The issue of underquoting has raised its head again, with a reported surge in complaints from would-be home buyers, leading to calls for a crackdown on the practice.
There is no doubt some agents purposely and cynically quote homes well below their likely market value to build hype and competition for sales campaigns. This can leave buyers forking out thousands for building, pest and contract inspections for properties that were never realistically in their budget. This dishonest practice should definitely be stamped out.
However, in a dynamic and unpredictable free market, no one can definitively predict a property’s final auction price.
As such, the perception of underquoting often blurs with genuine market volatility. That’s particularly true in a fast rising market, where prices can shift tens of thousands in a matter of weeks. But price unpredictability is also evident in relatively subdued markets.
Here are three recent case studies from the Melbourne market that show why a ‘bad quote’ isn’t always what it seems.
ON GROUND CASE STUDIES
The ‘Extra Bidder’ Factor
We saw a prime example of unpredictability recently in Melbourne’s inner-north. We attended an auction for a home quoted at $1.6m–$1.65m.
To a skeptical buyer, that might look low. However, a comparable home on the same street – a three-bedroom versus the subject property’s two-bedroom – had sold earlier that same month for $1.67m. Given the subject property was smaller, the agent’s quote of $1.6m–$1.65m was actually very realistic and backed by fresh data.
Yet, the property sold for $1.855m – almost $200,000 more than its identical neighbour sold for just weeks prior.
Why? The market conditions hadn’t changed, but the crowd had. Two extra buyers happened to be in the market at the second auction, and thus drove bidding high. At face value the second sale would look like a clear case of underquoting, but taking in the broader context, it’s more likely inherent market fickleness producing a strong result for the vendor.
The Vicious Cycle
Perversely, good-faith agents are now being punished for quoting accurately because buyers are now conditioned to factor underquoting into their budgets.
We witnessed this with a townhouse in the eastern suburbs recently. The agent looked at a sale in the same block from the market peak of 2021, which sold for $990,000. Adjusting for the softer market conditions since then, they quoted the new listing fairly at $880,000–$950,000.
The result? It received no buyer engagement, as buyers likely assumed it was underquoted and would sell for significantly more.
It wasn’t until the agent decided to reduce the quote range to $800,000 to $850,000, to reflect the limited interest, that buyer interest kicked-in. The property eventually sold for $1,030,000, considerably above the initial and more accurate quote price.
It is in this perversity, that agents and vendors are disincentivised from quoting accurately, as they risk fair pricing leading to a failed campaign.
The Emotional Premium
Finally, there is the ‘X-factor’ that no regulator can control: human emotion. Residential property is a unique asset class because it is often driven by heart, not head.
We recently tracked a villa unit in the eastern suburbs on its own title. The quote was $850,000–$935k. It sold for a staggering $1.35 million.
Was the agent lying? No. It turned out the two bidders who drove the price up both lived in the immediate vicinity of the subject property. They were fighting for the property not for investment returns, but to secure a home for family members so they could live close by.
If that property had been two streets away, neither would have bid. That ‘emotional premium’ is impossible for an agent to forecast, but it completely distorts the final price.
Treat the quote like a contract clause
While the auction system is not perfect and is often unpredictable and emotionally stressful – it’s worth recognising it’s the best mechanism we have for producing true market value transparently.
Compare auctions to expression of interest campaigns (EOIs), where buyers are often working blind.
Ultimately, buyers must become empowered.
Think of the agent’s quote range like a clause in the vendor’s contract. When you read a contract of sale, you know it has been prepared by the vendor’s solicitor to protect the vendor’s interest. You don’t accept it blindly; you send it to your own lawyer for review.
The quote range is the same. It represents the agent’s expectation. Do not rely on it as your sole source of truth. Use the abundance of online tools and professional advice to determine value in line with your financial situation.
Take home message
When it all comes down to it, the agent’s quote range is just another figure.
The only two that hold any long term consequence are what you as a buyer are willing to pay, and the final market sale price.
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