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Max Carnage

Underquoting

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Ten days ago, the ACCC flagged a big crackdown on the practise of underquoting - a common problem in Victoria.

Vendors and agents face big underquoting fines

Article from: Sunday Herald Sun

Caroline James

July 19, 2009 12:00am

EXCLUSIVE: HOMEOWNERS face fines of up to $220,000 for underquoting their property's expected auction price, in a radical shake-up of real estate law.

And unsuccessful homebuyers who are duped will be able to seek pre-purchase costs back from greedy vendors and real estate agents under the changes.

Australian Competition and Consumer Commission boss Graeme Samuel yesterday warned cheats they would be relentlessly pursued under the new laws, which will come into force on January 1.

"If a vendor is complicit with this conduct, they will be fined, too," Mr Samuel said.

"That $220,000 (fine) is a large chunk out of the sale price of your house.

http://www.news.com.au/heraldsun/story/0,21985,25802550-661,00.html

Some agents responded quickly by pulling advertised prices:

Agents axe price guides

Article from: Herald Sun

Craig Binnie

July 25, 2009 12:00am

MOVES to ban deliberate underquoting of expected house prices at auctions have prompted some estate agents to stop quoting prices.

Eastern suburbs agent Jellis Craig blamed the discrepancies between estimated selling prices and eventual selling prices on the strength of the market.

In a note to customers, the agent said it was removing price guides until the market settled. Director Scott Patterson said the firm had realised its quoting ranges had become irrelevant.

"With the market rising as quickly as it is, it is not proving to be an accurate guide for buyers," he said.

"We don't admit we have intentionally misguided anybody, but we admit the price ranges have proved to be irrelevant in the past two months.

"We hope to put price ranges back in but we would like to find a better way."

http://www.news.com.au/heraldsun/story/0,27574,25831521-2862,00.html

Terry McCrann jumped in to support the practise:

Home auction system just fine

Article from: Herald Sun

Terry McCrann

July 21, 2009 12:00am

THE hysteria over so-called underquoting ahead of property auctions is both very silly and serious. It is also a pointer to the sheer hopelessness of the Opposition under Malcolm Turnbull.

The hysteria has created a groundswell towards a solution that's in search of a problem; and the possible imposition of punitive penalties for non-existent crimes.

<snip>

All sorts of really quite offensive as well as just plain silly and hysterical comments are being thrown around. Talk of unsuccessful homebuyers being "duped" by "greedy" vendors. Competition czar Graeme Samuel issuing warnings to "cheats".

What, a vendor should sell their property at a deliberate discount?

What exactly has someone -- presumably the unsuccessful property buyer -- been cheated out of? The 'right' to buy the property at an imposed or artificial discount?

It's almost as if people like Samuel have never been to an auction. I would recommend an intense course of watching Bargain Hunt on Foxtel.

Why, an item that might have been estimated at pound stg. 60-80 attracts just one bidder and goes for pound stg. 10.

Another item that was estimated at pound stg. 20-pound stg. 30 is subject to fierce competitive bidding and surprises everyone by topping out at pound stg. 120. How dare the auctioneer underquote!

http://www.news.com.au/heraldsun/story/0,21985,25811073-5000117,00.html

This morning we have this surprising update:

Documents seized in raid over misleading real estate ads

Article from: Herald Sun

Craig Binnie

July 29, 2009 12:00am

EXCLUSIVE: SIXTY estate agents' offices were raided by investigators in a major crackdown on underquoting.

More than 1000 recent property sales files were inspected and several agents are expected to face prosecution.

At least one agent tried to stop investigators accessing his files and others were said to be shocked at the scope of the investigation.

Consumer Affairs Victoria director Dr Claire Noone said the agent initially denied inspectors entry. "However, after being advised that failure to allow entry and inspection of files were both offences under the Estate Agents Act, CAV successfully gained entry," she said.

The raids follow the Herald Sun's campaign on agents misleading and using time-wasting advertising tactics that trick buyers into inspecting properties they cannot afford.

Up to 80 investigators are examining seized files seeking illegal and unethical price underquoting. Dr Noone said agents found to be systematically breaking the law would face disciplinary action and potentially lose their licences.

http://www.news.com.au/heraldsun/story/0,21985,25850405-661,00.html

I note that the article seems to imply that the raids took place overnight or at least some sort of immediacy to the news. But a close inspection of the article doesn't support that. Stay tuned for more, I expect.

So what do people think? Is underquoting a problem? I think McCrann missed the point. It's not simply that some properties sell for more than the advertised price. The problem is that some properties are not for sale at the advertised price. A quick look through the auction results turns up dozens of homes that were 'passed in' or 'vendors bid' (passed in above the price anybody was willing to pay) at a price above the advertised price.

This is clearly deceptive, and illegal for good reason. The buyers spend money and time on inspections, reports and finance approval for a property that they can afford, but are unable to purchase at the advertised price.

I was interested to see that many of the recent auction results reports are missing details of prices for properties that were not sold...

What do you think?

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Interesting. The REIV have put out a press release including a whole brand-new phrase for their liars member agents to use!

Understanding advertised prices

25-Jul-2009

As a result of the strong local residential property market there is a lot of interest in the process around the marketing of homes listed for auction.

For prospective buyers there are three terms that are important to understand, the estimated selling price, the advertised price and the offer.

Estimated selling price

The estimated selling price (ESP) is what your agent believes that a willing, but not anxious buyer would pay for the property and is recorded on the sales authority. It is determined using their skill, knowledge and comparable sales evidence. The ESP may be expressed as a single sale price or a range of not more than 10 per cent. The agent may change the ESP during the course of the campaign depending on the market and offers that may have been received and rejected. Just because a home may sell for more than the ESP does not mean the property was ‘underquoted’ under Victorian law.

Advertised price

When a price is displayed on advertising or marketing material, then that price must not mislead or deceive. The bottom of the range or single price displayed can not be below the lowest part of the ESP. Consumer Affairs Victoria guidelines for advertising of property allow a reasonable price range and suggest that practices such as ‘price plus’ or ‘opening bids’ could be misleading and should not be used.

Offer

Throughout the course of a marketing campaign a prospective purchaser may make an offer. Offers should be in writing and will be conveyed to the vendor by the agent unless, in the case of an auction, the vendor has said they won’t receive any offers. If a genuine offer is rejected and is higher than the base of the advertised range, then the advertising must be updated to reflect that.

http://reiv.com.au/news/details.asp?NewsID=814

"Just because a home may sell for more than the ESP does not mean the property was ‘underquoted’ under Victorian law".

Uh, I'd love to see that tested in court!

"No your honour, we understand that it's against the law to display a misleading or deceptive advertised price so we didn't display one of them, we used a misleading and deceptive ESP instead. Surely your honour understands the difference? Look here it is from our Agents' Handbook..." <_<

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It may be highly unethical, but where do you draw the line?

Valuation is not an exact science and surely they could come up with a rationale one way or another to justify their under-quoted prices. This would be particularly the case since we have had a period of - ahem - lower house prices.

So although it is a reprehensible practice, how could it possibly be proved that the agents have acted with deliberate professional negligence?

Just to clarify with an exaggeration, if a house was sold for $50 more than quoted, then it would make no sense to claim unethical action by the agent. What about $100, or $1,000 or a 5% higher actual sale price?

It would be difficult to make a hard and fast rule, especially in an auction situation where bidders "got carried away, your honour!"

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It may be highly unethical, but where do you draw the line?

Valuation is not an exact science and surely they could come up with a rationale one way or another to justify their under-quoted prices. This would be particularly the case since we have had a period of - ahem - lower house prices.

So although it is a reprehensible practice, how could it possibly be proved that the agents have acted with deliberate professional negligence?

Just to clarify with an exaggeration, if a house was sold for $50 more than quoted, then it would make no sense to claim unethical action by the agent. What about $100, or $1,000 or a 5% higher actual sale price?

It would be difficult to make a hard and fast rule, especially in an auction situation where bidders "got carried away, your honour!"

Easy enough. Compare the ESP and final price for all sales and publish that number. "Historically RE Agent blah has overstated/understated the ESP by 10%"

Would be a handy number for a bunch of reasons. Wouldn't even need to punish the RE, just make them all publish their figure in their window :)

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It may be highly unethical, but where do you draw the line?

Simple. Don't give people a price that is less than the vendor is willing to accept as full payment for the property.

There's no slippery slope. There's effectively no secret reserve either, but I don't see that as a problem.

Just to clarify with an exaggeration, if a house was sold for $50 more than quoted, then it would make no sense to claim unethical action by the agent. What about $100, or $1,000 or a 5% higher actual sale price?
That's not an outcome I have a particular concern about. You can't cap an auction. But you can stop the auctioneers from boosting the number of pre-qualified, all-inspections-paid attendents and bidders by giving a false price.

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Well, maybe that is the way to do it. Name and shame them!

Publishing average historical performance figures for each agent could encourage better professionalism by the industry.

However, for auctions they may not officially publish the under-quoted figure. They just mention it verbally to prospective buyers.

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"Just because a home may sell for more than the ESP does not mean the property was ‘underquoted’ under Victorian law".

Uh, I'd love to see that tested in court!

"No your honour, we understand that it's against the law to display a misleading or deceptive advertised price so we didn't display one of them, we used a misleading and deceptive ESP instead. Surely your honour understands the difference? Look here it is from our Agents' Handbook..." <_<

I think as far as Auctions are concerned, it would likely be the case that they should be OK if it sells for more than the advertised estimate as this can happen in fairness even if it was unexpected.

Where I think they will be in dubious territory is if they do not accept the highest bid if it was at the estimated price, i.e. there was no intention of accepting the estimate. That is false and misleading certainly. The other is harder to demonstrate as they could claim they were prepared to accept the best offer over there estimate.

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How difficult for real estate agents to predict the prevailing market conditions... Prices are doubling every few weeks!

 

First cab off the rank in this weeks' results:   http://www.homepriceguide.com.au/saturday_auction_results/Sydney_Domain.pdf

 

25 Kiernan Crescent, in the appropriately-named Western Sydney suburb of Abbotsbury.

http://www.domain.com.au/for-sale/25-kiernan-crescent-abbotsbury-nsw-2176-2012049666

 

Price guide "Over $950,000"

 

Passed in via 11 July 2015 posted results:  $1,870,000

Edited by Dose
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How difficult for real estate agents to predict the prevailing market conditions... Prices are doubling every few weeks!

 

First cab off the rank in this weeks' results:   http://www.homepriceguide.com.au/saturday_auction_results/Sydney_Domain.pdf

 

25 Kiernan Crescent, in the appropriately-named Western Sydney suburb of Abbotsbury.

http://www.domain.com.au/for-sale/25-kiernan-crescent-abbotsbury-nsw-2176-2012049666

 

Price guide "Over $950,000"

 

Passed in via 11 July 2015 posted results:  $1,870,000

 

I lived for 12 years in Sydney and this suburb must have passed me by in all that time. I had to look at the map to find it. It's as far as you can go from the CBD without leaving Sydney. Once they build the new airport it will be the new "Inner City" and be worth $19M.

Edited by sydney3000

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