The Victorian government is launching a significant crackdown on real estate agents who engage in the illegal practice of underquoting property listings. This move introduces stringent new guidelines designed to bring greater transparency to the Australian property market.
What is Underquoting and Why is it a Problem?
Underquoting is a tactic where agents deliberately advertise a property for less than its estimated selling price or the owner's asking price. The goal is to attract a larger pool of potential buyers, thereby drumming up competition and inflating the final sale price at auction.
Michael Fotheringham, director of the Australian Housing and Urban Research Institute, explains the common buyer experience. "Many people have the experience of going to auctions and the first bid is above the range that was predicted. Or the final bid is in the range that was predicted, and the vendor declines the sales because it hasn't reached the reserve," he says. However, he notes that a property selling above the quoted range does not automatically mean underquoting has occurred.
Graham Cooke, Head of Consumer Research at Finder, confirms it is "a huge issue" across Australia, particularly in the auction market, where buyers now almost expect it.
How Widespread is Underquoting and What are the New Rules?
A recent analysis by Guardian Australia revealed that underquoting is most prevalent in Sydney, where it occurs in roughly 20% of sales, and Perth at 18%. The practice is less common in cities like Canberra, Hobart, and Darwin. The analysis defined underquoting as a final sale price exceeding the pre-sale guide by more than 10%.
In response, the Victorian government's new framework mandates that agents must now base their price estimates on the three most comparable local properties. They must factor in the dwelling's specific features, including:
- Floor and land size
- Zoning regulations
- Distance from key infrastructure
- Age and any significant renovations
Consumer Affairs Victoria now has the power to investigate instances of underquoting and can demand evidence from agents showing how they selected their comparable properties. Failure to provide these records can result in penalties. In the 2022-23 financial year, Consumer Affairs Victoria received about 2,500 contacts concerning agent conduct, with most relating to underquoting.
Will the Crackdown Work and What More is Needed?
While underquoting is already illegal under federal consumer law, with states imposing their own fines, experts argue that current regulations are insufficient. In Victoria, agents risk fines of over $11,000 for each breach, or penalties exceeding $38,000 under the Estate Agents Act. In New South Wales, fines can reach $22,000.
Despite these penalties, Graham Cooke states, "There needs to be stronger regulation on this." He and other industry professionals believe more oversight is crucial.
Buyers' agent Fahey Younger points out that the industry largely self-regulates, with many complaints coming from other agents. She advocates for a public disclosure log of agents who have been fined, arguing that "public disclosure would be the best deterrent." Michael Fotheringham agrees, stating that "having some scrutiny over that, some accountability for that, seems like a pretty good way to go."
Some suggest technological solutions, like the algorithm-based property price predictor RealAs, could be adopted by governments to improve oversight and close loopholes in the current rules.
How Can Home Buyers Protect Themselves?
For prospective buyers navigating this challenging landscape, experts offer several key pieces of advice:
Graham Cooke recommends conducting thorough independent research. "Look at some of the historical price guides in your area and the prices properties sell for, and factor that into your estimation," he advises. He also warns against spending money on legal reviews for auctions where you have no realistic chance of success.
In Victoria, buyers should scrutinise the Statement of Information provided with the listing, which includes the three comparable properties the agent used. Fahey Younger notes, "For the most part, that statement of information tells you everything you need to know... And if they're above the range that's quoted, then that's going to be an underquoted property."
Finally, Cooke encourages buyers to report suspected underquoting to the appropriate government bodies. "In a lot of cases, people don't actually do that. And that's the reason why this continues," he says.
