Underquoting properties in the current market

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How will selling agents handle the inevitable crack down on under quoting properties they have for sale?

The Melbourne property market is beginning to split into different segments. For the past two years there has been solid growth across the board in almost all areas of the market with the exception of inner city apartments. These have succumbed to a massive over supply and the resales from overseas buyers reselling off the plan sales from 2010 onwards. Over the next 2 -3 years this area of the market will be worthy of watching as overseas buyers divest themselves of the off the plan apartments they purchased at enormously over inflated prices.

But the largest segment of the market to show fantastic growth is the developable land in the middle and outer rings of Melbourne. It is estimated that 2-4 unit development sites favoured by small “mum and dad” investors have jumped between 20% & 30% in the past 18 months and new home sites in established suburbs are up 15% – 20%.

Strong yielding outer suburbs have also jumped up 10% – 15% in the past 12 months as investors chase 4%-5% plus yields that they are struggling to get in stocks and cannot get in banks. Many canny investors are getting 4% yields, or tax deductions on borrowings and a very healthy capital growth to boot.

For selling agents who are not very sure about their respective markets tend to “quote ‘em low and watch ‘em go” The selling agents also have to contend with other selling agents in their own markets quoting ridiculously low in order to suck the oxygen out of another agents campaign and draw all the buyers to their own properties. And this tends to lead to a battle about who can quote the lowest!!

But this can also backfire dramatically. I watched a campaign unfold over the past four weeks which had the property in question quoted so low we hadn’t seen prices like the quote for about 5 years. In fact the bottom end of the quote was 38% below the final selling price. But it shouldn’t have been. The property undersold by roughly 10% making the difference between the low end of the initial asking price and what the comparables showed the property to be worth as nearly 50%.

The agent has done no favours for the vendor here. Because of how low the quote was, I am sure many people assumed there was a major problem with the potential new home site. In my opinion, there was not. As long as someone was ready to develop the site into 2 units straight away, this was a very good investment opportunity.

Most times when a property is quoted as low as this one was, there is a step quoting technique used to get prospective buyers up to the right level by the auction date. None of this was done publically. In fact all quoting was simply removed in the final week. And the agent was still talking ridiculously low numbers right the way through the week.

This cannot and should not continue. The Victorian government is going to follow the other State Governments and implement some policies to bring some sensibility into the market place. Queensland, South Australia and New South Wales have all implemented new policies on underquoting over the past 12 months with mixed results. The QLD government has opted for “no advertised price” which is just plainly stupid. The SA Government has about faced 180° to the QLD Government and there vendors must specify “an acceptable selling price” on the authority and this must be within 10% of their reserve. NSW have forced their selling agents to include a true estimate of the likely selling price in their agency agreement and this can be a range of no more than 10%. Agents will not be allowed to quote less than this range in any form of advertising nor will they be allowed to use vague price information such as “price plus”. All of the above governments have increased their fines for breaching any of these new rules. We are still awaiting the Victorian Government’s plan.

If you are considering a property purchase as an investment or a home to live in over the next 12 months please call our office and make a no obligation appointment for one of our advocates to have a chat about how we can save you time, money, and making costly mistakes when buying your next property in Melbourne.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.