New legislation passed the Victorian parliament late last year known as the Estate Agents Amendment (Underquoting) Act 2016. The Act is due to come into being no later than July 1st this year. It can be brought in to effect earlier but only if The Director of Consumer Affairs can get everything done that is necessary for the Bill to be implemented.
The new bill introduces a few new rules that estate agents must follow and also some new penalties if the agents breach the Act. The basic new rules are as follows:
An agent must not advertise a property price with an embellishment. In other words…NO PRICE PLUS or OFFERS FROM or BIDDING TO START AT:
A property can be advertised with a single price or a range. The range cannot be more than 10% of the lower figure. Most people think this is not a change, but currently the range for advertising can be anything, however the appraisal amount the agent must give the vendor must be only 10%.
An agent must prepare a statement of information and this must be available upon request and must be available at all inspections in a similar fashion to the Due Diligence Checklist that CAV brought in recently. These new statements must include the median price of the suburb, the same three comparable sales used by the agent to give an estimated selling price to the vendor and indicative selling price.
It is the last item that will change the way real estate agents in Victoria market property. Whilst I cannot see anything in the legislation that technically will force agents to advertise this price range on the internet or print media, the rule that this information statement must be made available will certainly test the boundaries of the legislation.
If it is deemed that a price will have to be advertised, this will make it incredibly difficult for print media, because there is a further rule that states that an agent must promptly adjust an advertised price if he or she believes that the estimated price is no longer reasonable. This basically means, if the agent gets an offer and the vendor declines and this offer is at a higher amount than the estimate, then the agent will need to change the estimate.
Technically speaking that occurs now. However, there will be all sorts of debate and argument over what constitutes an offer. If the offer has abnormal conditions, then an argument can be made the offer was declined over these conditions, rather than price. A further argument, no doubt, will be offers during an auction campaign. If an offer is received in the first week that is above the price quote, yet the offer is declined and or withdrawn, will this constitute an agent knowing the price estimate is no longer reasonable? It will truly be difficult for the agents to know until somebody is prosecuted by Consumer Affairs.
I say this as most agents believe they need to underquote a property in order to sell it. Most inexperienced agents or those who have poor negotiating skills believe they need to draw prospective purchasers in through guile and trickery whilst at the same time telling their vendor they will get them a number well over what they really believe is possible.
I think we need to move into an era in real estate where accurate estimates of property values need to be available to both sides of the negotiation. Vendors need to understand what their properties are genuinely worth. There is nothing wrong with aiming higher than this figure, but they should have an accurate knowledge of the current market.
Purchasers also need to have realistic estimates of a selling price. This does not preclude someone offering dramatically over this estimate. But it should mean that if the purchaser attends an auction, it will not pass in 10% – 20% above the estimated range. If it sells to someone at that level, then that is fine and the vendor should be happy. This also means that those agents who specify their reserve early, but give a number that is well below current market trends, should also be tarred with the “underquoting” label.
Unfortunately, the new legislation as it is currently written has plenty of holes for the estate agent that wants to continue underquoting. And I know that many agents are currently spending their time working out these ploys now. If they actually spent more time learning how to look after their vendors, negotiate with prospective buyers and become less morally bankrupt, the Real Estate Industry may just one day become a profession.
Ian James
Director
JPP Buyer Advocates