The underrepresentation of the Australian real estate industry leaves buyers feeling betrayed.real estate

When Sarah* (not her real name) found her dream two-bedroom apartment in Sydney’s eastern suburb of Edgecliff, she was hoping she’d finally found something within her budget. .

But upon inspection, the real estate agent immediately asked if the price range could be expanded. said.

“Are you kidding?” That’s very demoralizing. “

Sarah has visited nearly 30 properties in six months and instinctively asks the market price of everything in case the agent is under-quoted.

“I don’t want to waste time invested emotionally, and then have them say no,” she says. “Often within five days I get a notice that the price guide has been revised for her $150,000. Quite depressing.”

Real estate groups say undervaluation remains “pervasive” due to poor regulation and poor enforcement.

This practice refers to posting prices well below market value in order to artificially attract more potential buyers. And while this is generally perceived as a sign of a strong market, when the market is down, it can make it even more difficult for buyers to estimate the true value of the property.

Last May, NSW Fair Trading set up a dedicated underquoting team to address “growing concerns” about this practice.

Since then, there have been 161 Penalty Violation Notices issued for underestimation and related violations. A fine of $2,200 was imposed on each incident.

Sydney agents typically charge a commission of around 2% on sales. So if the median house price in Sydney is $1.6 million, your income will be about $32,000.

In 2020, 55 penalty notices were issued from a total of 200 complaints. This includes 25 of his published after the underquoting team was established.

“New South Wales law regulating real estate agents provides strong protections against misrepresentation of estimated sales prices and underestimation practices,” a spokesperson said.

Buyers’ agent Paul Mulligan said the regulation was “not effective. It’s still there.”

“[The fines] nothing,” he says. “They need to name and shame their agents. That’s the only thing that changes things.”

Citing a $500,000 price difference, Mulligan says he could “write a book” about “hundreds of stories” of people who were duped while working in the industry.

“Frustrated buyers are just fed up and put themselves at great risk of making a big mistake,” he says.

Waqas Khawaja estimates that he and his partners experienced half a dozen underquotes at auctions across Sydney before finally securing the South West property.

“You don’t know what happened until you lose $250,000 at auction,” he says.

“First home buyers are initially disappointed because they make the emotional mistake of getting attached to a property.

“It feels betrayed to realize there was no chance.”

southern discomfort

Buyers Advocate David Morrell says underestimation is even worse in Australia’s “auction capital,” Victoria.

From 1 July 2021 to 31 July 2022, Consumer Affairs Victoria (CAV) recorded 1,466 under-quote inquiries and complaints. Only 48 violations and 171 official warnings were issued in the same period.

A spokesperson for Consumer Affairs Victoria said the undervaluation was “taken very seriously”. “Agencies found to be doing it wrong face fines of more than $36,000 and lost sales commissions,” they said.

“Consumer Affairs Victoria conducts compliance activities throughout the year, including auction monitoring, inspections and investigations when necessary.”

But Morrell estimates that 70% to 80% of properties in Victoria are undervalued.

In 2003, he became the first person to lodge a complaint of alleged undervaluation with the Australian Competition and Consumer Commission (ACCC).

A Melbourne real estate agent later engaged in misleading or fraudulent practices by advertising the price of a house that sold at auction for $780,000 as ‘600,000 plus’ and even ‘650,000 plus’. It turns out. No penalty was imposed.

“This is a unique part of the real estate industry,” he says. “People have been traveling for three to four hours and the price is $400,000 more than he expected.

“It is misleading and fraudulent to buyers. ”

In 2016, the first underquoting law was promulgated in New South Wales, requiring the selling price of residential property to be matched to the market value or seller’s valuation, with vaguely formatted lists such as “over 600,000”. We have tightened the price.

A year later, similar legislation came into force in Victoria.

A 2021 University of Melbourne study found that the introduction of the underquote method brought the listing price in line with the market price, and cracking down on overbids could reduce the auction selling price by between 2% and 6%. was found to have decreased to

But Morrell said the law did little to deter realtors and was rarely enforced.

“There were millions of underestimations,” he says.

“I offered $7 million in one private sale. My buyer offered $7, but they came back and said, ‘The owner wants $8.8. It’s just rubbish… a dirty piece of property scraped under the carpet.”

A prospect at a property auction in Melbourne, the so-called
A prospect at a property auction in Melbourne, the so-called “Australia’s Auction Capital”. Photo: Diego Feder/AAP

No obstacles

Scott Aggett left the home sales division in 2015. He was “disgruntled” after being in the industry for 20 years. He then founded Hello Haus, a national negotiation service.

“I felt like there was a better way to serve buyers than the shit that was going on,” he says. “I couldn’t play all that game…as an agent, I didn’t feel like I could win unless I was lying.

“No one came to my open house for inspection because I was giving them real prices. It’s still rampant in 2022.”

According to Hello Haus research, it takes Australians an average of seven months to buy a property, and 45% report buyer regret.

“Buyers spend 90 hours of their time. [looking]inspected 300 properties, failed five times, compromised and overpaid six times,” Aggett said.

“Last week, I had an agent who openly said… ‘I will tell the owners that if you estimate in the 10% range, you will have zero people through Open Homes’.”

“They underestimate by up to 30% to attract interest. The goal is to get as much traffic to the property as possible to create competition and then head north. I have.”

Last week, Aggett purchased a $3.75 million property for a client at a valuation of $3.2 million.

“It’s consistent with what I have to deal with,” he says. “It’s shit…and this happens every day across Australia.”

Aggett said fines of $2,200 on NSW realtors are little demotivating when commissions often amount to at least $30,000.

“They should waive all fees [the] Agents … and agents need to have a strikeout policy,” he says. You must also openly disclose agency contract prices. But it doesn’t seem to be on the cards at the moment, and has been for decades. “

The Real Estate Institute of Victoria (REIV) has submitted to Consumer Issues Victoria advocating for transparency reforms, including strengthening the mandatory information statement quoting the value of all residential properties.

Quentin Kilian, CEO of REIV, said:

“At least the buyer can say OK. It’s not a comparison, but here’s the rationale. The real estate market is very diverse, with different dynamics and pressures. One size fits all I can not do it.”

Killian said he expects “less discrepancies” in price estimates once the market starts to calm down. However, he argues that underestimation is not as common “as people think”.

“It happens sometimes,” he says.

“However, in very strong markets, prices often fluctuate when they are first listed, or the market gets excited at auctions, far exceeding expectations.”

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