It actually isn’t what you think it is!

Underquoting is always a hot topic in Sydney real estate!

Let me be clear that nothing infuriates me more than seeing buyer’s have their time wasted on properties that they will never be able to afford. I am frustrated when I hear people say they felt taken advantage of, were misled, and / or deceived.

Always remember who represents who

A selling agent works for the vendor, and is only paid by the vendor at the conclusion of the transaction. I believe it is key for buyers to have this context to avoid ill feeling towards real estate agents – they do not work for you as the buyer. If you want representation for your best interests, and to feel informed & empowered – that is exactly where paying a (good) buyer’s agent will land you.

Onto underquoting…

• Underquoting is defined in the NSW Property Legislation as when an agent advertises or gives a buyer a price that is lower than the agent’s ‘estimated selling price’ in their sales agreement with the vendor.

• The ‘estimated selling price’ the agent gives the vendor can be a range, however, cannot be more than a 10% range. For example, if the range starts at $1,500,000 then the higher end of the range cannot be more than $1,650,000.

• The ‘estimated selling price’ is initially set when the vendor signs the agents agreement, although it can adjust up, or down, throughout the course of the agreement

What is this ‘estimated selling price’?

• This estimate is based on recent (undefined as to how recent) comparable sales that the agent chooses to include

• No properties are identical, and where you have a unique property, it can be very difficult to predict an ‘estimated selling price’

• When there is very low stock levels this also makes it difficult to find relevant comparisons

• Further, the estimate is based on recent sales at the time of the listing, not at the time the property goes to auction

Do agents “underquote”?

I am not privy to the agents agreement with the vendor, however, I am 99.9% sure that agents wouldn’t advertise a price that is not reflected on their agency agreement. This is because this information must be disclosed to NSW Fair Trading on request & the law is black & white.

In my opinion, agents are not out there every weekend in breach of “underquoting” laws. This doesn’t mean it is helpful to buyers, it just means they aren’t breaking the law.

There are agents who refuse to provide a price guide and say something like “the owner has asked us to obtain market feedback”. This my friends IS a joke. There is a price that is listed on the agency agreement and the agent should be transparent about what it is, and how they got there.

Playing devils advocate for a moment…

A real estate agent simply cannot know ahead of time with absolute certainty who will turn up to the auction, how much they will bid and who will be the final buyer. A great agent will have an educated view on how they think the auction will play out, but no one can know for sure. Most buyers don’t even know before the auction what they will bid up to as many buyers continue to emotionally bid money they didn’t plan on spending in the heat of the moment.

If a property sells for significantly higher than the advertised guide - this is not the legal definition of “underquoting”.

The market decides the ACTUAL price

The advertised price guide, and the agents ‘estimated selling price’ are predictions. Educated predictions, but predictions, nonetheless. The buyers in the market at the time the property is for sale are the ones who set the true value (subject to one more hurdle below).

The law does not take into account the Vendor

“Underquoting” relates only to the sales agent and does not account for the Vendor. The Vendor sets the reserve for the auction and there is no requirement that the reserve has anything to do with the ‘estimated selling price’.

In fact, the reserve can be set wildly apart from the estimate – and it is the vendor who has wasted everyone’s time. Including the sales agent, who only gets paid when the property sells.

If the property is not going to auction the same logic applies, it is up to the vendor whether they accept an offer or not.

I really appreciate buyer frustration and the desire to throw around the term “underquoting”, but often the cause of the issue is either the vendor themselves, another buyer who is willing to pay more than you, or a misunderstanding as to what the term “underquoting” actually means under NSW Property Law.

I hope this has helped to clarify any confusion you may have as a buyer about “underquoting”.