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Sydney property buyers fed up with a misleading market are calling for compulsory price guides, and rules that would force guides to align with sellers’ true price expectations.
Steeper penalties for misconduct and more enforcement activity are also on buyers’ wish lists.
Buyers are calling for tougher laws to rein in underquoting. Credit: Dion Georgopoulos
It is not compulsory to advertise a price guide on a property for sale in NSW. When a guide is given, it is not required to be in line with the reserve, or the seller’s desired price. This leaves buyers frustrated when properties pass in at auction for more than the guide. However, a sale far above a guide is not necessarily underquoting.
If any agent does provide a guide, it cannot be lower than the estimated selling price provided to their vendors in an agency agreement. The estimate can be a single price or a 10 per cent range, and must be based on factors like recent comparable sales and market conditions. Price guides must also be updated in line with buyer feedback.
Henny Stier, principal buyer’s agent at OH Property Group, said all agents should be required to publish the full 10 per cent range from their agency agreement because many listings have no price guide. The reserve should be set within the range and made public.
“Right now the vendors can set the reserve at whatever price they want,” she said. “If you make it a law that your reserve has to be within that 10 per cent range, then that anchors the seller to the agent.”
She said it prevents sellers from engaging in the tactic too.
“You tie your vendor to the agency agreement. So if you underquote, then you better be prepared to sell for below-market value if that’s what you’re signing up to underquote.
“That would fix the problem because then you don’t have vendor and agent in cahoots, underquoting deliberately [on their agency agreements or guides].”
Opposition Fair Trading spokesman Tim James suggested there could be better regulations and larger fines.
“In South Australia, you have got a strict legal obligation that the reserve price cannot exceed by more than 10 per cent, the price that is in the sales agency agreement,” James said.
“For any fines to be effective … it ought not to be sort of seen to be some kind of cost of doing business.”
Property Services Commissioner John Minns.Credit: Dominic Lorrimer
Agents caught underquoting may be given education advice, a warning or a penalty notice of $2200. They can face a fine of up to $22,000 and the loss of the commission if successfully prosecuted, but this has never been imposed.
Asked about the issue at a press conference on Sunday, NSW Premier Chris Minns said he was open to considering legal changes.
“I’m not ruling out potentially changing legislation,” he said.
NSW property services commissioner John Minns felt the existing regulation and penalties were sufficient, and was against further naming and shaming agents, as those who entered into enforceable undertakings already appeared on a public register.
Minns said it was better to focus on lifting industry standards through professional development, rather than mandatory price guides or rules around reserve prices.
He urged those who experienced underquoting to report it, particularly those with written evidence, and encouraged those who had an issue with the complaints process to provide feedback.
Buyers are left frustrated when reserve prices are higher than price guides. Credit: Peter Rae
RMIT senior economics lecturer Dr Peyman Khezr said NSW legislation was too weak to protect buyers and price guides were meaningless.
“The legislation essentially encourages you to get as many buyers as you can for your home and let them compete to the hilt … and you don’t care about the many other buyers who wasted their time and money to just come inspect the property and then come into the auction and have no chances of winning,” Khezr said.
“Price guides probably mean nothing right now, ” he said, noting sale results often recorded huge variances from price guides.
He suggested legislating compulsory price guides and reserves anchored within a 10 per cent range of that.
Daniel Ferguson and Alice Holmes believe properties are routinely underquoted.Credit: Flavio Brancaleone
Home buyers Daniel Ferguson and Alice Holmes are among those who became frustrated by the opaque market. In one example, they were given a price guide for an inner west property of $2 million. It sold for $2.6 million.
They started routinely factoring in an additional 20 per cent to 30 per cent on top of advertised price guides to get a more accurate idea of what they could afford.
“They should be more realistic,” Holmes said. “If you didn’t know that, it would get your hopes up.”
“It’s just a bit frustrating,” Ferguson said.”I don’t have faith at all in Fair Trading to regulate underquoting. Every house we went to was underquoted, it happened to our friends [too].”
Auction reserves are set by sellers, and currently do not have to align with a property price guide.Credit: Domain
He welcomed the idea of publishing the 10 per cent range in the agency agreement and the reserve price as a “win-win process” that would cut time-wasting.
Sydney buyer’s agent Paul Mulligan, founder of Mulligan Property Acquisitions, said harsher penalties were needed.
“The maximum fine is $22,000, and what’s that to an agent [selling multi-million dollar homes] … it’s a piss in the wind,” he said.
He would like agents named and shamed, better industry training, more transparency on the number of complaints, fines and investigations, and more scrutiny of agency agreements, which some agents can set deliberately low.
“I had a conversation with an investigator about underquoting and he argued with me that a property was not underquoted because [the guide matched what] the agency agreement said, but that price was 40 per cent lower than the market value and comparable sales in the building.”
Mulligan said the complaints process needed improvements, from making it easier to find the form on Fair Trading’s website, to updating consumers with the outcome.
You can also make your complaint by mail or you can call 13 32 20 to discuss how to make a complaint.
Buyer’s agent Deborah West, joint principal of Sydney Slice, said better enforcement was needed, as were larger penalties and some link between price guides and reserves.
“The general lack of enforcement is probably the biggest problem, I don’t think the current regime is acting as a deterrent,” she said, adding it was rare to see Fair Trading inspectors at auctions.
“A lot of agents get away with it,” she said. “If there was more oversight of price guides and end sale prices, and what’s on agency agreements, then I think agents would be more afraid of getting caught.”
Smyth Estate Agents (SEA) director James Smyth said Fair Trading needed more boots on the ground and also supported limits on reserves, having previously encouraged some vendors, with varying levels of success, to set their reserve within the advertised price range.
He questioned why agents were not required to advertise a price guide when they already had an estimated selling price. Advertised price guides are compulsory in Victoria.
Real Estate Institute of New South Wales chief executive Tim McKibbin, said the current strategy to stamp out underquoting was not working. He was open to a review of existing regulations, but thought most agents were doing the right thing.
“Everything should be on the table, but where it starts is with government and industry working together,” he said when asked what he thought of calls for greater penalties, rules on reserve prices and mandatory price guides.
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