Nothing like a contentious topic to get people riled up, like the subject of underquoting on property.
Before we get into the guts of this and why it happens, what exactly is underquoting? From the buyer's perspective, it can happen when they ask a selling agent, 'What will this sell for?' or 'What is the price?'. The agent then responds with a price that as it turns out, is anywhere from tens of thousands to hundreds of thousands below the actual sale price.
I hear stories about buyers being underquoted to by selling agents, and can't help but notice the outrage in their tone. It's as though they expected the selling agent to come clean and straight out tell them exactly what the property will sell for. Before we jump down selling agent's throats and start pointing fingers, let's acknowledge that buyers also keep their cards close to their chests on price. This is a high-value transaction where the stakes are high, and two parties are negotiating towards agreement.
The fundamental problem, and partially why underquoting exists, is that the selling agent has been appointed by their client to get them the best outcome. They are legally obliged to work for their client's best interests. Let's be clear here. Their client is the vendor, not the buyer who wanders through the door of an open home. It's illegal for an agent to represent both the buyer and seller in a transaction. Common sense really; that would be a massive conflict of interest and with hundreds of thousands of dollars on the line (millions even, in today's market) a selling agent is working on commission to get the best result for the seller, not the buyer.
Not all agents underquote. Herein lies another challenge for the uninitiated. There's no hard and fast rule to say, add 10% to any figure you're given. Some agents overquote - yes, it does happen! Even in the present market conditions I've come across this, usually by agents who've listed a property outside their usual stomping ground and are unfamiliar with actual market value.
While the selling agent can help you with general information about the property, its features, improvements, information about the area, I'm at a loss as to why buyers would ever think they could solely rely on a price provided by someone whose interests are diametrically opposed to their own. Particularly when you're about to lay down a huge sum of money for a purchase that is very difficult to undo! Agents will seek to increase the level of buyer interest in a property in order to achieve top dollar at emotionally-driven auctions, and providing a low price point is a popular method to increase bidder numbers and get the auction momentum going. There's an old adage among selling agents, "Price it low, watch it go; Price it high, watch it die". Whilst I acknowledge there are grey areas of what is stretching the truth and what is completely misleading to buyers, I strongly believe we are looking at the issue the wrong way.
Other states have introduced legislation in an attempt to resolve underquoting after a period of serious price growth in Sydney and Melbourne, in particular. I'll eat my hat if they don't introduce it here within 12 months. We've had a sustained period of growth in the freestanding home segment and uninformed buyers are upset about how prices are getting further and further beyond their budget. I'm not saying that underquoting is the main driver of this - the entire market doesn't move on the word of an agent saying it'll sell for 300k below the actual price at the fall of the hammer. That's nonsensical.
Speaking with fellow agents across Australia, it seems that the new legislation means the rules have changed but the game is still being played. It's created more compliance work for selling agents without really resolving the issue of underquoting. The problem is that wherever a loophole can be found, you can bet it will be worked to that parties' advantage. Negotiation is a process that many buyers don't have the patience or the skill to undertake confidently, but it's a very necessary part of buying property.
So what's a buyer to do?
Research, research, research. (Sorry if you were expecting a silver bullet. There isn't one).
It's my strong opinion that the onus is on buyers to determine the price they are willing to pay for a property. The sellers and their agents have done this - they've looked into the numbers and have listed the property with a strategy in place. They have a plan. And if an agent's involved in the sale, you can bet they have each step of the process mapped out in the lead up to auction day.
This is all well and good, but who has the time to do all of this time-consuming research? After all, the auction is in three weeks' time, right? In today's busy world, finding the time is a challenge. The information is there (unless agents have withheld the sales price so that only data subscribers can view it), but it requires buyers to trawl the internet sourcing past sales data, considering how far back to look at past sales, determining which properties were comparable, assessing each variable correctly (land size, living area, street appeal, presentation, buyer interest, method of sale, etc), knowing which streets and sides of the street are more valuable than others - the list goes on.
At the same time, you're juggling contract reviews and applying for finance in your spare time. There's much to do and have ready before attending an auction. Buying property requires preparation, time and effort in order to be auction-ready. It's far easier to just ask the selling agent for a price guide, and go from there, right?
All that effort, stress and restless nights, only to watch it sell way above your expectations. Why? Because without appropriate research, your expectations were all wrong in the first place. To buy well, buyers need to know the area not only like a local, but look at the data through unbiased and emotionally detached eyes; it's an undertaking that buyers are ill-equipped and inexperienced to do alone, especially under time pressure to meet an auction date.
Enter the buyer's agent.
I work with clients who are time poor, detest spending their Saturdays chasing open homes across town with partners in tow, clamouring to see past the crowds to grab a look at the kitchen, remember whether this one was the one with the blue floor tiles (or was that in the fourth one we inspected?), only to have it sell beyond their expectations at auction. An unsupported emotional rollercoaster ride.
My clients love delegating all that fun stuff to me, and recognise they don't know what they don't know. They buy with confidence, safe in the knowledge that I'm using my systems and experience to handle all of the necessary research to prepare, advise and bid for them. Whether you need a hand when you've found your Dream Home, or you're looking to palm off the entire time-consuming search, feel free to get in touch for some professional assistance on your side and level the playing field.
Lastly, don't rush the buying decision. If there's one thing for certain, there's always another property coming up for sale.
Happy house-hunting. And remember, buying a new house is meant to be fun!