have quoted in relation to the property. These written records will assist you to demonstrate that you have not quoted a price that is lower than your estimated selling price.
At an open house, you’re likely to speak to a number of potential buyers and may provide the same information to everyone attending the inspection. If this is the case, you can simply make a single record of the uniform information provided.
However, if you have a conversation with an individual over the phone or face to face, then you must make an individual written record of the information conveyed.
The rogue’s loophole: This is an easy requirement to fulfil at open houses, but a nightmare for agents to document their phone conversations with prospective buyers. The best way to get around this requirement is to simply avoid giving verbal price guides.
How to identify a rogue: Rogue agents are often very difficult to get hold of, hard to pin down and will often talk in riddles.
Most professional agents are prepared to do what is required to comply with the new laws. They understand that buyers need quality information and transparency. They have to balance this need, of course, with their aim of creating competition so that an auction campaign delivers the best sale price for their vendor. It’s a tricky path to navigate.
Property buyers need to remember that a selling agent is working for the vendor. It is my view that buyers need to do their own price research so that they can make their own mind up on what a property is worth. By knowing the signs of a rogue agent they can be better equipped to determine which price guides are pure fiction and avoid falling into the trap of wishful thinking. A buyer who recognizes a rogue agent can also use this knowledge to their advantage and perhaps even force the price guide up to where it should be. This will give you a competitive edge.
* Source: “Underquoting Quick Guide”, REINSW Journal, January/February 2016 edition.
First published:- 5 April 2016
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.