Will the new auction quoting laws change anything in NSW?
The NSW government’s new year’s resolution for real estate agents and quoting laws for 2016 was to make them all quote realistic auction price guides. Isn’t this great news? Real estate auction underquoting has driven buyers crazy for years. If all goes to plan, buyers will now have a simple and transparent way to determine whether a property is going to be within their price range! Well not exactly…
Towards the end of last year I attended one of the briefing sessions held by the REINSW and two things struck me:
- The new rules offer a number of options for agents to use, so the system is neither simple to implement nor understand, and
- Many agents were not so concerned with how to comply, rather with how to get around the new rules.
Ever since the big auction rule shake up in late 2003 it has been generally understood that agents needed to justify the price guide they put on their agency agreements by providing their vendors with supporting recent sales data. Following on from this, they had to quote a price guide to buyers that was aligned with the figure or range on the agency agreement. Many people seemed to believe that a 10% variance was an acceptable tolerance and so agents would quote as low as they could possibly get away with within this framework. This was the unwritten real estate auction underquoting rule.
Why did they do this? Because this is what they have all found through experience: “quote it low, watch it go, quote it high watch it die”. Bottom line is that more buyers are attracted by a low price guide than they are by a high one. And while I do not condone underquoting, buyers must accept that they play their part in this game.
The new rules stipulate that agents must (as before) justify the price they put on their agency agreement. Now at least the variance from bottom to top of a quoted range can be no more than 10% (previously we had seen some ridiculous intelligence insulting ranges!). But where it gets interesting is when looking at the options they have for quoting a price guide. From what I can understand they can either:
- quote the exact range as written on the agency agreement (eg: $800K – $880K), or
- quote a single figure with no plus signs or words such as “offers over”, “above”, “around” or “from” (eg: $800K), or
- refuse to give a price guide.
The fact that there is more than one option means there will be inconsistencies which perpetuate a system where buyers won’t know how to interpret price guides. So, instead of solving the problem of real estate auction underquoting, the new laws may exacerbate it. Further complicating this situation is the fact that agency agreements can be adjusted. If the vendor receives an offer and rejects it (assuming the offer was more than the quoted price or range), the agency agreement must be amended accordingly and the price guide will be increased. Conversely, from what I can understand, if the agent cannot generate interest at a high enough price, he/she can reduce the quoted price range as long as the agency agreement is adjusted with the vendor’s permission. So price guides will be a movable feast and could go up and down throughout a campaign.
Here are some tips on how to make sense of all this…
Exact price range. This is the simplest to interpret. If the agent is quoting a price range, then this is what has been written on the agency agreement. Of course, in week 2 or 3 of an auction campaign this range could have been adjusted up or down, so at the very least it should reflect an up to date vendor price expectation.
Single quoted price. Just add 10% and you have the range they put on the agency agreement. If it goes up, you know that an offer of that amount has been rejected by the vendor.
No quote. This is probably the most infuriating option to deal with – the agent who refuses to quote a price and (if you are lucky) gives you a list of “recent” sales which are often neither relevant nor current. It might be that this agent is the one to buy from, because a lot of buyers will probably vote with their feet, so you might find they have less bidders at their auctions.
Creative quoting. One thing to remember is that the vendor may still have a price in their mind that is much higher than what is written on the agency agreement. Savvy agents prefer them not to verbalise this (god forbid they should write it down!) and will be working hard to manage their expectations throughout the auction campaign. No underquoting laws will protect a buyer from dealing with an unrealistic vendor.
Having a vendor who refuses to let the agent put a low range on the agency agreement presents a conundrum for their sales person. The agent needs to generate buyer interest in order to have any chance at achieving a big price at auction and in order to build interest they need the lowest possible price guide. As a consequence, we have seen some creative real estate auction underquoting over the past couple of weeks.
Odd things have been happening – such as an email out of the blue from one agent saying they had an offer lower than what was quoted on a property. The property was advertised with a guide of $2.5M. After the first response to our enquiry we received a subsequent email saying they had an offer of $2.3M but no mention of what they were doing with the offer or whether the vendor was even considering it. It’s a way of lowering the quoting (without actually changing the price guide) when the vendor won’t agree to reducing the amount on the agency agreement.
Another nonsensical email we received in response to a price request listed 5 recent sales ranging from $901K to $1.1M and stated that “In line with OFT guidelines we do not provide price guides on properties. However we have ‘buyer feedback’ around $950,000 at this stage. (Please note that this is not a price guide)”. Are they for real??
From what we have observed over the past few weeks, those agents who have always striven to do the right thing will continue to do so. Likewise, those who have habitually underquoted will find a way to continue to do so. The upshot is that nothing will really change: real estate auction underquoting will continue and buyers will still get caught out unless they do their own pricing research.
Published:- February 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.