Key Takeaways
- Underquoting in real estate can hurt sellers by creating a gap between their price expectations and those of buyers, leading to reduced negotiation power and undervaluation of their property.
- The practice of underquoting can lead to failed auction campaigns, resulting in significant financial losses for sellers.
- New laws in Victoria require agents to disclose a home’s reserve price before auction, while NSW is considering reforms including mandated published price guides and steeper penalties.
- Underquoting can create a "digital footprint" on property portals, making it harder for sellers to reclaim higher price hopes in future marketing campaigns.
- Sellers can find themselves trapped in agency agreements with underquoting agents, while buyers have the option of walking away from an underquoted property.
Introduction to Underquoting
Underquoting in real estate refers to the practice of deliberately providing a low sale estimate for a property to attract a crowd. This can create a gap between the price expectations of the seller and buyers, leading to reduced negotiation power and undervaluation of the property. The experience of Garry and Kerrie Connell, who listed their penthouse for sale with a conservative price guide of $6.5 million to $7 million, only to receive an offer of $4.8 million after three auction campaigns, illustrates the potential harm of underquoting to sellers.
The Impact of Underquoting on Sellers
Underquoting can lead to failed auction campaigns, resulting in significant financial losses for sellers. When a property is underquoted, it can create a perception that the property is worth less than its true value, making it harder for sellers to negotiate a better price. This can be particularly problematic in softer real estate markets, where buyers may not be willing to pay as much as the seller’s reserve price. Real estate agent Ben Collier notes that "sometimes the underquoting is so extreme that the agent anchors the value too low, leaving an impossible gap to bridge."
The Debate Over Underquoting Reform
The debate over underquoting reform is ongoing, with Victoria introducing landmark laws requiring agents to publish reserve prices at least seven days before auction day or fixed-date sale. In NSW, the government is considering reforms including mandated published price guides, steeper penalties, and more detailed price estimates. However, some industry leaders argue that these reforms do not go far enough, with NSW president of the Australian Institute of Conveyancers Jenni Tonner calling for mandatory reserve disclosure.
The Consequences of Underquoting
Underquoting can have significant consequences for sellers, including the creation of a "digital footprint" on property portals that can make it harder to reclaim higher price hopes in future marketing campaigns. Failed auction campaigns can also lead to a stigma being attached to the property, making it harder to sell. Ray White Lower North Shore’s Geoff Smith notes that "buyers can see that a property hasn’t sold, or that it was passed in at a set price… The market gets confused at that point, and unfortunately buyers don’t see it as a failure by the agent. It becomes the property that’s at fault, not the agent."
Alternatives to Underquoting
Some real estate agents are advocating for a more targeted approach to marketing properties, rather than relying on underquoting to attract buyers. Melbourne-based vendor advocate Fahey Younger notes that underquoting "100 per cent" harms those trying to sell their homes, and that a more honest and transparent approach to pricing can lead to better outcomes for sellers. The experience of Garry and Kerrie Connell, who eventually sold their penthouse for $6.5 million after switching to a new agent who used a more targeted marketing approach, illustrates the potential benefits of this approach.
Conclusion
Underquoting in real estate can have significant consequences for sellers, including reduced negotiation power and undervaluation of their property. The practice of underquoting can lead to failed auction campaigns, resulting in significant financial losses for sellers. As the debate over underquoting reform continues, it is clear that a more honest and transparent approach to pricing is needed to protect the interests of sellers and buyers alike. By understanding the potential harm of underquoting and advocating for reform, we can work towards a more fair and equitable real estate market.