Understanding Underquoting: What Buyers Need to Know
In This Week’s How's The Market | Edition 58
Understanding Underquoting: What Buyers Need to Know
Investors Saved The Real Estate Agents
Rates Are Paused Again - Are We At The Peak?
Understanding Underquoting: What Buyers Need to Know
Buying a property in Victoria can be stressful enough, but when you consider the fact that many agents/agencies intentionally underquote properties, it can push some buyers to give up on the home hunting journey completely.
Time and time again we hear from buyers that show us a property that sold for $100k - $200k above their budget that they tell us they went to auction or made an offer on a property that was ultimately out of their reach from the beginning.
This can slow down the home buying process for months as buyers end up wasting a lot of time trying to just figure out their brief and what they can afford.
So I want to arm you with the knowledge around why agents underquote, what the statement of information is and means and what you can do to really find out the price.
What Is Underquoting?
Underquoting occurs when the agents intentionally advertise a price for a property under what they know the property is worth, what the vendor wants or would accept and potentially even under a price of what the vendor has previously rejected.
In Victoria, this is illegal.
Why Do Agents Underquote?
Simply put, they are trying to draw more interest to a property and get more people through.
They do this in hopes of getting more people emotionally invested in the property so that they may go to the top of their budgets to get it.
Some agents will tell us that they’re only underquoting because all the other agents in the area do it too and it’s what the market expects.
In some areas this may be true, though new buyers entering the market will have to be burned and learn the hard way to find out.
What Is The Statement Of Information?
The Statement Of Information or SOI is a document that includes either a single price for the advertised property, for example $750,000 or it can provide a price range as in $700,000 - $770,000.
This document must be available in online advertising, displayed at public open for inspections and provided to prospective buyers.
The Statement of Information must include:
an indicative selling price for the property. This may be a single price or a price range of up to 10 per cent. It must not be less than:
the agent’s estimated selling price
the seller's asking price
a price in a written offer that has already been rejected by the seller.
details of the 3 most comparable properties, including the address, date of sale, and sale price. Or, if the agent did not take into account 3 comparable properties when setting the estimated selling price - a statement outlining that they reasonably believe there are fewer than 3 comparable sales within the prescribed period.
the median house or unit price for the suburb. This may be for a period of between 3 and 12 months, and must not be more than 6 months old.
To be comparable, a property must be:
of a similar standard or condition to the property for sale
sold in the last 6 months and be within 2 kilometres of the property for sale
Why Does The SOI Not Stop Underquoting?
The statement of information is very easy to manipulate if you wish to underquote a property.
Being of a ‘similar standard or condition’ is extremely subjective and we often see properties on SOIs that are pretty much knockdowns used as comparables.
Plus being within 2km of the property can still be a fair distance. Many suburbs will often attract very different prices to one another so any property within 2km of another suburb allows the agent to use properties from a less desirable suburb to bring the quoted range down.
How Do You See If A Property Is Underquoted?
Whilst we will need to save the topic of valuing properties for another day to deep dive on, a short and quick way to help substantiate value is to look on realestate.com in the sold section on map view at properties that have sold nearby within the last 6 months.
Try to find one or two properties that are similar with the same bedroom and bathroom count on a similar sized block and compare what that sold for and if the property you are looking at is better or worse.
What The Agents Are Saying
Investors have saved many real estate agents from losing their jobs.
As listing levels have been much lower this year in comparison to last year by up to 30%, many real estate agents have therefore received a 30% (or more if you’re not a top agent) pay reduction this year.
Whilst chatting with a couple agents this week, they told me that their database of investors has been what’s saved them as many of them are opting to sell at the moment.
Many real estate agents also don’t believe that spring selling season is going to be as large this year as in previous years and believe the stock shortage will continue into next year.
The Wow Factor!
149 Victoria Road, Hawthorn East, Vic 3123
An award winning architecturally designed extension attached to a beautiful period property of heritage significance built in circa 1886.
An incredible pool, bar, tennis court, 3 story extension with absolute luxury.
Check this one out if you’re a dreamer.
Price Guide: $18,500,000 - $20,000,000
In The Media
RBA’s new wait-and-see rates agenda
There was great news for mortgage holders and buyer’s in the marketplace this week as the cash rate has been paused for the second consecutive month. Economists who predicted another rate rise are now backpedalling and saying they believe no further rate raises are on the horizon.
Senior Economist from the Commonwealth Bank Belinda Allen says “We had thought the RBA would raise the cash rate in August due to lingering concerns around the strong labour market and upside risks to inflation and wages growth,”
“It would take an upside surprise to the economic data from here, namely on prices and/or wages, for the RBA to shift its assessment of the outlook.”
Final Thoughts
We hope this will provide some guidance and assurance to those looking to purchase in the marketplace at the moment and that you will not be the next victim of underquoting here in Victoria.
Thanks for reading this far!
We value feedback and if you have any suggestions on what you would like covered in the future please email me at tristan@tomii.com.au
Happy Buying!
Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
