Victorian laws on property underpricing and estate agent conduct need overhauling in a boiling auction market
Buyers and their advocates say underselling is rampant, while sales agents say it’s only a small percentage of sales.
Legally, underselling can occur when a good is advertised for less than the estimated sale price, less than the seller’s asking price, or has already been rejected by the seller. But it’s hard to prove.
There is no requirement for a seller to disclose their reserve price to their agent prior to auction day, leaving buyers confused as to why some auctions may have a higher reserve price than the public price guide. A sale for thousands of dollars above the reserve price is not by definition an undercut, as it could be the result of competition from emotionally attached buyers.
Real Estate Institute of Victoria president Adam Docking said the body has zero tolerance for understatements.
“It’s a scourge on the industry that affects everyone,” he said.
“Underselling is a very small percentage of sales, we would prefer it to be zero.”
He said high selling prices were not necessarily the result of undercutting, especially in a rising market where high prices could be achieved by competing bidders.
“When we have such a dynamic market as it is, obviously when it’s growing at a rapid rate, it [underquoting] concentrates because competition pushes prices above the listed price,” he said.
He had not heard of an increase in the level of undercutting, but said that with a high volume of transactions after the lockdown, it follows that there could be an increase in cases even if the percentage remained the same.
Mr Docking added that training requirements for officers have already been increased. As a result of this review, he hopes to see understatement removed, a closer working relationship between government and industry, faster consumer investigations, and stamp duty changes to make the buying a cheaper house.
Real Estate Buyers Agents Association of Australia chair Cate Bakos said underpricing was a “huge problem for consumers”.
“It’s huge. It’s rampant and it’s a big problem,” she said.
“Buyers certainly feel hurt when they fall prey to it.”
They may have spent money on building inspections and legal reviews for an attractively priced home, only to find at auction that they never had a chance, or they may be wasting time in a market in rise to hunt properties out of their reach and lose the opportunity to compete for suitable properties before prices soar, she says.
She sees advertisements that do not list comparable sales even when such sales are available, or selects incomparable properties that are inferior in location, lot size or condition.
Ms Bakos called for sellers to be required to state their reserve price when hiring an estate agent and have the right to change it later. “Finding out on the morning of the auction is way too late,” she said.
High-end buyer’s agent David Morrell said undercutting was ‘endemic’ and said the $300,000 fines imposed last year were like ‘slapping people in the face with a wet lettuce”.
He recently made an offer of $3.5 million on a $3.1 million to $3.4 million guided home, but the offer was not accepted.
He said a $10,000 fine was not enough to deter an agent from selling a high-profile property and receiving a commission of around $100,000. Not only should fines be higher, but agents who underestimate more than once should lose their real estate license, he said.
Reserve prices should also be in the quoted price guide, he said, no higher than the public guide.
The review will seek input from community members and will be led by former Real Estate Institute of Victoria chief executive Enzo Raimondo and former Consumer Action Law Center co-executive director Carolyn Bond.
Consumer Affairs Minister Melissa Horne said the real estate market has changed significantly over the past two years.
“It’s important to make sure our laws are always best practice,” she said.
“Everyone has the right to safe and affordable housing and this review will ensure we deliver that to all Victorians. If we need to make changes to give everyone a fair chance, we will.
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