Estate agent commissions to be at risk as NSW Premier Mike Baird seeks house price underquoting review
NSW estate agents have been reminded that they must tell buyers the same price guidance estimate they have given to their vendors.
Depending on the success of his re-election, Premier Mike Baird has vowed to crackdown on price underquoting ….. and overquoting too.
Not only fines, but also the loss of sale commissions for any such sale where there is intentional false feedback.
Property Observer gleans the genesis of the policy was when the Fair Trading minister Matthew Mason‐Cox was quoted a price on a Sydney unit, only for him to discover it sold for 25 per cent more a few days later.
There has, however, not been a fine on an agent for underquoting since 2004 when an agent was fined more than $14,000 by NSW Fair Trading. In 2008 another agent was disqualified from holding a licence for five years for underquoting, The Daily Telegraph reported.
"There are some agents that bend the rules and waste everyone's time," the Premier Mike Baird said today.
"The practice of underquoting has to end," Mike Baird said.
"This is aimed at those who advertise a price that they know is not fair value for a property.
"We don't want to raise false hope, we don't want home-buyers to waste their time, we don't want them to spend money on strata inspections and building inspections if they have no chance of actually acquiring this property."
Underquoting is where an agent intentionally quotes a low likely price estimate to reel in prospective auction buyers who face a vendor reserve price far in excess of the guidance, then typically concluded with the claim the auction was a great result.
For many years, NSW estate agents have been required to duplicate the price guidance they had advised the vendor on the agency agreement, which has generally seen a lessening of the underquoting issue across Sydney.
However it is possible that the agency agreement is an intentionally conservative estimate designed to encourage a greater pool of prospective buyers into the bidding process when all along the vendor's hopes were substantially higher when revealed on auction day.
Ofcourse many naive vendors continue to be tricked by agents who promise the world with an ambitiously high estimated selling price, as a strategy to get the listing only to then condition the vendor down in price in the lead up to the auction day, blaming the market.
Also another cyclical issue around underquoting is that in a strong market it is harder to predict where a sale price might finally fall, making genuinely held estimates considerably short of the sale price, a frustration for longtime lookers missing out yet again at auction.
Competition on the auction day can just blow a vendor's and agent's expectations out of the water. Some industry players believes the price estimate within the agency agreement between agent and vendor should be disclosed after the auction to make sure nothing shady has taken place, available to the registered bidders, not just the Department of Fair Trading whose well-announced raids on agencies have failed to yield any recent scalps.
Agents, of course, sometimes have little idea of where the vendor's true expectation is until the written reserver is handed over minutes before the auction.
Agents typically provide comparable recent sale prices elsewhere in the neighbourhood to both their prospective vendors, then prospective buyers to assist in informing the market.
“The existing laws are vague at best so prosecutions or fines have been few and far between. So, yes, greater enforcement is anticipated because the laws will be clearer,” a spokeswoman for Mr Baird told state political editor, Andrew Clennell in the Daily Telegraph exclusive front page Saturday story.
“The changes we’ll impose will require all ads to specify a dollar figure or price range as opposed to ‘offers over’.”
While disclosed price estimates are the cornerstone of transparent pricing, some agents don't like price ranges as they deem it to be almost price capping, setting an upper limit.
An aggrieved Fairfax Media quickly lashed out with follow-up Saturday afternoon headlines labelling the Premier's truth in advertising announcement in the Daily Telegraph as an "election stunt leaked to the tabloid press." However the Fairfax Media readers website vote on whether underquoting was an issue in NSW was tracking at 80% or more has having concerns.
The minister also raised the prospect of over quoting in markets in decline.
Matthew Mason-Cox advised the changes will be made to clear up the confusion around what constitutes underquoting, also known as bait advertising.
“The laws will be changed to recognise underquoting has occurred if the advertised selling price of a property is less than the price indicated in the agent’s agreement with the vendor,” he said. “The new laws will also … require all property advertisements mentioning a price to now offer an actual dollar price or range.”
"As part of what we are bringing in if we are re-elected, there would be a very clear picture of how the price was arranged, how the price was actually come to by the agent," the Minister said.
"Everything will have to be in writing for the first time, as well as ensuring that that is communicated to the vendor and reflected in the file as well as in relation to the vendor contract."
The government is promising to set up a special hotline for underquoting complaints.
Underquoting became a political issue in Victoria during last November's state election.
The outgoing Coalition government said it would introduce new laws on underquoting if it was re-elected – a policy slammed as unnecessary by the Real Estate Institute of Victoria.