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A snapshot for 2015-16
Buying a home is likely to be the most important purchasing decision of your life.
It is also likely to be the most emotional - and people will often feel sad or disappointed if they miss out on a property they desperately wanted to buy.
House prices in Victoria have increased considerably in the past decade, as well as year-on-year, as these statistics from the Department of Environment, Land, Water and Planning show:
||Median house price - Melbourne (excludes units)
||Median house price - country Victoria (excludes units)
Property sale prices are generally determined by market forces. However, concerns have been raised - both directly with us and in the media - about underquoting.
Underquoting occurs when an agent misleads a prospective buyer about the likely selling price of a property. For example, an agent records an artificially low estimated selling price on the authority (the document that gives the agent permission to act on the seller's behalf) when they believe the property to be worth more; this is often referred to as 'step pricing'.
Underquoting may also occur when a property is advertised or quoted to a prospective buyer at a price that is less than:
- the seller's asking price or auction reserve price
- the agent's estimate of the selling price
- a genuine offer or expression of interest.
This conduct may represent offences under the Australian Consumer Law (Victoria) and the Estate Agents Act 1980, which we administer. Our role is to ensure that agents do the right thing, to give potential home buyers confidence and help maintain the industry's integrity.
When we find that an agent has engaged in misleading sales practices, including underquoting, we have a number of compliance and enforcement options, such as:
- warning letters
- infringement notices
- enforceable undertakings
- court actions.
It is important to note that a property selling above its advertised price is not necessarily evidence of underquoting, and that underquoting can often be difficult to prove.
Establishment of our underquoting taskforce
We receive many complaints every year relating to underquoting. We received:
- 123 complaints in 2013-14
- 158 complaints in 2014-15
- 339 complaints in 2015-16.
Due to these frequent contacts, and at the request of the former Minister for Consumer Affairs, we established Tasforce Vesta to conduct a thorough examination of 200 properties for sale and monitor their progress from first listing until post-auction.
The taskforce conducted two key monitoring exercises, in spring 2015 and autumn 2016. About 90 per cent of this monitoring focused on properties listed for sale in Melbourne's south and east (spring 2015) and in Melbourne's north and west (autumn 2016). Properties in regional Victoria accounted for 10 per cent of activity. We chose these areas because they:
- were in 'boom areas'
- had high volumes of auction sales, or
- had the highest median sales prices.
As well as auction monitoring, taskforce officers conducted inspections based on complaints received from the public, our regional officers and other sources.
Case study: How Taskforce Vesta looks for underquoting
In 2015-16, Taskforce Vesta monitored 200 online property listings. When a property sold at a significantly higher price than its estimated selling price, our inspectors visited the selling agent's office and examined their sales files and other documents for possible underquoting breaches. We used our statutory powers to obtain documentation for every property monitored and sought explanation from agents where required.
Key outcomes of Taskforce Vesta
- Of the 200 properties, 176 sold within the monitoring period, with 128 selling on auction day. The remaining properties were sold prior to auction, either through private sale or within a month of a failed auction.
- Twenty-four properties did not sell within the monitoring period.
- Our inspectors visited the offices of 34 selling agents and examined 1,400 sales files to search for evidence of underquoting.
- As a result of the taskforce's activities, we:
- launched or continued 13 investigations
- issued 20 warning letters and one infringement notice.
- The infringement notice was issued for a matter not relating to underquoting, while the warning letters were issued for various contraventions of the Estate Agents Act, not necessarily related to underquoting.
- Out of the 176 properties that sold:
- 48 (around 27 per cent) sold within the agent's estimated selling price
- 53 (around 30 per cent) sold between 0.1 and 10 per cent above the estimated selling price
- 45 (around 26 per cent) sold between 10.1 and 19.9 per cent more than the estimated selling price
- 12 (around 7 per cent) sold at 20 per cent or more than the estimated selling price
- 18 sold at less than the estimated selling price.
These results substantiate the concerns of prospective home buyers that many properties are advertised at prices significantly less than the final sales result. The results help explain why the community has limited confidence in the advertising of property prices.
It is important to build confidence in prospective home buyers that the advertised sale price of a property will reflect the final sales result.
View the key activities and results on the Taskforce Vesta infographic (PDF, 109KB).
Case study: Hocking Stuart (Richmond) Pty Ltd
This estate agency came to our attention in autumn 2015, when a property it had listed for sale at Lyndhurst Street, Richmond, sold for significantly higher than the advertised price. We used our statutory powers to get more information about the sale. Our inspectors conducted an on-site inspection, where they discovered further evidence of underquoting. The agency admitted to underquoting on this and another 10 properties and was penalised $330,000 in the Federal Court of Australian in October 2016.
For more information, view our Hocking Stuart (Richmond) Pty Ltd Court action.
The future for underquoting laws
Laws aimed at curbing underquoting were passed in the Victorian Parliament in November 2016. The changes to the Estate Agents Act 1980 will require agents to provide prospective buyers with an information statement about the property for sale, which includes:
- three recent comparable sales
- an indicative selling price
- the median price for the suburb.
The new laws will also:
- ban advertising price ranges of more than 10 per cent
- ban words or symbols in advertising such as 'offers above', 'from' or '+'
- require advertising to be promptly updated if the seller rejects a higher written offer to purchase the property, or the agent's price estimate changes.
Estate agents caught engaging in underquoting will face penalties of more than $31,000 (the equivalent of 200 penalty units) and risk losing their sales commissions. We will have new powers to require agents to demonstrate how they arrived at a property's estimated selling price.
The new laws are expected to commence in 2017.
Tips for home buyers
- Research the market value of property in your preferred areas by searching the internet, attending auctions, speaking with a variety of estate agents and monitoring auction results.
- Use the agent's estimated selling price as a guide only. The agent represents the seller but must be fair and honest with buyers.
- Ask the agent to justify their advertised price. They should have knowledge of the market in the area to support their estimate.
- The seller is unlikely to set their auction reserve price until the day of the auction. The reserve price decided on the day might be above the advertised price.
- Do not allow emotion to cloud your judgment and be realistic about the likely selling price.
Tips for home sellers
- When you give your estate agent a price at which you are willing to sell your home, the agent cannot advertise it at less than this price.
- If you choose not to provide your estate agent with a selling price, then your agent must make an estimate of the property’s likely selling price, using their experience and knowledge of the market.
- The estimated selling price an agent gives you cannot misrepresent the price at which they believe the property may sell.
- The agent should seek your written approval:
- of the price or range at which your home is to be advertised
- that you will consider offers at that price or for all prices within that range.
Taskforce Vesta video