The Impact of Underquoting on a Buyer
There has been a lot of talk in the real estate industry of late, about the practice of selling agents deliberately underquoting when providing potential buyers with a price guide for a property.
If you, or someone else you know, has been looking to buy a property in the Sydney or Melbourne property market over the last 12 months you will know exactly what I mean.
Here’s what it looks like. Countless hours of your precious time wasted inspecting properties weekend after weekend. Hundreds if not thousands of your hard earned dollars spent on pre-purchase searches and inspections. Property after property sold, well over your budget and for considerably more than the price guides you were quoted. And lastly, you still looking for a property.
Earlier this week, I experienced underquoting first hand for myself. Read on if you want to find out how to identify when underquoting is happening, why selling agents do it and what you can do as a buyer to avoid getting caught out.
Getting led down the garden path
On Monday this week I received an email from a friend of mine asking me my thoughts on a price for a property in Balmain. Situated in Sydney’s popular inner west, the property was a 1 bedroom unit with a highly sought after off-street car space. Even more desirable were the Sydney harbour water views it had to offer.
The email included a link to the online advertisement. A colleague, who knew she was looking to buy, suggested she take a look at it. Her colleague had inspected the unit and was told by the agent the price guide was high $400’s.
Wow, water views in Sydney for less than half a million dollars. What a steal!
I have to admit almost immediately I was suspicious. The Sydney market is hot and anything with water views definitely commands a premium.
Having lived in Balmain myself for a number of years I know that market well. I knew you’d be lucky to find anything below $500,000 these days.
Working out what a property is worth
As an exclusive buyers agent I inspect countless properties day in and day out, week after week. Even if the properties don’t match a client brief, I will still follow up and see what they sold for. For that same reason, I attend as many auctions as I possibly can. I consider it my practice and training.
What does this mean? Well together with my background in property valuation, it means that I can pretty quickly form a view on a realistic price range for a property.
As a professional buyers agent located in Sydney it also means that I don’t waste my time, but more importantly my clients time by having them look at properties that are well and truly outside their buying budget.
So with the Balmain property I started to dig around a little. I looked at all the online real estate sites as well as a property database that I pay a subscription for, which has details of every property sale transacted.
I was searching for all 1 bedroom properties with similar features that had sold in Balmain over the course of the previous 12 months. As well as this I looked at how much prices had increased in Balmain over the 12 months to now.
The best comparison by far that I came across was an almost identical unit in the same complex. It sold for $541,000 around 8 months earlier. I was sure it would command even more now given the market had increased by at least 10% since. At this point I began to suspiciously wonder if the selling agent knew about that sale.
Anyway within about 20 minutes of receiving the email I had emailed my friend back with my thoughts. In my opinion the property was worth high $500’s but more likely low $600’s. Her maximum budget was $500,000.
I won’t write here what she wrote me back.
Misleading, deceptive or clever?
It’s important to remember that a selling agent, as their title suggests represents the seller in a real estate transaction. They have the best interests of the seller front of mind.
Let’s face it. The role of a selling agent is to market a property to as many people as possible in order to maximise the level of interest. Tactics such as a conservative price guide, impressive presentation and even professional photography selectively highlighting the best features of a property, often mean a selling agent is able to draw in more interest for a property than they may have otherwise generated.
It goes without saying then, the more people that inspect a property the better the selling agent will look to the vendor. In fact if a selling agent under quotes it can actually give the vendor the impression they have over delivered. And competition, even if just a perception, increases appeal and in turn demand which can push up prices.
It’s a fine line
In reality, a good selling agent would be selling lots of properties right? And so they should know, within a reasonable range, what a property should sell for. After all when pitching to prospective vendors aren’t they proclaiming they are the best person to market and sell their property?
If not then I guess we are expected to believe they win the listing by saying ‘Sorry I have no idea what your property will sell for. I haven’t sold anything like yours at all’ or something along the lines of ‘It should sell somewhere between $480,000 and $620,000 but I’m really not sure’. Somehow I don’t think so.
In actual fact I’m going to let you in on a secret right now. A real estate selling agent must include their estimated selling price or price range for a property when they sign an agency agreement with a vendor. The problem is they don’t need to tell a buyer what that is.
So there definitely is a fine line between a selling agent upholding their professional responsibilities while maintaining the best interests of their client and providing prospective buyers with a price guide for a property.
How to Avoid Getting Caught Out
If you want to know what I do as professional property buyer to avoid getting caught out by underquoting then keep reading.
By following these 3 expert tips, you will very quickly stop wasting your precious time and throwing your hard earned money down the drain and quite possibly even end up buying a property, sooner rather than later.
- Inspect as many properties as possible – To help you decide if you have found the right property you need something to compare it with. You should be looking at similar, better and worse properties to draw a comparison. Don’t get caught judging a book by its cover either. You’re better off inspecting a property than not. There is no such thing as looking at too many properties.
- Follow up and find out what a property sold for – Even if you’re not interested in a property follow up and see what it sold for. This may even extend to going to as many auctions as possible. It’s excellent practice and training. Without a doubt there is no better comparison than inspecting a property for yourself then knowing what someone was prepared to pay for it.
- Ask for help – If you’re really serious about taking the time and stress out of buying property, then consider engaging an expert who will go to bat for you. An exclusive buyers agent like the name suggests, acts soley for the purchaser when buying property and levels the playing field. Their sole focus is on finding the right property for their buyer then negotiating to get them the best deal.
If you liked this article and would like more information to help you with your property buying journey you can download our free ‘7 Tips’ report or contact Shelley Horton from Albion Avenue today.
Shelley Horton is the founder of Sydney based exclusive buyers agency Albion Avenue. With a 20 year career honing her skills in every aspect of the property industry Shelley knows what makes a property worth buying and how to get the best deal.
