Underquoting is never going to stop.
Blame the agents; blame the industry groups; blame the government; blame them all, if you want. But it doesn’t matter who the finger gets pointed at because they aren’t the ones ultimately responsible.
Underquoting won’t stop for a single, overriding reason — the greed of vendors in a system designed to give their greed free reign.
As much as people may (legitimately) snipe at the opportunism of agents or wail about the ineffectiveness of regulators, they are only the symptoms of an underlying ailment, the real cause of the sickness in the real estate pricing system.
It’s a simple, immutable fact that a property cannot be underquoted without the consent of the vendor.
An inner city property is quoted for $450,000-$500,000. Come the day of the auction, bidding pushes the price to $595,000 but it still hasn’t hit the reserve. It finally gets declared on the market at $600,000 — $100,000 above the top end of the quoted range.
As dodgy as it may seem on face value, this yawning gap between the quoted price and the reserve doesn’t constitute an example of underquoting (at least not in Victoria).
Because a vendor has an absolute right to set their reserve anywhere they want at any time they want, regardless of what a property has been quoted at during a sales campaign.
In the documentation prepared before a property is listed — the ‘‘sale authority’’ — an agent is required to provide their estimate of the home’s likely selling price. That estimate is supposed to be based on their experience, knowledge and assessment of the sale prices of comparable homes in the area. It is non-binding.
In Victoria, underquoting technically occurs if an agent publicly advertises or quotes a price that is below that estimated selling price on the documentation.
A vendor, for their part, can put their reserve on the sale authority should they choose to but there is no obligation. Vendors don’t tend to list a reserve price on the sale authority. If they do and that reserve is higher than the quoted price provided by the agent, the quoted price must be raised to reflect that.
The often-cited reason for why a vendor doesn’t set a reserve is because they don’t know what their house is likely to fetch — the sales campaign is supposed to tell them that — so they need to be free to wait until the last minute before (or during) an auction to set it.
And abusing this grey area is how the great rort is achieved.
The unrestricted right to set a reserve price regardless of what the property has been quoted at is the legal fig leaf, the smokescreen that allows underquoting to flourish and ensure it will never be stopped.
Despite being quoted over a four week sales campaign at $450,000-$500,000, literally overnight a vendor can ‘‘decide’’ they want $600,000 on the day of the auction. It’s all perfectly legal.
Maybe the agent knew it was going to happen or maybe they were genuinely surprised. Who knows?
It’s a fair call that a vendor doesn’t know what the market will pay for their property — and may legitimately hesitate about setting a firm reserve as a result. But they damn well have a good idea about what they won’t accept.
While vendors have the right to set their reserve wherever they want, does that mean consumers must suffer because there are no limitations placed upon that right? Does preserving right of the vendor to seek the greatest amount of money for their property mean they also get the freedom to mislead and deceive?
Make no mistake, these kinds of scenarios are played out virtually every weekend in Melbourne’s auction market.
And it’s not going to stop, for very good reason.
The system as it is currently designed doesn’t recognise this as a form of underquoting. And Consumer Affairs Victoria can’t enforce laws that don’t exist.
(In fact, nowhere does the word ‘‘underquoting’’ appear in the nearly 100 pages of the Sale of Land Act or 227 pages of the Estate Agents Act. Enforcement actions are justified under generic ‘‘deceptive and misleading’’ consumer protection provisions and a series of essentially unenforceable ‘‘guidelines’’ issued by the regulator).
And it’s not like vendors have any reason to want the system to change. Hell, other than first-home buyers, every prospective buyer is also destined to be a vendor to complete the other half of their transaction.
Vendors (and agents) may be violating the spirit of the rule but they aren’t breaking any laws. Or at least any laws that have ever been enforced.