Underquoting: Q&A with realAs' Josh Rowe

Josh Rowe is the chief executive of realAs, a property price prediction website and application.

According to Rowe, the realAs algorithm, which is constantly being refined, produces predictions which fall within 5% of the eventual sales price. Users are able to compare the realAs prediction with the price guide provided by agents and the final sale price.

For buyers who are frustrated with auctions where prices spiral well above the price guide (and their budget), the application provides an alternative price estimate to that provided by real estate agents.

Property Observer spoke to Rowe about underquoting, and how buyers can navigate the available information to make their own price predictions.

Can you explain the problem of underquoting?

Underquoting is where a real estate agent will give a price for a property which is below what the property is likely to sell for. And it's a marketing tactic.

It's designed to bring people to an auction; to either drive the buyer's up in price, who they might not have captured before, or just get a lot of people there, to drive and get sa real kind of excitement there.

If you walk past a retail store or restaurant and see its busy, you'll be more attracted to it. If you walk past an empty restaurant or an empty retail store, you might keep walking.

What are the costs to the buyer?

I think the challenge for buyers is firstly the amount of time they invest in searching for a house.

And there are so many things a buyer looks for.

They'll spend their time out there going for open inspections, going to auctions. They might do building inspections, spending some cash, understanding what's going on.

So for buyers, when the price goes well above what they've been quoted originally, to outside of their price range, they feel frustrated.

And they're angry. I've spoken to buyers in my own sububrb about what happens when they see underquoting - and some have wasted many months, six months, looking for properties, until they've found one that they've worked out - they've almost worked out the difference between what real estate agents really told them, and what the price was likely to be.

How informed do you think buyers really are about underquoting? Is it an industry thing, or are buyers quite savvy about it?

I think people are aware that underquoting exists. But there's no one percentage that real estate agents underquote by. So that's the biggest challenge.

People might take five to 10 years between purchasing houses. So generally when you've been out of the market for that kind of period, whether you're buying for yourself to live in or buying to invest, you've forgotten that you've lost five years of where the market is up to.

When I talk to my friends about how they research the market, they build their own spreadsheets. They almost do the manual version of realAs, I suppose. They build a spreadsheet up, and they go: "Here's a real estate agent. Right. His name is Fred, agency is this, quoted for this, sold for that".

So they manually go through almost weekend by weekend, just tracking the results, til they go, "Right, this is where the market is at, I can start searching".

So they almost build their own algorithm and database themselves. And that's a lot of effort! Why should they have to do that?

Underquoting is only half the issue. Overquoting in private sales equally as frustrating for buyers too. Real estate agents will start with a high price, and generally over a period of time will move their price down in order to attract a buyer, to a price a buyer is willing to pay. Because buyers are the ones who choose what a house is worth, not a seller.

Obviously building up your own database is a quite labour and time intensive thing to do. What are some other steps buyers can take to protect themselves from underquoting or having their time wasted by that kind of practice?

There are many resources out there.

There are more and more websites out there that are making information more transparent. Some are free - you can go to websites like onthehouse.com.au, you can use websites like RP Data, you can see oldlistings.com.au.

Potentially you could trust a real estate agent who wasn't the seller. And buyer's agents generally have a good understanding of where the market's at as well.