New laws target underquoting real estate agents in
?Victoria, but will they make a difference
IT’S THE bane of every house hunter’s existence.
You find your dream home, fork out a small fortune on building reports and place your bid ... Only to watch it go under the hammer for way more that the advertised price.
In some cases, houses are being sold for as much as $1 million above the advertised price, like this six-bedroom period mansion in Melbourne’s Footscray.
Now Victorian real estate agents are finally being taken to task for underquoting, with fines of up to $300,000 being imposed by the courts — but experts say there is more to be done.
The agent behind the Footscray sale landed in hot water after promoting the property online as being priced at “$1 million plus”, despite having last changed hands for $1.3 million some 18 months earlier.
It sold for $2.11 million in December 2015, prompting legal action by Consumer Affairs Victoria.
As part of its industry-wide crackdown, the state government regulator took legal action against a string of real estate agents under Taskforce Vesta.
Inspectors searched for evidence of underquoting at the offices of 34 estate agents involved in sales worth significantly more than the advertised price, examining a total of 1,400 sales files.
Red flags arose when the agency agreements signed by vendors showed a reserve price much higher than the price guides used to advertise the properties.
Among the suspect files were six properties sold by Hocking Stuart Yarraville, including the Footscray house mentioned above, and seven properties sold by O’Brien Real Estate Croydon.
Those agents admitted to engaging in false and misleading conduct and agreed to pay fines of $45,000 each.
Hocking Stuart Richmond was given a record $330,000 fine, plus $80,000 towards the regulator’s costs, when its underquoting allegations were aired in the Federal Court in October.
The agency’s owner and director Peter Perrignon admitted that he and senior staff members had underquoted on 11 properties in the sought-after areas of Richmond and Kew between January 2014 and June 2015.
The court noted that the negative publicity surrounding the case meant that “it is extremely unlikely Hocking Stuart Richmond or Mr Perrignon will be involved in underquoting again”.
“The contravening conduct was serious. Price is an essential piece of information about the property being offered for sale for prospective buyers,” Justice John Middleton said in his written decision.
“Buyers should be able to rely on correct information to make an informed decision.”
He said the selling agents had created “an enticing marketing web” that created the “illusion of a bargain” in the minds of potential buyers.
“Many consumers seeking to buy a home were likely to be significantly inconvenienced, disappointed and deceived,” Justice Middleton wrote.
“Some may have missed the opportunity to buy elsewhere, being lured to a bargain that did not, and was never going to, eventuate.”
NEW UNDERQUOTING LAWS: WILL THINGS CHANGE?
Consumer Affairs Victoria’s crackdown was followed by new laws passed by the Victorian Government in November, aiming to curb underquoting.
Under the new laws, agents must provide prospective buyers with a comprehensive analysis including three recent comparable sales, an indicative selling price, and the median price for the suburb.
But the effectiveness of the new law is up for debate, with insiders saying that underquoting remains widespread in Sydney despite similar reforms a year ago.
Under the new legislation, agents will have to prove on request from Consumer Affairs Victoria how they arrived at the estimated price.
Advertising price ranges that vary by more than 10 per cent will be banned, along with terms like “offers above,” “from” or “plus”, when the new laws take effect later this year.
Agents will be required to update their marketing materials if the seller rejects a written offer to purchase, or the price estimate changes, while those found guilty of underquoting may lose their sales commissions and face penalties of more than $31,000.
Sydney buyer’s Agent Gavin McPherson said that underquoting was difficult to prove unless there was a paper trail — which could be avoided.
Since underquoting laws were passed in New South Wales in January 2016, a total of 28 fines have been issued totalling $61,600.
But the practice could be much more widespread than these figures would indicate.
Mr McPherson said NSW vendors were being talked into lowering the “expected price” on their agency agreements, with agents promising to secure a much higher price if they are able to advertise the property at below what it is worth.
That way, the paperwork shows that the amount quoted in advertising materials is in line with what the vendor was willing to accept, even if it is wildly unrealistic.
“It has become part of the agent’s sales pitch [to the vendor],” Mr McPherson said.
He said forcing agents to give potential buyers a list of “comparable sales” would make no difference as it was a “subjective analysis”.
“It’s not worth the paper they’re written on, and what it does is it sends properties that are inferior to the property they’re selling, so it might be the same house on a smaller block,” he said, describing the practice as “a sleight of hand”.
He said laws requiring sales agents to adjust the reserve price in advertising when the vendor had rejected an offer in writing were being ignored.
A spokeswoman for NSW Fair Trading said the agency conducted “regular inspections” of real estate agencies as part of “targeted and random compliance programs” or in response to specific complaints.
“Very few matters reported to NSW Fair Trading are actual incidences of underquoting,” the spokeswoman said.
“While complaint numbers remain consistent, this is generally attributed to increased awareness by buyers.”