Underquoting in Australian Real Estate: How to know

In Australia’s competitive property market, the practice of underquoting continues to frustrate buyers and undermine trust in the real estate industry. This deceptive practice occurs when agents advertise or quote property prices significantly below what they genuinely expect the property to sell for, luring potential buyers who ultimately waste time, money, and emotional energy on properties beyond their budget.

What Exactly Is Underquoting?

Underquoting occurs when a real estate agent provides a potential buyer with a property price lower than the agent’s estimated selling price documented in the agency agreement with the vendor. For example, if an agent has estimated a property’s selling price at $1,000,000 in the agency agreement but tells prospective buyers at an open house that the price estimate is $800,000, this constitutes a clear breach of underquoting legislation.

The practice isn’t simply about a property selling above its estimated price—markets can be unpredictable, and competitive bidding can drive prices higher than anticipated. Rather, underquoting refers specifically to deliberately misleading potential buyers with artificially low price estimates that the agent knows are unrealistic.

The Impact of Underquoting

For Buyers:

Underquoting extracts both financial and emotional costs from potential buyers:

• Financial losses from paying for multiple building and pest inspections (typically over $300 each), strata reports (over $300), strata certificates ($109-$163), and conveyancing, legal, and title search fees for properties that were never realistically within their budget
• Wasted time attending open houses, inspections, and auctions for unattainable properties
• Emotional toll from repeated disappointment when continually outbid on properties they were led to believe were within their price range

For Vendors:

While less common, vendors can also suffer significant losses when their agents underquote:

• When agents underquote to execute a quicker sale and collect their commission, vendors may lose substantial value on their property
• In Sydney, where median house prices exceed $1 million, a 15% discrepancy between what buyers are told and the actual expected price could cost vendors over $150,000
• Vendors often bear direct marketing costs throughout a sales campaign (typically $3,000-$8,000), which becomes a wasted investment if the campaign fails due to price misrepresentations

For the Industry:

Unethical agents who underquote damage the entire profession’s reputation:

• Undermines public trust in real estate professionals
• Lowers the perceived value of agents’ services
• Creates an uneven playing field for ethical agents who provide honest price estimates

Legal Requirements for Real Estate Agents

Australian real estate agents have strict legal obligations regarding price representations:

Agents Must:

• Include their estimated selling price in the agency agreement with vendors
• Ensure that when using a price range, the highest end is not more than 10% higher than the lowest price
• Provide a reasonable and substantiated estimate of the selling price
• Update the price estimate in the agreement and advise the vendor if market conditions change
• Keep written records of all price representations made during a property’s marketing
• Provide evidence to the vendor showing how the estimated selling price was determined

Agents Must Not:

• Publish advertisements with prices less than the estimated selling price in the agency agreement
• Use phrases like “offers above,” “offers over,” “in excess of,” or “$800,000+” in advertisements
• State that a property may sell for less than the estimated selling price in the agreement

How Agents Determine Legitimate Price Estimates

Professional agents consider multiple factors when determining a legitimate estimated selling price:

• Recent sales of similar properties
• Similar properties currently available on the market
• Local market demand, including feedback from individual buyers
• Unique property features and characteristics
• Location and land size
• Construction materials and quality
• Floor size and layout
• Number of bedrooms, bathrooms, and parking spaces
• Special features such as swimming pools or tennis courts
• Economic factors including interest rates and market conditions

Comparable sales data should be as recent as possible to reflect similar market conditions, and properties should be similar in standard, condition, and features to provide a reasonable comparison.

Penalties for Underquoting

NSW Fair Trading employs investigators who assess consumer complaints and take action against agents who underquote. Penalties include:

• Infringement notices of up to $2,200 per underquoting offense
• Fines of up to $22,000 per offense for severe cases
• Loss of the entire commission and any fees for underquoted properties
• Cancellation or suspension of real estate licenses
• Imposition of restrictions or conditions on licenses

Protecting Yourself as a Buyer

To avoid falling victim to underquoting:

1. Research thoroughly: Investigate recent comparable sales in the area before inspecting properties
2. Ask direct questions: Request the agent to provide their estimated selling price in writing
3. Be wary of vague price guides: Be cautious of properties advertised with “contact agent” or very low price guides
4. Report suspicious behavior: If you suspect underquoting, report it to your state’s consumer protection agency
5. Consider a buyer’s agent: Professional representation can help navigate misleading price representations

Is It Always Underquoting?

It’s important to note that not all cases where a property sells above its advertised price constitute underquoting. Competitive market conditions, multiple bidders, or unique property features can legitimately drive prices higher than estimated.

The key difference is whether the agent had reasonable grounds for their price estimate and properly documented their reasoning. If an agent can demonstrate they took all reasonable precautions and acted in good faith with their price estimate, they have a legal defense against underquoting allegations.

The Responsibility of Industry Leaders

Real estate agency principals and office managers have a responsibility to prevent underquoting within their businesses. They must:

• Implement proper supervision and training for all sales staff
• Maintain written procedures for substantiating price estimates
• Regularly review price estimates against actual sales results
• Keep records of all price representations for at least three years
• Take immediate action if underquoting is detected among staff

Read more on Fair trading website

Conclusion

Underquoting significantly damages buyer confidence in the real estate industry while creating financial and emotional strain for property seekers. By understanding what constitutes legitimate price estimation and recognizing the warning signs of underquoting, buyers can better protect themselves in Australia’s competitive property market.

For ethical agents, providing transparent and substantiated price estimates isn’t just a legal requirement—it’s a fundamental aspect of building trust with clients and maintaining the integrity of the profession. As a buyer, you have the right to expect honesty and transparency during what may be the most significant financial transaction of your life.