Underquoting occurs when a real estate agent or seller advertises a property at a price well below what they actually expect it to sell for. The primary motivation behind this is to attract a larger pool of potential buyers, creating a competitive environment where multiple offers drive the final sale price higher.
For the seller, this might seem like a good strategy to maximise their returns, but for buyers, especially investors, underquoting can be a frustrating and costly experience.
Just last week, the Sydney Morning Herald reported that two real estate agencies in Victoria are facing criminal action due to alleged ‘underquoting’, with Consumer Affairs Victoria announcing a permanent “underquoting hit squad’.
Unfortunately, underquoting is a practice that has long been an issue in the Australian market, especially for investors looking to make informed decisions. Exact regulations vary across states, and though the practice is illegal across the nation, it remains often very difficult to prove.
Investors who fall victim to underquoting may spend significant time and resources pursuing properties they ultimately cannot afford. Worse, they may overextend their budget in the heat of a bidding war, potentially compromising their financial stability or investment strategy. This practice also distorts the market by giving a false sense of the property’s value, making it difficult for investors to accurately assess the potential return on their investment.
How to Spot Underquoting
Identifying underquoting can be challenging, but there are several telltale signs that investors should be aware of:
1. Comparative Market Analysis: One of the most reliable ways to spot underquoting is by comparing the advertised price of a property with recent sales of similar properties in the same area. If the price seems significantly lower than comparable properties, it could be a red flag.
2. Agent Behaviour: Pay attention to the behaviour of the real estate agent. If they seem overly eager to push the property at a low price or if they suggest that there are already several offers, it might be an indication of underquoting.
3. Auction Trends: Properties advertised for auction often have a lower guide price to entice bidders. If similar properties in the area have consistently sold for much higher than their guide price, this could be an indicator of underquoting.
4. Lack of Transparency: If an agent is vague about the likely selling price or avoids providing a clear estimate, this could be a sign that the property is being underquoted.
How to Deal with Underquoting
While underquoting can be frustrating, there are steps investors can take to protect themselves:
1. Do Your Research: Always conduct thorough research before making any offers. Use resources like property reports, online valuation tools, and recent sales data to get a realistic idea of a property’s value.
2. Set a Firm Budget: Establish a firm budget based on your research and stick to it. Don’t get caught up in the excitement of a bidding war and end up paying more than you intended.
3. Seek Professional Advice: Engage a buyer’s agent or property advisor who understands the market and can help you navigate the complexities of property investment. They can provide valuable insights and help you avoid falling into the underquoting trap.
4. Report Suspicious Activity: In some regions, underquoting is illegal or regulated by strict guidelines. If you suspect underquoting, you can report the issue to the relevant authorities. This not only protects you but also helps maintain transparency in the market.
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