Underquoting or “price baiting” is where an agent knowing lists a property for sale at reduced price.
Agents are bound by a Code of Conduct and must not advertise a property at a price below the estimated selling price, the seller’s asking price or a price that has been rejected as too low by the seller.
So why would an agent do this?
There are a number of reasons but the main one seems to be to increase the number of buyers enquiring and/or inspecting a property, and to increase the number of offers to purchase the property.
To the inexperienced seller it looks like the agent is doing a wonderful job for them when, in fact, they are doing a disservice to the whole real estate industry and frustrating a large number of unsuccessful buyers.
As real estate agents, it is our job to advise sellers what we think they can expect a buyer will pay for their property, in the current market. To do this we use several tools including recent sales in the area, but mostly our market knowledge and experience. It is important to get this correct to ensure we are targeting the right buyers for the property and not wasting a potential buyer’s time.
Agents must also comply with the requirements of realestate.com.au and Domain websites which ensure the hidden (or backend) search price of a property is within 10% of the property’s listing price. You may have seen properties with “Awaiting Price Guide” which means the hidden price is outside the 10% allowable variance.
An experienced and ethical agent would never advertise a property for sale at, say, $600,000 clearly knowing it is going to sell for $750,000 or more. However, some agents will see this as an opportunity for their own benefit so they can boast about the huge number of people through an open home, or a huge number of offers on a property. One day these buyers will be sellers and will remember their poor experience. As the saying goes, “If it looks to good to be true, then it probably is”.
In all States, Consumer Affairs monitor the real estate industry closely for signs of underquoting. Those agents who do the wrong thing can face penalties of more than $33,000 and the loss of their sales commission. They can also face penalties under the Australian Consumer Law of up to $10 million for corporations and $500,000 for individuals.
Consumer Affairs recently highlighted that providing the transparency required by the laws helps ensure home buyers don’t spend significant time and money chasing properties outside their price range.
Property is increasing at such a rapid rate at the moment that it is imperative you don’t under-sell your biggest asset, and you engage an agent who knows the current market value of your property.
As always, if you need any help or advice, we are just a phone call away.
All the best, Simon.