UNDERQUOTING – THE REAL REASON IT’S SO WRONG
New Farm Agent Fined
The announcement would normally hardly raise an eyebrow given agents (lawyers, doctors, builders, financial advisers, et al) copy procedural fines all the time for all manner of things but this was far more than that.
In a landmark ruling publicised in a formal press release, the Office of Fair Trading confirmed investigating, prosecuting and fining prominent New Farm agent Matt Lancashire as owner of Ray White New Farm an unprecedented five figure sum and one of his team a separate much smaller amount for marketing a property 'SIGNIFICANTLY BELOW THE PRICE THE VENDOR WAS LOOKING FOR'. The very serious nature of the indictment has been the talk of the market.
But might there be more to this than meets the eye? The fines whilst very high are nothing compared to what the very serious nature of the charge can and does bring on the rare occasions it is able to be proven. The latest other fine imposed for the practice was just last week when Victorian agent Barry Plant Mt Waverly was fined a cool $720,000.
Given the nominated offence and fine are not a fit for your typical agent taking a procedural rap to shut down a volatile situation or individual (the latter occasionally a seller not able to accept market reality but most often buyers who’ve missed out on property because of their own actions but who still want someone else to pay nonetheless), there was probably either some serious doubt (and if so why the charge) or some serious third party intervention.
In defence of the industry, given the inherent nature of real estate, human nature, the emotion and often vast sums of money involved in buying and selling property, things often go wrong even where the agent is doing everything right.
Because of this reality it is inevitable that most if not all agents who succeed in the industry long term will be the subject of the odd unfounded complaint or other and may even from time to time accept an unfair censure where that is the commercially prudent thing to do (as wrong as that may appear).
The OFT acknowledges this reality in its note that acceptance of a penalty does not constitute an admission of guilt
We have done so ourselves, on legal advice once grudgingly agreeing to wear a totally unjustified procedural fine in exchange for a guarantee that would make a particularly vociferous and litigious foreign gentleman who had been trying to blackmail us into selling a property to him for 20% less than another offer we had ‘go away’, which it did.
Knowing first hand what can go on, you don’t envy the OFT’s task in trying to sort out what wheat there may be in all of the chaff heaped upon it.
Amid all these revenge, financial advantage or other disingenuous reason driven distractions however, the OFT are still right to take all complaints of underquoting (intentionally understating a sellers price expectation) very seriously.
Underquoting is a deeply insidious practice which whilst no longer rife and given the severity of the fines being imposed now becoming rare has never and will never be right, and not just for the OFT’s officially stated reasons.
You see 'UNDERQUOTING BY ITS VERY NATURE UNEQUIVOCALLY DRIVES PROPERTY PRICES DOWN' and the higher the price bracket the property being underquoted is in, the greater the drop. Particularly, despite anything any agent may say to the contrary, the practice never has the effect of pushing property prices up. Such an inane suggestion is pure fantasy.
The OFT argument for cracking down on the practice is its inherent deception that can put the public to unnecessary effort and expense organising and paying for building inspections, searches, legal advice etc to get themselves into a position to buy a property that had the agent been more truthful about the vendors expectations they may not have is entirely valid but the organisation should be at least equally concerned about underquoting’s other more harmful affect, that of driving property prices down, in the process greatly disenfranchising the public they’re paid to protect.
Over three decades, I have seen occasions where the outdated and outlawed practice has seemed to work, where the property whose price intentionally being underquoted sells for more than 5 or 10% above the agents ‘lowball’ price, but it’s rare, and on the rare occasions it has, you have to wonder how much more the property would have sold for had it’s price not been understated.
When an agent gives a buyer a guide price on a property, that invariably locks in within 10% plus or minus what a buyer will pay for it, end of story.
If you doubt that, put your buyers’ hat on and ask yourself truthfully what you would do if your initial thoughts on a property were that it might be worth around $1.5m but then the agent gives you a guide price of just $1.2m (despite the owner telling them they wanted $1.6m+ - vintage bait advertising). The vast majority of people would quickly latch on to and find reasons to support why the property was actually only worth the $1.2m the agent quoted.
There has never been anything positive come out of underquoting and the sooner the pernicious practise is stamped out completely the better it’ll be for everyone (including any agent still struggling to break the habit).