The recent prosecution of a real estate agent by NSW Fair Trading for underquoting has raised issues in relation to how property prices are quoted, but has also highlighted more general confusion about the auction process and laws relating to property marketing.
What is Underquoting?
Underquoting is when a real estate agent advertises or promotes a property at a price lower than their own market estimate, as stated in the Sales Agreement. Underquoting is in contravention of the Property, Stock and Business Agents Act 2002 (NSW) and is also illegal under the Australian Consumer Law, which prohibits a business from making false or misleading representations in relation to a product or service they are promoting, including its price.
Private Advice, Public Knowledge
In the Sales Agreement, the real estate agent provides an estimate of the potential sale price of the property, based on market knowledge, condition of the property and comparable sales. This market estimate is private advice from the agent to their client– it is not an agreed sale price. The agent does not have to reveal the market estimate to potential buyers but they must not verbally, in writing or in marketing materials promote the property at a price that is lower than this market estimate. In addition, if the vendor has refused an offer, then the agent may not quote a price below that offer during marketing.
How is the Estimated Price Different from the Auction Reserve Price?
The auction reserve price - the minimum price at which the auctioneer has permission to sell the property - is set by the vendor in consultation with the agent. The reserve price does not legally have to be the same as the agent’s estimate on the Sales Agreement.
Underquoting or a Great Sale Price?
In a rising market, properties sell at auction for above the expected price (both the agent’s estimate and the reserve). This is currently the case in Sydney, where median prices rose by over 12% in the past year and continues to rise. If a property sells for more than the agent’s original estimate, this is not underquoting. It’s a great sales result for the vendor.
Why Quote a Price at All?
In theory, the market price of an auction property is unknown until the hammer falls. In reality, prospective buyers want to know “what is the expected price?” Currently, listings on internet sites must have a guide price for searches and newspapers won’t run editorial without a price guide. Agents do not have to reveal any price expectations (and not be open to prosecution), and this may be the route the industry decides to take in the future.
Forsyth Real Estate takes pride in its reputation for professionalism that has been built up over more than 100 years in the industry, both in our dealings with our vendors and with buyers. We welcome the call to clarify the current ‘grey’ laws on underquoting, which will increase buyer confidence in the real estate profession and the auction process.
James Snodgrass, Principal, Forsyth Real Estate