Shane Banfield on Underquoting

On the back of Victoria’s new laws regarding underquoting, today’s Infolio blog unpacks the topic and explores what these changes mean for the property market. A highly emotional subject fuelled by record low interest rates, a growing urban population and a hot market with low supply; underquoting and housing affordability remain top of mind for many Melbournians.

I’m going to present a different point of view. My perspective stems from my experience as a buyer, a seller and now a buyer’s advocate – but it’s my 10 years as a sales agent that I’d like to draw on today.  I want to express the challenges an agent faces in pricing a property, and the complexities the pricing process presents while balancing obligations to vendors, the industry body, the law and the buying public.

Firstly, the fundamental flaw in property valuation (and subsequent pricing) is that values are based on recent sales. Granted, there’s no better way of determining a value – aside from having a public auction to determine exact demand – but it’s essentially historical data. A rising or falling market – coupled with results a few months old – could equate to a 5-10% variance in what a property is worth using this pricing method.

Yes, an agent is expected to take market conditions into account and should allow for shifts – both positive and negative – when pricing a property. But this can be problematic. Applying a percentage is speculative; if the market changes direction, where does this leave the vendor?

Another challenge is that property speaks to people differently. It’s a simple concept – but how does one ever know what another person is prepared to pay for a property? What appeals to you won’t necessarily appeal to me, and who’s to know what role timing, affordability and personal factors play in the decision-making process? Suddenly, the simple task of pricing a property becomes harder than picking the Melbourne Cup winner!

My next point and other issue with pricing a property, is that it’s the responsibility of the agent and seller who – consciously or not – have a natural bias. How can we expect anything to change so long if we continue to leave property pricing in the hands of people with a vested interest in the outcome?

One thing is for certain: agents will continue to make their client’s property as attractive as possible. It’s their job. They strive to make the home as appealing as they possibly can, and they’re fiercely focused on getting the three property selling principles absolutely right; presentation, marketing and yes – price. This is their steadfast contractual obligation – to act in their vendor’s best interests at all times – anything less is a disservice.

How can we expect an agent act otherwise? Would they neglect the presentation or put the property online with photos taken from the smartphone? How can we expect an agent – who has control and influence on pricing and is committed to his or her client’s best interests – not to position their vendor’s property at a level that will generate interest?

This brings me to my next point. If an agent does quote an accurate price with the likely value and their client’s reserve within the estimated range, are they going to be rewarded or punished? The buying public is so accustomed to adding 10%, our natural reaction is to assume something is overpriced, dismissing the property without an inspection. The agent is damned if they do, and damned if they don’t.

We could remove the responsibility of pricing from agents, but vendors still determine their reserve price. We could ask the seller to set their reserve within the range at the start of the campaign, but isn’t this one of the main reasons we have a campaign? To both generate interest and to help the seller and agent determine a realistic reserve? The public have conveniently hidden behind agents for too long – we’ve made agents the scapegoats for our frustration and disappointment.

As buyers, we ride a moral high horse. We blame agents for this and that, asking questions like ‘what’s the real price?’. We’re condemning agents for perceived underquoting at every and any opportunity, but how many of us sit in our lounge with an agent preparing our home for sale and challenge the agent on price? Do we ask, ‘should we be quoting the price higher in line with our expectations?’ How many of us innocently ask a question like ‘what price will we quote to the market?’ All this does is perpetuate the perceived problem of underquoting. The price the agent tells you, the vendor, is the same price that must be quoted to the market!

I can hear the good agents – of which there are many – breathing a collective sigh of relief. They’ve been battered from pillar to post, in many cases wrongly tarnished with the same brush as the dodgey ones; please know that one bad apple does not spoil the bunch. Yes, I understand I’m presenting more problems than solutions. But I’m not convinced the recent changes will have a positive, lasting effect on price quoting practices. The issue as we see it is housing affordability and an undersupplied property market,  leaving conditions conducive to rising prices. The buying and selling decisions are left in the hearts and minds of people, so the perception and reality of underquoting will remain.

However, there are some things we can do when buying or selling a home!

Tips for Buyers

Education and research is all that matters! Become a professional on property values or engage the services of an advocate. Using a buyer’s advocate will help to remove emotion and bias from your purchasing decision, assisting you to accurately determine values.

Tips for Vendors

Don’t be complicit in underquoting. Ask yourself, ‘are my expectations within the agent’s price range?’ Don’t allow an agent to quote a figure lower than they’ve provided you with; you can make a difference.

We’re not pretending underquoting is a non-issue. We applaud the wider industry and its members for recognising underquoting as a blight on the property market, and for introducing greater transparency. We’re merely presenting a different perspective and posing questions to help us move forward.

Next time you find yourself in a situation where underquoting is on the agenda, stop and think. Was it underquoted or was it market forces on the day? Was it underquoted or are you just disappointed? Maybe, just maybe, it wasn’t totally the agent’s fault.

On a serious note, if you do have fair reason to believe an agent is continuing to underquote as a sales tactic, you can contact Consumer Affairs Victoria with your case.