The Buyer Who Cried Underquoting

underquoting

Everyone loves to hate estate agents. It’s a national sport: like BBQs on election day and booing at Collingwood, hating estate agents is rooted deep in our national lizard brain.

It’s easy to understand why: they don’t answer questions properly, roll up at open for inspections late in their spivvy hotted-up cars with their sunglasses way back on their smarmy foreheads, and they stand between us and the property of our dreams. They pass in homes at auction willy-nilly for much more than they’re worth, and they’re so crooked on price it’s amazing they can walk properly in their Julius Marlow laceups. Who are these underquoting bastards, anyway?

Reader, I’ll tell you who these agents are. They’re a soft target for easy, lolling Saturday night media hate and a scapegoat for lazy governments. They’re also you and I every time we sell a property, their actions and approach to marketing and negotiation driven by their task: which is to sell your property for the most amount possible.

There are few industries less understood than real estate. The public perception of the industry: hijinks, dodgy greaseballs, genuine influence over the market and money – LOTS OF MONEY – is all complete rubbish. Most estate agents (and for the purposes of this article I’m referring to selling agents) are not successful, and make around 50k per year – working six days and evenings. Only the very few – the most talented, intelligent and competent – manage to eke out longterm sales careers and make good incomes. Most agents drop out after a few years of toil, and those that remain must become battle-hardened to help the Australian population transact housing.

Why? Because us Aussies are cheap bastards who hate estate agents, that’s why. As much as I hate to admit it, Australians are appalling when it comes to their attitude towards negotiation. They’ll kill you for a dollar – and if you need further proof of our disposition towards believing cheapness equals value, observe the race to the bottom undertaken by our supermarket monopolies. Down down, prices are down. Indeed. Except – when they’re not.

When prices are up and we can’t buy things at reduced prices (how very dare they!), our blood boils. In certain parts of Australia, real estate prices are absolutely on the up. When this occurs, media reports kick in with alarmist ‘prices on the up‘ Saturday evening broadcasts. As extraordinary results in hotted-up markets occur, discussion then turns to underquoting and the evil control that estate agents have on the market.

Reality check: estate agents have no control over the market. They are not selling their own property. Their vendors are, and their vendors are in control of the reserve they set and the price they’re ultimately willing to sell their home at. Once their property is on the market (i.e. it has reached the reserve at auction and is about to be sold), the vendor also has no control over the price their property sells for. Those in control are the buyers, who can keep bidding until they wish to stop. Value for these competing buyers is entirely personal: it has nothing to do with the price an advocate might recommend you pay for a property.

Most gallingly for disappointed buyers at auction, the price those willing to compete on property are willing to pay is disconnected from any quote range advertised, any vendor’s reserve or any council rates estimation of value. Of course, this is disappointing – particularly in a market which feels like it is spiralling out of reach for buyers. It sucks to be disappointed, it really does. The reality of a competitive market, however, is that there are winners and losers. And it hurts to lose, or to feel like you’ve been denied something that should have been yours. When this happens in an exponentially rising market, buyers begin to murmur about underquoting. Before long, this murmuring becomes a full-on village hunt with picks, lanterns and chanting that someone has to pay. And who’s that person – who deserves our blame for rising markets and competition?

Is it the government for failing to properly resource high-growth residential areas with the infrastructure to support families and small business?

Is it the Reserve Bank of Australia for setting our national cash rate at historically low levels, leading to a natural increase in the appetite for property because of cheap money?

Is it our swelling population wanting to live closer to areas of employment and enjoyment, making inner-city properties more hotly contested over?

Is it local councils for failing to demand better quality family-style apartment living options for an increasingly urban community, forcing those who require more than two bedrooms into the outer-outer-suburbs?

Is it Baby Boomers, for using the natural advantage of time of birth and large superannuation reserves to inflate the value of inner-urban property?

Oh, no, we say. It couldn’t possibly be. Rather, we turn our eyes from the actual market forces which are impacting on the way our community is developing and go the easy target.

Who’s to blame? Why, the agent of course. It’s them and their evil underquoting. What utter garbage.

You know who’s not crying underquoting? The vendor who sold their property successfully, the buyer who bought a property successfully. Those focussed on underquoting – and making it the scapegoat for problems of supply and demand – are those who did not actually participate in the transaction. Recently, the state government has announced legislation to change the way that estate agents quote – to prevent the disappointment of underquoting, to stop the dreadful agents hurting the feelings of the public who weren’t able to buy property in a successful transaction. If legislation against disappointment becomes a trend, I really do hope they create legislation against other disappointing things in life: jobs that go to less-intelligent candidates after long interview processes, George Lucas Films, fashion festivals that purport to be ground-breaking, and dudebros who pretend they’re your boyfriend when they’re actually lighting up Melbourne on Tinder.

This new legislation is just an easy smokescreen – a shifting of blame – for government. It assuages the mob. Rather than doing the hard work of legislating on new land releases, community housing schemes, appropriate planning permits that look to the future and the hard reform around negative gearing and superannuation, the government throws a bone to the disappointed and holds up new quoting legislation as true action on housing affordability. 

It’s not action, you know. These changes will do nothing but confuse Victorian buyers for around six months, before well-resourced buyers learn the new pattern of negotiation and begin to buy with fervour again. Think carefully: it’s not the agent that’s to blame for market forces – no matter how spivvy their car or smarmy their Facebook page. The people to blame are ultimately you and I, and the economy and democracy we participate in. 

Advertisements

20 thoughts on “The Buyer Who Cried Underquoting

  1. A brillant and funny piece of writing, and some genuine insight into what often appears to be a confusing industry for those of us who still haven’t bought our first property. Everything you’ve written makes complete sense to me, whereas the fear-mongering ‘advice’ from the media and the masses is patchy, contradictory and confusing.

  2. You can’t legislate against whining and you’ll never please everybody. Why even bother with auctions at all for these people…for those same whingers, if you never priced anything and just asked for offers and you get ten, you’ll have nine potential complainants that somehow think the agent shafted them. :/

  3. This is brilliant. After 16 years as an agent – this makes total sense. Congratulations on making such an eloquent and refined translation between agents and the masses – I hope you write a book on the topic!

  4. Brilliant article …. if only it was written before the NSW legislation went into force on Jan 1. It might have made a difference up there, but not likely!

  5. Underquoting may not be driving up the prices of properties, but it is deliberate deception.
    It is illegal to advertise false prices of good and services, so why is it not illegal to mislead people with false prices in the property market?
    If it does not drive up the price of properties, delivering the best possible price for the seller, then why do it?
    What value is there in lying, manipulating and wasting people’s precious time, when according to your article, all underquoting is doing is “hurting the feelings of the public”?

    • Is it illegal for buyers to lie about how much they will pay for a property? Is it illegal for buyers to feign disinterest and talk the property down in a vain effort to snap it up for a bargain?

      Is it illegal for vendors to lie about what they will accept for their property, or for them to change their minds?

      So buyers lie and vendors lie, but you want agents to be open to the point of putting their cards on the table?

      • That is the job of the agent, to put their cards on the table. I’m no agent but I follow the property market intensely. When I see a property advertised in a price range that no house in the area has sold for in the last 4 years, should I just put it down to lack of knowledge or research on the agents behalf or deception to draw in more potential buyers???
        Let’s not blame the public for a game the agents control. Everyone knows the tactics they play, firstly the agent is the person setting the expectation of sale price to the vendor. They they pretend to not know the expected reserve. Please not everyone was born yesterday. The reserve needs to be within 10% of the advertised price. Given current prices, that still gives you at least 50k+ either way. If you can’t sell a property with those margins, then give it up.

  6. Fantastic post! Says it how it is…… 🙂
    The new requirements for validating a quote range will prove difficult and tedious within a supply/demand market.
    It will also provide a platform for the ignorant and bitter to ensure their disappointment is the cause for unnecessary ‘further action’ against agents who are merely doing their job, and doing it well!

  7. Great article and very true. Unfortunately we now see governments have a race to the bottom hence the legislation in NSW. It’s a case of “let’s legislate for the lowest common denominator”. When governments are hell bent on cutting red tape they go ahead in introducing restrictive legislation which is another piece of non-productive red tape. In a market dominated economy the market will always prevail.

  8. Are you really serious? You think the legislation is about stopping people from getting their feelings hurt? Give me a break. Underquoting is a selling technique to attract ALL buyers. The very people you think the legislation is now protecting. And if you believe otherwise then you are as bad as those using the practice. Plain and simple it is a bait and switch pricing strategy. A strategy which is illegal under Australian consumer Laws. (which was the old Trade Practices Act). No other industry is allowed to conduct a similar practice as underquoting. And yet you, the professional REA blame the vendor for setting the reserve. Aren’t you the professional in this transaction? Aren’t you the one providing a professional service and providing a price estimate based on, wait for it, market forces? It’s not hard to work out the true value of a property. Get a licensed valuer for a start if you’re not up to the trickiness of maths. Or more simpler compare similar past sales in the area. Work out the square metre cost and voila, you have a truer price estimate. i.e. the reality of what the property is actually worth in terms of market forces. But it also unfortunately comes with the dreaded fact that you aren’t going to be able to lure every man, woman and child along to bid on something that was always going to be out of their reach. And this is why they do it. Its an ego thing. Its far better to have 20 people standing around at an auction NOT bidding than have 2,3 or 4 actual bidders fighting it out. No, underquoting is illegal and a hideous practice. The Govt has a lot to answer for when it comes to its lack of long term vision and infrastructure strategies but underquoting isn’t one of them. Except for the fact that they dragged their feet (and still are) in pulling in and fining those who practice it.

  9. Could not agree more Anthony Carroll. When 100 people show up at an open house for a huge three bedroom apartment in Toorak that’s been quoted at $630k-$680k but goes for nearly a million, that’s underquoting. Or a 3 bedroom townhouse in Prahran that’s been quoted as expecting in the low $800k’s but then goes for nearly 1.3m like nearly every other 3 bedroom in Prahran has sold for in the last few years. I’m sorry, that’s definitely underquoting. Even as the seller, we argued with our agents because of how cheap they wanted to advertise our property for. They argued back that it was to get people coming to view the property. What on earth is the point of getting people in that can’t afford it? It makes them and their numbers look good. I understand that it is a difficult job in a hard to predict industry, but underquoting is an accepted illegal practice and a huge problem. I hope this legislation can help rectify it.

  10. A very well written article Iolanthe, which has obviously stirred up a healthy debate.

    We see it every week at many Melbourne auctions. A property hits the reserve and then buyers continue to bid and take the property way past what the agents quoted. The flip side, of course, is where an agent deliberately prices a property well below what they know the vendor wants and then it passes in, well above the quote range. We see this time and again. It disillusions so many buyers.

    Of course, you can’t tar all agents with the same brush (and there are some great ones out there), but unfortunately the actions of some have resulted in a huge level of mistrust of all. There certainly does need to be a far greater level of transparency within the industry, certainly around pricing and agent underquoting.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s