In January 2016 the Property Stock and Business Agents Act 2002 was amended to prohibit real estate agents from underquoting on residential properties. The Second reading speech notes that it is only the minority of agents who do the wrong thing.
Underquoting – advertised price cannot be less than estimated price given to Vendor
Underquoting is the process whereby an agent understates the estimated selling price of a property in order to generate a greater number of buyers who may be interested in the property. The problem this creates is that interested buyers waste their time and money inspecting properties, obtaining reports and attending auctions believing the property is in their price range when in fact it is not.
The changes to the Act mostly affect the way in which the agent is allowed to represent and advertise their estimated selling price to both Vendor and Purchasers. An estimated sale price must be given to the Vendor in the sales agreement. Any advertised selling price cannot be less than the estimated sale price given to the Vendor. Representations of sale prices to prospective purchasers also cannot be less that the estimate given to the Vendor. To protect the interest of the Vendor in getting the highest price possible for their property, it is possible to advertise the price as being higher than the estimated sale price given to the Vendor.
Agents are no longer allowed to use phrases like “offers over $500,000” or “$650,000+” in their advertising.
Supporting evidence of estimates now required
In agency agreements, the agent’s estimate of the likely selling price of the property must be included. This can be stated as a single figure or as a range but the upper figure may only exceed the lower figure by 10%. Further, agents must ensure the estimate remains current ie. if the market moves up or down, agents must advise their clients of the change.
The amendments to the Act now require agents in NSW to provide evidence to Vendors in support of their sale price estimates. Evidence like comparable sales must now be submitted to the Vendor not only at the start of an agency agreement but also when the estimate ceases to be reasonable because of market changes.
If a revised estimate has been given to the Vendor, the agent must also update all ads and marketing material so that the advertised price continues to be no less than the new estimate.
An offence to not keep records of estimated and advertised prices
Agents are now required to keep a written record whenever they quote a selling price (single figure or range) for at least three years. The record must include the address of the property, a time stamp and the figures quoted. Proving an offence becomes a matter of comparing the estimate in the agency agreement and the price recorded in the agents file note or advertisement. Not making a record is an offence in itself. This is to make it easy to prove whether or not the agent has underquoted.
Further changes to make the real estate market more efficient are on the horizon. The Government is also looking at possible options to reduce duplication in the purchasing of building and pest inspection reports. For example, by requiring the Vendor to including a building and pest inspection report in a contract for sale.