Real Estate Underquoting: What it is & how to avoid it
O*NO! You’ve been asked to advertise a property by a vendor, but have heard that under-pricing it may bring in more people – should you do it? NO, unless you’re looking to get into legal trouble. Underquoting refers to real-estate agents listing or advertising properties for a price lower than what the vendor or seller is willing to sell for. Though, in recent times Australia has tightened their laws around underquoting, the practice is still very much alive in the real estate industry. Read on to learn more about underquoting, the dangers around it, and why you should avoid it.
What can be considered underquoting?
When advertising a property, the listed price is often used as an indication of what the real estate agent sees the market price/value of the property. This is not to say that the price cannot change before or as it sells. For example, a property can often sell for more than it is listed during an auction, especially in a rapidly rising market like we are seeing now. This may be due to a strong property market or strong competition during the auctioning, rather than an underquoted listing. However, hiding behind a strong real estate market is no excuse for purposely misleading prospective buyers.
Underquoting can include marketing a property for less than the estimated selling price, less than the sellers asking price, or a price that the seller has already rejected. A small percentage of real estate agents will underquote in a bid to increase interest and engagement from buyers and this is damaging the reputation of the industry as a whole.
Each state and territory has its own set of laws and regulations regarding quoting. For example, in NSW, according to the Property Stock and Business Agents Act 2002, agents are not allowed to give clients vague or underestimated prices for properties. In Victoria, agents also have an obligation regarding the estimated selling price they provide, namely that the estimate be reasonable and consider the sale prices of three comparable properties. A brief overview of what constitutes underquoting in the different states and territories can be found here.
Why should you avoid underquoting?
According to Consumer Affairs Minister Melissa Horne, the practice of underquoting is illegal, and chances are you will be caught if you are doing it. Therefore, it is best to avoid underquoting if you want to avoid having to pay hefty fines or have your licence affected. There are also other penalties that may apply in the different states and territories, for example in NSW, agents can also lose the commission and fees they have earned from the sale of an underquoted property.
Underquoting can also be in contravention of Australian Consumer Laws as you are making false and misleading representations about a good for sale. A breach of Consumer Laws could lead to heavy pecuniary penalties, and even criminal penalties, for both the individual agent and/or their agency.
In essence, underquoting is a practice that is misleading and deceptive. Beyond it being illegal, you are putting your real estate and business reputation on the line by doing it. Clients will, due to underquoted listings, waste time and money on prospective properties, whether it be inspecting it, obtaining pre-purchase reports and searches, or even attending auctions they are unable to participate in. But the worst part? even after all this work, the client is still looking for a property. This can lead to frustrated and disgruntled clients, which is never good for any business, let alone real estate where customer trust and satisfaction are of the utmost importance.
How can you avoid underquoting?
Simple – don’t purposely mislead prospective buyers by listing a property for a price you know is lower than it is supposed to or will sell for. Beyond this, here are a few tips to help you avoid unintentionally underquoting.
Firstly, take care when determining the estimated selling price of the property. This price must be reasonable and dependant on the unique circumstances of the individual property based on your professional knowledge, experience, and research. This may include the current state of the market, the sellers asking price, the location of the property, and the selling prices of recent and/or comparable properties. It is also good practice to evidence how you reached the estimated selling price. This provides prospective buyers with necessary information needed when deciding if the price is justifiable and can also assist you in case of an audit.
Also, remember the market and circumstances of a property can change over time – so don’t forget to constantly review and revise your estimated price. It may also be helpful to keep dated and timed notes about conversations you have had with prospective buyers about the price of a property, especially if the circumstances and price changes.
There are also terms or phrases that are prohibited when quoting a price. Commonly, these include using the phrase ‘starting at’, ‘offers above X’ or adding an ‘+’ after the price. In some instances, the use of certain phrases or words also have requirements. For example, in QLD, when using the phrase ‘offers over’ the price included must be the minimum price the vendor is willing to consider, or in SA the ‘+’ may be used after a price only if it is a range and not a single price. Therefore, it is best to become familiar with the laws of your state and territory and avoid using certain phrases or words or using them in line with their guidelines.
If by chance you have underquoted a listing, notify the prospective buyer as soon as practicable and provide the revised reasonable estimate.
If you are still wary that you may be underquoting, or misleading a prospective buyer, you can always recommend the client obtain a professional buyers agent. A buyers agent is an expert who works exclusively to negotiate the best deal for the buyer.
You must also remember that you may land yourself in trouble if your employees are engaging underquoting. That's why it's vital for your team to be well-versed in the dos and don'ts of real estate marketing and quoting. To safeguard yourself, make sure you consistently review your staff's methods and property listings, stay updated on laws, and provide regular training to your team.
Key Takeaways:
Underquoting includes marketing a property for a price lower than the estimated price, a price lower than the vendor is willing to consider or has already rejected;
If a property ends up selling for more than the quoted price (eg. in an auction) then it is not underquoting but due to circumstances out of your control (eg. the property market);
Underquoting is illegal everywhere in Australia by virtue of Australian Consumer Laws and specific laws enacted in the different states and territories;
Underquoting can lead to civil and criminal penalties – most importantly it can result in heavy fines and/or loss of your licence;
When determining the estimated price of a property remember to consider recent and comparable sales, the market, and the vendors requirements;
The quoted price should be reviewed and revised as needed so you aren’t recklessly underquoting; and
Be up to date with your state or territory laws about quoting – especially when it comes to what you need to provide prospective buyers and the rules around using certain selling phrases and terms.
Next Steps
Not sure if your quoting and marketing practices are legally compliant? Why not talk it through with a real estate agency law expert - book your FREE 10 min chat to get started today.
Want peace of mind knowing your staff are across the do’s and don’ts of underquoting? Our team of experts provide unique and comprehensive training experiences to real estate agency’s of all sizes, stages, and budgets. Get in contact with us today to discuss training opportunities for you and your team.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial, or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.