We attended an auction recently and the property passed in above the advertised price guide. The lady next to us in the crowd asked if that was allowed.
And the short answer is yes.
Unfortunately, there is still confusion in the marketplace between the advertised price guide, the vendors’ reserve, and what is considered underquoting. And we understand why. To clear up the confusion let’s look at the differences and what is and isn’t allowed.
Price Guide & Vendor Reserve
The price guide for a campaign is determined by the Sales Agent.
The price guide can be a single figure or a range of up to 10%. To prove the price guide is reasonable they must select 3 comparable sales in the last 6 months within two kilometres of the property. These comparable sales are noted on the mandatory Statement of Information in Victoria.
If the the agent reasonably believes that fewer than 3 or no comparable properties match the necessary criteria they have to state that clearly on the Statement of Information.
The important thing to realise about this price guide, is that it is does not necessarily reflect what the vendor is hoping to achieve or the minimum they will accept.
The vendor can set the reserve price on or just before the scheduled auction and it can be higher than the price guide. And this is what frustrates many buyers, as the property can pass in the middle of the price guide or above.
But isn’t that underquoting?
Short answer again, No.
According to Consumer Affairs underquoting occurs when a property is advertised at a price that:
- is less than the estimated selling price (as determined by the Sales Agent)
- is less than the seller’s asking price
- has already been rejected by the seller.
So if the price guide matches the comparable sales, and the seller has not told the agents their reserve price during the campaign and no higher offer has been received and rejected based on price, generally speaking it is not underquoting.
There does need to be a little commonsense applied. A vendor wouldn’t turn around on auction day and say they want $1.5 million for a property advertised at circa $1 million.
It’s the agents role to discuss with the vendor what is achievable in the current market to assist in setting their expectations. Also, no agent wants to run a potentially expensive and time consuming campaign if the vendor expectations are completely unrealistic and a sale is highly unlikely.
Consumer affairs can and do investigate agents, often attending auctions unannounced. If they believe an agent has underquoted they will ask them to justify any pricing information provided to a seller or buyer. Agents who underquote risk fines of over $11,000 for each breach or penalties of almost $38,000 under the Estate Agents Act 1980. Higher penalties can also apply under Australian Consumer Law.
Do your Research
The best way to determine the market value of a property is to do your own homework. Review the comparable sales on the Statement of Information and determine if they are truly similiar to the property for location, property size and condition. You may be able to find better matches. Determine what your budget is and what you are willing to pay for the property and go to the auction prepared for any outcome.
If the property looks like it is passing in (under your budget) ensure you are the last bidder to get the first right to exclusively negotiate. If you want to find out more about negotiating after auction read our blog 7 tips on what to do if a property passes into you.