The Sydney property market is notoriously competitive, with buyers constantly vying for homes in a city where demand often exceeds supply. Among the many frustrations that prospective homebuyers face is the issue of underquoting. This practice, which involves advertising a property at a price significantly lower than the expected sale price, can leave buyers disillusioned and lead to wasted time, money, and emotional energy.
In this blog, we’ll explore the concept of underquoting in Sydney’s real estate market, why it happens, its legal implications, and how to navigate the challenges it presents when buying property in one of Australia’s most dynamic cities.
What is Underquoting?
Underquoting occurs when a real estate agent advertises a property at a price lower than what the seller is willing to accept or what the market is likely to pay. This tactic is often employed to attract more potential buyers to the property, creating an atmosphere of competition that may lead to higher final sale prices. However, this practice can be frustrating for buyers, who often find themselves consistently outbid on properties that seemed affordable at first glance.
In Sydney, underquoting has become a particularly prevalent issue due to the heated nature of the property market. Properties can sell for hundreds of thousands of dollars above their advertised price range, leaving buyers feeling misled.
Why Does Underquoting Happen?
There are several reasons underquoting occurs in the Sydney real estate market, including:
- Market Manipulation: Agents may underquote to generate more interest in a property, increasing the number of potential buyers attending inspections and auctions. The more competition, the higher the bids are likely to go.
- Agent Incentives: Real estate agents are typically paid on commission, meaning their earnings increase with the sale price. By underquoting, they create a competitive bidding environment, which can lead to a higher final price and thus a larger commission.
- Unclear Regulations: Despite efforts to curb underquoting, regulatory loopholes sometimes allow agents to skirt the rules without facing significant consequences.
- Market Volatility: In a rapidly rising market like Sydney’s, property prices can escalate quickly. What seems like underquoting may actually be the result of a market that’s moving faster than the advertised price reflects.
- Seller Pressure: Sellers may push agents to list their property at a lower price to create more buzz and increase the likelihood of receiving multiple offers.
5 Quick Points to Understand Underquoting
- Legal but Risky: Underquoting is illegal under NSW law, but it can still happen in subtle forms. Be prepared to see properties advertised well below their final sale price.
- Set Your Own Limits: Don’t let underquoted prices lure you into overextending your budget. Set a firm upper limit and stick to it.
- Research is Key: Study comparable sales in your desired area to have a realistic sense of property values, not just what’s being advertised.
- Work with a Buyer’s Agent: A buyer’s agent can help navigate the market, ensuring you have realistic expectations and aren’t misled by underquoting practices.
- Ask Tough Questions: Always ask the listing agent for evidence of comparable sales and scrutinise price guides carefully.
Legal Implications of Underquoting
Underquoting is not just an unethical practice but is illegal under New South Wales law. The NSW government introduced measures under the Property, Stock and Business Agents Act 2002 to crack down on underquoting. According to these regulations, real estate agents are required to provide price guides that are realistic and based on comparable sales in the area. If agents are found to be misleading buyers by underquoting, they can face fines and other penalties.
In 2022, fines for underquoting were increased to up to $22,000 per infringement, alongside additional legal repercussions that could affect an agent’s license. Despite this, underquoting still persists, often in more subtle forms where properties are advertised as “Offers over…” or using vague price ranges that are still significantly below expected market value.
How to Navigate the Challenges of Underquoting
While underquoting can be a frustrating aspect of the Sydney property market, there are ways to navigate these challenges effectively.
1. Do Your Homework
Research is your most powerful tool. When you find a property you’re interested in, don’t rely solely on the advertised price. Use online property platforms, auction results, and historical data to find out how much similar properties in the area have recently sold for. This will give you a better idea of what you should expect to pay, rather than basing your decisions on the price guide alone.
2. Attend Multiple Auctions
If you’re new to the property market, attending several auctions can be incredibly beneficial. This will give you insight into how properties are priced, what the bidding process is like, and how much properties are truly selling for compared to their initial listings.
3. Get Independent Valuations
Before making an offer on a property, consider paying for an independent valuation. This can provide a clearer idea of the property’s true value and prevent you from being misled by underquoted prices. A professional valuation is based on factors like market trends, the property’s condition, and the location, offering an objective assessment.
4. Set a Firm Budget
One of the biggest risks of underquoting is that buyers can get caught up in a bidding frenzy and end up paying far more than they originally intended. To avoid this, it’s crucial to set a clear budget limit and stick to it. Work with a financial advisor or mortgage broker to determine how much you can comfortably afford, and don’t let competitive pressure push you beyond your financial boundaries.
5. Ask for Comparable Sales
Don’t be afraid to challenge the agent on their price guide. Ask for evidence of recent comparable sales in the area and ensure the properties they mention are genuinely similar to the one you’re interested in. This can give you a clearer picture of whether the advertised price is realistic or part of an underquoting strategy.
5 FAQs About Underquoting in Sydney Real Estate
1. Is underquoting illegal in Sydney?
Yes, underquoting is illegal under NSW law. Real estate agents are required to provide realistic price guides based on comparable sales. If caught underquoting, agents can face fines and penalties.
2. How can I tell if a property is underquoted?
The best way to identify underquoting is to research comparable sales in the area. If the advertised price seems unusually low compared to recent sales, it may be underquoted. Asking for a list of recent comparable sales from the agent can also help you gauge whether the price guide is realistic.
3. What should I do if I suspect underquoting?
If you suspect underquoting, gather evidence of comparable sales and contact NSW Fair Trading to report the issue. They can investigate the agent’s conduct and take appropriate action if necessary.
4. Can a buyer’s agent help me avoid underquoting?
Yes, a buyer’s agent can be invaluable in helping you navigate the complexities of underquoting. They have in-depth market knowledge and can provide realistic price expectations, saving you time and frustration.
5. Should I trust price guides when looking at properties?
While price guides can give you an initial indication, they are not always reliable, especially in a competitive market. Always conduct your own research and compare the guide to recent sales in the area.
Conclusion
Underquoting remains a significant challenge for buyers in Sydney’s real estate market. While it’s illegal, the practice persists, leading many buyers to feel misled and disheartened. By equipping yourself with thorough market knowledge, setting a clear budget, and using the right tools like independent valuations and buyer’s agents, you can navigate the challenges of underquoting with greater confidence. Always approach property transactions with caution, ensuring you are informed and prepared to make decisions based on realistic expectations rather than lowball price guides. This strategy will help you stay on course as you search for your ideal property in the competitive Sydney market.
