AND IT ALREADY IS.
Section 47A,B,C,D of the Estate Agents Act of Victoria
Underquoting occurs in two specific instances. The first is when the vendor completes an authority to sell and specifies a specific price they will accept. This can be for private sale or auction. If the Estate Agent quotes either verbally or in writing a figure below that reserve then he will have breached the Estate Agent’s Act (Section 47). This almost never happens because most reserves are specified as “TBA” (To Be Advised). This figure is usually amended about 5 minutes before the start of an auction or before the start of a private sale negotiation to be the actual reserve. This means the agent has to give an estimate of what the property may sell for based on his or her experience of the current market. As long as he does not quote below his estimate, then he is not underquoting.
The second instance of underquoting will occur when an offer is made to an agent in a legally binding fashion, and this is rejected by the vendor. The agent then knows the vendor will not accept less than this and cannot quote under this amount.
Neither of these instances have anything to do with agents quoting for an auction that ends up thousands of dollars above reserve. This has nothing to do with vendors agents being totally hamstrung into providing a “lowest” amount they will accept. Selling agents are required under their contractual obligation to assist the vendor sell his home. He/She is being paid, usually quite well, to do this by the vendor.
However, there are now calls to publish the reserve price before the start of an auction campaign. There is even an online petition to Consumer Affairs Victoria for this. The reasons being given are, that prospective purchasers spending hundreds of thousands of dollars, sometimes millions of dollars are totally unaware of what the property they are looking at might sell for. These prospective purchasers may spend a few hundred dollars on legal, pest and building inspections. These few petitioners are asking for the highly paid agents of the vendor to make it easier for the prospective purchasers to understand the Melbourne property market, all the laws that are prevalent in buying and transferring property in the State of Victoria and also to be given assistance in the negotiation techniques which has taken a lifetime for the selling agents to accumulate. The latter of course would mean the selling agent must break his contractual obligation with his vendor. (He/She must always act in the best interests of their principal)
If you believe that publishing a reserve price will assist prospective buyers in saving money then think again. An actual example of this occurred a few years ago. An auction in an inner Melbourne suburb was advertised online with the reserve that would be set at auction. Upon seeing the ridiculously low price one of my team immediately called the agent and said we would pay that reserve and purchase the property. We were told it was only a reserve price for the auction, not a “for sale” price. When we asked why the property was being advertised approximately 10% below what the property was actually worth we were told that the property would be sold at the reserve price if there were no higher offers on the day of auction. The property of course went on to sell for a fair market price at just on 10% above low reserve. We had told our client not to bother with pest, building or legal inspections as he had no chance of securing the property at his limit, which was the advertised reserve.
The irony of the above situation is this. Had the property sold for the reserve price, then according to comparable data it would have been an extremely poor result for the vendor. But it didn’t. It sold almost exactly where the market estimation for that type of property sat. Anyone who would have thought they were going to purchase the property cheaply would have wasted their money in any inspections they did.
Underquoting will not be hamstrung by legislation. It will not be stopped by forcing selling agents to break their contractual obligations to their vendors. Nor will silly tricks of publishing reserves at ridiculously low prices stop any prospective purchasers knowing what the property will sell for. Note that a vendor at no time has to sell his/her property. If the agents are forced to quote the reserve, they will simply adjust it during the campaign. They can also withdraw the property from market at any point.
Prospective purchasers are comfortable to pay for building inspections, they are comfortable to pay for pest inspections, they are comfortable paying for legal advice, they are comfortable to pay for financial and taxation advice, yet they do not think about getting Real estate advice. Any person purchasing a property in Victoria should seek competent Real Estate Advice. AND THIS IS THE AGREED POSITION OF THE REAL ESTATE INSTITUTE OF VICTORIA. It does not make any difference what a selling agent will quote if the prospective buyer is receiving competent counsel.
Consumer Affairs Victoria has one paragraph about Buyer Agents/Advocates on their “how to buy property website page” Unfortunately they spend most of their 40 paragraphs talking about what selling agents can and cannot do. At least the NSW Fair trading website has some good information.
Most people would not go to court without a solicitor representing them. Even for a $10,000 negotiation. If one party appeared in any court in Australia with representation and the other did not, proceedings would be halted by whomever was presiding and the unrepresented party would be warned that they should seek competent counsel. Nobody will warn a prospective purchaser that the vendor has hired the Real Estate equivalent of a Queens Counsel to act on his or her behalf and the prospective purchaser is totally unrepresented.
Anyone buying property in Victoria should seek competent counsel before talking to a selling agent.
Underquoting is against the law. As it should be. Having competent counsel to both buyer and seller will eradicate any thought of impropriety. It will fundamentally change the perception of Real Estate Agents. It will make the process of buying and selling property truly transparent and fair.
JPP Buyer Advocates