Six out of seven real estate agents deliberately underquote expected selling prices to entice buyers to auctions, according to valuer and buyers advocate Greville Pabst.
Mr Pabst, executive chairman at national valuation and advisory firm WBP, told The Australian Financial Review underquoting was rife in Melbourne despite the introduction of new laws in May aimed at stamping out the unethical behaviour.
"Only about one in seven auctions I attend has the agent quoted the right price," he said.
"But these agents that are trying to do the right thing by quoting the full price are not being rewarded by the market. They are not getting as many people to the auction and more of their properties are getting passed in," Mr Pabst said.
By contrast, he said, agents who underquoted, "and there are still a lot of them", were getting more people to auctions (in the false expectation they were in with a chance of being successful) and getting better results. "It's the old agent saying: Quote it high and watch it die. Quote it low and watch it go," Mr Mr Pabst said.
New rules to stamp out underquoting were introduced by the Victorian government on May 1 following new underquoting laws in NSW last year.
The Victorian rules require that agents provide vendors with a "Statement of Information" that includes a "reasonable" indicative selling price based on recent comparable sales, the median sale price for that suburb and details of three comparable property sales within two kilometres of the property that have occurred in the last six months.
Agents can quote a price range, but it cannot be more than 10 per cent between the bottom price and the top price. Under the new rules, advertised prices cannot be lower than the estimated selling price.
"Agents are getting around the legislation [in Victoria] by saying there are no comparable sales," Mr Pabst said.
He provided an example of a two-bedroom villa unit in Surrey Hills in Melbourne's Eastern Suburbs that sold for $855,000 recently. The Statement of Information provided to buyers included an indicative price range of $650,000 to $680,000, despite quoting a median unit sale price in the area of $822,250, and included no comparable sales.
"We knew when we looked at the property, that our buyer would need to bid up to the high $800,000s to be successful and that is where it ended up selling," he said.
The example, though, highlights the grey area between the appearance of underquoting and a property sale that simply exceeds expectations.
The Surrey Hills agent defended the information provided to potential buyers and the result, which he said was because of competitive bidding between two eager buyers.
"I've checked with the office and they confirmed we didn't have any comparable sales in that price point within the last six months within a two-kilometre radius, which is the case from time to time. The property was certainly on the market in the range quoted and we were equally surprised by the result," he said.
Penalties for not complying with the underquoting laws can generate fines of more than $31,000, and in more serious offences such as setting an unreasonable estimated selling price, or advertising a property below the estimated selling price agents can also lose any commission they receive for the property sale.
A spokesman for Consumer Affairs Victoria said Taskforce Vesta, which investigates potential cases of underquoting, was re-launched before the traditionally busy spring period "to ensure agents are fulfilling their requirements under the new legislation".
"Feedback from Victorians has been overwhelmingly positive since the new underquoting laws came into effect on May 1. CAV will investigate and take action against any rogue agents who choose to flout the new laws," he said. Underquoting is also on the rise in Sydney – NSW Fair Trading issued 38 penalty infringement notices for underquoting over the first eight months of the year, compared with just 26 for the whole of 2016.
The practice, apart from being unethical and misleading, is immensely frustrating for potential buyers who waste time attending auctions they have no realistic hope of being successful at, and can incur significant costs such as paying for building inspections and independent valuations.
Mr Pabst said buyers should not rely on the estate agent for an accurate price, but that many still "hang on their every word even though they are paid by the vendor".
"They need to do their own research, there is plenty of free information out there. They can also attend other auctions or consider using a buyer's agent. In places like New York, no one buys property without an independent agent," he said.
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Pabst said.New rules to stamp out underquoting were introduced by the Victorian government on May 1 following new underquoting laws in NSW last year.