Why NSW Premier Mike Baird’s plan to stamp out underquoting won’t work

Why NSW Premier Mike Baird’s plan to stamp out underquoting won’t work

Clearly efforts to stamp out underquoting have essentially failed and the current system is not working.  I commend Premier Mike Baird’s recent decision to take a stand over this cruel, misleading and deceptive practice.  However I don’t believe the proposed measures to make the advertised price and the price guide that’s put on the selling agency agreement to the vendor, one and the same, will be very effective.

Why not? Because all the selling agent needs to do is have a “conversation” with the vendor (as many do now) to gain their agreement to place a lower figure on the selling agency agreement than the price they really believe the property will sell for.  That way they can advertise the property at that lower price which is known as “the bait price” hence the term “bait advertising”.  After the auction, if the agent’s paperwork is audited by Fair Trading, the figure formally provided to the vendor will be in line with the figure advertised making it almost impossible to prosecute.

Further, the proposed changes say nothing about reserves or any requirement to be adjusting price guides during the marketing campaign.  So an agent could still advertise a property as happens now with a price guide of $1.35million plus right up until the day of the auction even though the vendor may have rejected a pre-auction offer of $1.4million and knowing  the vendor will be likely to set  a reserve of around $1.5million. Any  changes need to address these issues as well to have any real impact starting with making it a requirement that the advertised or the “verbalised price guide” must be no less than the highest offer rejected on a contract should one have been made.

It is unjust to lay the blame solely at the feet of selling agents as let’s face it they are working a flawed system. They can easily appear to be misleading and deceptive on auction day even if they haven’t set out to mislead buyers.  For example their vendor can decide at the last minute to set a higher reserve than they indicated they were intending to and well above the price guide advertised which the vendor approved thereby misleading all auction goers.  This can and often does happen thereby putting sales agents in a difficult position.   

So what's the answer?  

Unfortunately under the NSW Government plan the advertised and agency agreement price will continue to shed little light on the real expectations of the vendor.  What that means for buyers is that they will need to carry on spending several hundred dollars on contract reviews by legal advisors along with pest and building inspections to attend each auction before they find out if they even have the budget to meet the vendor’s minimum.

In contrast, I believe we seriously need to have more transparency in our real estate market place and I stand by my idea of making it a requirement to publish the reserve no less than seven days out from auction to achieve this much needed reform. Under my suggested changes buyers would have the choice to go ahead and pay the necessary purchasing costs with confidence, knowing that they are legitimately ‘in the running’ to purchase the property.  It will also prevent good sales agents who are aiming to do the right thing from looking deceitful on auction day.  Some sales agents and vendors may think that less people will attend auctions making them seem less successful.  But what does it say about our industry if we need to trick people and waste their time and money in order to boost up the numbers at an auction event? 

I seriously hope the NSW Government proposal is not just an election stunt to pretend to address the serious issue of underquoting.  We need real action and changes that will have a real impact in order to create a real estate industry we can all be proud of.

Categories: Auctions