Why do agents underquote?

Agent price guides and underquoting are bones of contention in the property industry, because very few agents attempt to quote accurately. Of course buyers hate underquoting, for obvious reasons. It might surprise you to know that agents also hate it, for when their competitors underquote, they are forced to follow suit, otherwise their listing looks impossibly over-priced. You’d think they’d all just agree to stop the practise, but they don’t. So, why do agents underquote? The main reason is that no buyer believes them when they do attempt to quote a realistic price. 

What is underquoting and why do agents underquote?

A property is underquoted when the agent gives a low price guide as bait advertising. This is designed to get more buyers involved in order to create a competitive auction. While all agents aim to quote as low as they can get away with legally, some will push the envelope, with really obvious underquoting. Often they’ll justify their low guide with spurious comparable sales that are out of date, inferior or even in a different suburb. It’s annoying and an insult to the buyers’ intelligence that some agents continue to persist in this activity.

Are all high prices the result of underquoting?

But it must be noted that just because a property sells for a huge price beyond expectations and over reserve, it doesn’t necessarily mean that the agent underquoted. In a rising market, it will happen quite often that prices end up exceeding everybody’s expectations. And then the agent is accused of underquoting, where it might just purely be competition. Buyers play their part in this game and often don’t even know what they’re prepared to pay until they find themselves in the auction pressure-cooker.

When there is a lot of competition and FOMO drives the market, more of these outrageous results are achieved. Under these circumstances, agents can’t keep up, they sort of shrug their shoulders and say, “we can’t price the market”. 

This actually makes underquoting worse! Instead of assuming that every buyer adds 10% to the guide price (which is a fallacy that buyers should be wary of), in the last boom, agents were asking me, “is every buyer now adding 20% to the guide price?” So then what happens? They quote even less! Why do agents underquote? Because if every buyer adds 20% to the guide price, the agent trying to quote accurately ends up scaring buyers off. If the buyer adds 20% to a realistically priced property, they won’t see value and will simply not go for it. So this becomes a dance – a game that buyers play as well as agents. It’s pretty clear that’s why agents underquote.

What can you do about it?

Buyers need to do your own research and not assume that all agents underquote in the same way. You need to familiarize yourself with recent sale prices so that you can judge whether the agent is underquoting or overquoting. It’s your responsibility. You’re about to shell out hundreds of thousands, if not millions, of dollars on this property. You do need to make sure that you are well researched when you enter the market. 

Assume that all agents underquote – to varying degrees. Understand why they do it and the part that you play in the game of real estate. Since legislation won’t protect you, it’s up to you to protect yourself by being up to date with your own price research.

 

This is a conversation I’d love to encourage you to join. We need to be talking more about truth, transparency and trust in the property industry. Reach out to me on Facebook or Linked In and leave a comment.

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