Open for inspections are now once again permitted. It’s great news for Melbourne’s resurgent property market, as it continues to gather momentum into 2021 and rebound from COVID-19. It's also a timely moment to pay tribute to property industry workers and customers alike, and their ability to successfully overcome what’s been a very challenging year for Victorians.
Underquoting and selling: how to avoid and still maximise sale price
Underquoting is the issue that causes the greatest rancour between buyers on one side and estate agents and vendors on the other. Largely undiscussed when conditions are weak, it reappears swiftly in property market conversations from the early days of a recovering market – exactly the conditions we have today on the eastern board.
Underquoting occurs when estate agents knowingly quote a property below where market value lies, which misleads buyers, wasting their time and money pursuing properties beyond their budget.
State governments, who have responsibility for consumers affairs, have been busy in recent years trying to stamp out the practice. In broad terms, they’ve taken one of two approaches. The first demands transparency and evidence from agents. In Victoria, agents must provide a quote and are expected, where possible, to support it with prices from recently sold comparable properties. They must also change the quote if new information comes to hand during the sales campaign. The second approach starts with the attitude that agents’ quotes are inherently and incurably misleading, so are banned altogether. That’s the Queensland way. NSW lets the agents choose between either of the opposites: evidence-based transparency or no quoting.
Moreover, in places where quoting remains, regulators have sought to address the related issue of a vendor’s secret reserve sitting above the quote range. This is a problem because even if the property is quoted fairly by the agent, buyers can be frustrated when the property is passed in above the quote. This is not underquoting though the result is the same: a property that can’t be bought within the quote range.
In Victoria and NSW, agents are now required to raise the quote range to reflect any above-quote written offers rejected by the vendor.
Although I support these changes, there are real unintended consequence of this ‘continuous disclosure’ regime that can subvert the auction process and see an ill-prepared vendor out-negotiated to the tune of tens of thousands of dollars by a canny buyer.
Sadly, written offers by buyers aren’t always genuine. In theory, buyers can be contractually obliged to follow through on any written offer, whether it was presented on a full contract or via email. But in practice it rarely happens. Fake offers can result in quotes being raised and then lowered again, which is a bad look for a campaign.
More generally, a vendor who chooses the auction method generally expects to see a contest among buyers on auction day. They shouldn’t be bounced into selling early. It is usually in a vendor’s interest to corral all the serious buyers that reveal themselves during a campaign in front of the auctioneer on auction day. Vendors want the auction itself to be the hot crucible that bidders fight within to buy a property. Which takes me on to the third point. The agenda behind early offers is to secure the vendor’s reserve and no more. But a vendor’s secret reserve is the minimum they’ll accept to sell. But it is reasonable to seek more and well done if they can achieve it. Just as a buyer’s budget limit is the maximum they are willing to pay but no one begrudges them paying less if they secure a property with money to spare.
There is a counter-measure for vendors. Savvy estate agents are increasingly asking new clients to give them a written instruction not to pass on early offers. This neutralises the risk of undue early buyer pressure, returns control to the vendor and puts the auction back in the centre of things.
An early offer ban isn’t for all occasions. One may want to encourage offers when demand conditions are weak. Prospective vendors should discuss with their agent whether this is the right approach before the campaign starts. Richard Wakelin