One of the biggest mistakes made by first home buyers and property buyers in general is falling into the trap of underquoting.
This is a tactic used by real estate agents with the help of research platforms like realestate.com.au, hoping to swell the interest in a property by attracting a higher pool of buyers.
Countless times we’ve had clients come to us with false hope about a property they found online. And who can blame them? It’s easy to get sucked in by underquoting because everyone wants to believe they’ve found a bargain.
With the right advice, you can avoid the heart break of watching your dream home balloon out of your price range on auction day.
What is underquoting in real estate?
Underquoting in real estate is the deliberate advertising of a property below the expected selling price in an effort to drive up interest from buyers. If interest is high and buyers become emotionally attached to a property, they are more likely to drive the price up as they compete with each other.
The practice has been increasingly scrutinised in recent times as frustrated buyers have been asking for greater transparency in the Australian property market.
Last year in Melbourne, almost 60% of the real estate agents audited by the state’s consumer watchdog were fined for underquoting, after hundreds of complaints were filed. In recent weeks, the Victorian government has indicated they will review the current underquoting laws, signifying a serious crackdown in the industry.
In order to protect yourself from this, there are a few things that you should know.
Underquoting in Melbourne is surprisingly widespread. This doesn’t necessarily mean that real estate agents are being dodgy or corrupt (although in some cases they can be), it is often just the best way to market the property.
It’s important to understand that it’s the duty of the agent to achieve the best price they can for the vendor, so they too can earn a living and provide for their family. In almost all cases, increasing the level of interest on a property means increasing the probability of a great result.
As buyer’s agents, we attend many open homes each week for our clients and have grown to anticipate which opens will attract a larger audience based on by how much the property is underquoted.
Sadly, the reason real estate agents underquote their properties so often is because the tactic is so effective.
We have found the most susceptible demographic to be first home buyers in the sub-$800k market who can be easily swept up by seductive pricing.
How does underquoting in real estate work?
Another key thing to understand is how agents come up with the figure they provide for quoting.
They are required by law in Victoria to base their price guide off comparable properties. What makes a property comparable, however, is not so clear.
The law states that for a property to be comparable it must:
- Be of similar standard or condition to the property for sale
- Have sold in the last 6 months
- Be within 2 kilometers of the property for sale
These parameters leave plenty of room for manoeuvrability and are often bent to achieve a desired result.
For example, some properties we see in price guides may have the same bedroom and bathroom counts on a similar sized block, however one property is fully renovated and the other may be a knock down job. This can create a vast difference in the property price which can be a matter of hundreds of thousands of dollars.
Agents know this and can be selective in their choice of comparable properties in order to lower the price guide without breaking the law.
Adding further difficulties to the problem is when the market experiences a ‘boom’ period like it did last year. Agents can quote properties that sold 6 months ago, but market prices may have risen upwards of 10% in this time.
During these periods, there are also many properties that can sell for far more than what was genuinely expected, and not necessarily due to underquoting.
How do I avoid the trap of underquoting?
There are a few tricks that will help you avoid pain and heartbreak on auction day.
A common mistake is limiting your search results to fit within your actual budget when using sites like realestate.com.au. This is the quickest way to miss out on good properties.
Firstly, make sure that you are factoring in the potential for underquoting when you are in the market to buy real estate. By staying alert to this practice; you can save yourself some of the emotional toll that comes with missing out on a dream home. You can do this by searching for properties with a price cap 10% below your max budget so that you have some room to negotiate above the price guide when it comes time to putting down an offer.
Another trick I’d recommend when using realestate.com.au is to use the ‘Sold’ tab and filter searches from ‘Newest - Oldest’ to research the selling price of recent properties within your budget. This will allow you to gather real data so you can get a more precise understanding of your specific property market. From here, you can identify the common characteristics of properties sold within your price bracket which you can then use to accurately determine your options.
You should also make sure you’re paying attention to smaller, less obvious details other than the standard bed, bath and car count for each property.
These considerations can include orientation, room sizes, number of living spaces, natural light, level of privacy, floor plan design and many factors that you can find in our property reports.
Lastly, if you’re still struggling to buy a home, you can consider using a buyer’s agent. Yes, I know I’m bias, but a buyer’s agent can be a really powerful tool to avoid getting burned by the property market.
While a real estate agent will act solely in the interests of the seller, a buyer’s agent will use their expertise to identify underquoting, appropriately evaluate a property and help you make informed decisions when buying.
Regardless, the best defence against underquoting is to do your own independent research and to not heavily rely on the prices advertised.