Prices that cause pain
Money Magazine Australia|August 2021
In a hot market, would-be buyers who do their homework won’t fall victim to an unscrupulous agent
NICOLA FIELD

In a booming property market, homes are selling at auction for sums that blow the agent’s price guide out of the water. But the issue of underquoting is nothing new. Years ago, my partner and I set our hearts on a rundown (let’s be honest, derelict) house slated for sale at auction in Sydney’s inner west. The agent quoted an upper price estimate, which was within our budget though at the top end.

Hopes came crashing down when the auctioneer opened bidding at the top price we’d been quoted. After exchanging “What the?” looks, we slunk out of the auction room leaving buyers with deeper pockets to fight it out.

Fast-forward to 2021 and underquoting is once again making headlines as shell-shocked house hunters watch properties sell under the hammer for prices that dwarf the agent’s price guide.

In June, a Toorak mansion sold at auction for $14.25 million, smashing the upper price guide of $11.5 million. In March, a Bondi apartment sold for over $20 million, with the opening bid being a market-whacking $14.5 million though still within the price guide of up to $15 million.

While both homes are prestige properties, underquoting can deliver serious hip pocket pain to buyers with more modest aspirations. Ticking the boxes for due diligence – having the sale contract reviewed by a legal professional, and arranging pest and building reports – has the potential to rack up fees of around $2000, which can prove pointless when a home sells for vastly more than the price guide.

But in today’s hot market, are agents underquoting as a form of bait advertising? Or is competition so intense that it’s becoming impossible for even professionals to accurately predict what a property will sell for?

Difficult to prove

Angus Raine, executive chairman of Raine & Horne Property Group, is a veteran of five property booms. “Every time a boom comes up, the underquoting debate kicks off,” he says. “There is legislation and fines in place in some states to prevent underquoting, and regulatory authorities do check this. But in a fast-moving market, underquoting is difficult to prove.”

To be clear, underquoting occurs when an agent deliberately publishes a guide that’s below their reasonable estimate of the home’s likely selling price. The keywords here are “reasonable estimate”.

“Accurately estimating a property’s likely value comes down to three factors – comparable recent sales, an agent’s experience, and market conditions,” says Ray Ellis, chief executive of First National Real Estate.

However, as Raine points out, the downside of basing price estimates on recent comparable sales is that agents are looking at the market in a rear-view mirror. “In 35 years I have never seen a property boom like the present that extends right across Australia, including regional markets. And, yes, some of the prices we are seeing property sell for at auction are unbelievable.

He says auctions represent only about 20% of the market. “But right now, the planets have aligned for exceptional market conditions across the board.”

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