How to avoid becoming a victim of underquoting
It’s the hope that kills you. Just ask Carlton fans, NSW Blues supporters, Wallabies sufferers, and hopeful homebuyers who have fallen victim to underquoting. Obviously, you can’t change your footy team, but you can follow these tips to avoid the sketchy real estate practice.
If it hasn’t happened to you, it’s probably happened to someone you know.
You find a dream home that appears within your budget, you get your finance pre-approved, you get your hopes up, and … you get blown out of the water come auction day because the agent has underquoted the property.
But hang in there – all is not lost, as we’ll touch upon below.
What is underquoting?
Underquoting is the misleading practice of advertising a property with a price guide that suggests to hopeful buyers that it could sell below market value, or for less than what the agent knows the vendor will acceptt.
Accusations of underquoting have been rife in recent times, as national property prices have soared 24% over the past year alone.
Now, there’s no doubt that some agents out there have been intentionally underquoting properties to drum up interest. But not always.
Real Estate Buyers Agents Association (REBAA) president Cate Bakos says on many occasions selling agents get blamed unfairly for their reluctance to predict a strong competitive result, and in many circumstances, vendors exercise their right to change their price expectations without prior consultation with their agent.
“Underquoting is amplified by a rising market,” adds Ms Bakos.
Which means as property prices peak in Sydney and Melbourne, and the rest of the country starts to follow a similar trend, less underquoting should occur.
Why do agents underquote a property?
The main reason vendors and agencies underquote, explains Ms Bakos, is based on the belief that an underquoted property will attract more prospective buyers.
It’s hoped that these buyers will fall in love with the property so much that they’ll find a way to compete against more cashed-up buyers, helping to push the property’s final price up in the process.
“The reality is that many buyers find themselves shortlisting properties that are beyond their financial constraints, and this can lead to disappointment, wasted expenditure for building reports and due diligence, and lost opportunity,” says Ms Bakos.
Isn’t underquoting illegal?
Ms Bakos said while price guide legislation varied between states and territories, the problem was relatively endemic in many cities across the nation.
She said while underquoting was illegal, there were still many legal loopholes that existed in current legislation, particularly in Victoria.
“In Victoria for instance, vendors are not required to state their reserve price for an auction until moments before the auction,” says Ms Baokes.
“And some offending agencies take advantage of this by pitching the property at a price lower than that of a reasonable price expectation or a realistically anticipated reserve.”
How to avoid becoming a victim of underquoting
Rather than rely on the price guide the real estate agent gives you, Ms Bakos recommends you do your own homework.
You can do this by looking at comparable sales within the last month or two, and compare like for like properties and locations.
“It’s an approximation, but it’s more helpful than living in the past and working off older, unreliable sales,” adds Ms Bakos.
Here are the REBAA’s other top tips to avoid becoming a victim of underquoting:
1. Compare comparable properties by location, land size and condition.
2. Spend the months leading up to active bidding time (while obtaining finance pre-approval) to inspect, inspect and inspect as many properties and neighbourhoods as you can.
3. Look at other similar properties in the area and see what the agent’s initially-published estimate price range was; what the reserve price was; and what it finally sold for.
4. Consider consulting and engaging a REBAA-accredited buyer’s agent to take care of the process. That way, you can “buy with confidence.”
And last but not least, don’t forget to get in touch with us in advance to get your finance pre-approved.
That way, come crunch time, you can spend less time on your finance application, and more time doing your homework to make sure the properties you’ve got your heart set on haven’t been underquoted.
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