Underquoting: the clear and transparent solution

The debate around underquoting is never ending because the focus is on the vendor’s reserve price.

Many people have suggested that vendors should be made to disclose the reserve prior to auction. However this would fly in the face of very robust auction laws that state a vendor has the right to withdraw a property from sale at anytime.  

Legislating what the agent must do is one thing but making a law that binds the vendor is fraught with danger.

The vendor is in complete control of the reserve and agents who do underquote are able to hide behind their vendor’s instructions. This makes the current laws around underquoting very difficult and costly to implement. They are in the best case weak and at worst they are unenforceable.

I believe the solution to the underquoting does not lie in using the stick of law but rather the empowerment of knowledge.

The benefit of a public auction for a vendor is they give themselves the best opportunity to maximize the sale price.

The trade-off should be vendors loose their right to privacy. All results should be in the public domain so future buyers can gauge where the market is.

However vendors currently have the right to not disclose the result. This means they can have their cake and eat it too while purchasers are left in the dark.

Take for example the sale of this one-bedroom apartment at 3/1 Brookfield Court, Hawthorn East that went to auction on Saturday.

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The property was advertised to sell for between $300,000 to $320,000 and as the auction progressed multiple bidders competed. It sold under the hammer in a public forum but when the auction results were released the following day it was reported as undisclosed.

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If you were able to attend this public auction you would know the property sold for $408,000. However if you were not there this information would be locked away and only available to licensed real estate agents.  

The next time a comparable one-bedroom apartment comes onto the market and is advertised at $300,000 to $320,000 purchases will not be able to source this valuable information.

The logic behind this bizarre state of affairs is due to privacy laws that allow vendors to keep the result out of the public domain. However if a vendor decides to sell their property by public auction I think they have should have waived their rights to privacy.

In some cases it is the agent that keeps auction results under wraps because it means people who want to know what it sold for will call them. This is a lead generation tool for agents as the first thing they ask is ‘are you looking to sell a property?’

If the real estate industry really wants to stamp out the negative effects of underquoting, either real or perceived, they need to be more transparent.

The answer to underquoting is simple. Make agents disclose all results within 24 hours of the auction and make this information either freely or cost effectively available to purchasers.

This will give purchasers the knowledge they need and make price quotes redundant.


Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.              

 

Mark Armstrong

Mark Armstrong

Mark Armstrong is a director of ratemyagent.com.au, Australia's number one real estate agent rating website.

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