Property Underquoting. Alive & Well.
I have recently been engaged by clients to source, investigate and secure for them a home in the northern Melbourne suburbs. They are wanting a home that has potential for a good renovation in order to add value to their property.
With the Brief and Budget locked in, I have now commenced the process of identifying suitable Investment Grade property options.
The current market situation in Melbourne could be considered as “pretty hot”, with prices moving upwards on a weekly basis. Auction clearance rates are strong and it is certainly common for properties to be sold at auction for prices well above their advertised quoted range. That is the nature of the current market and we can’t do much about that.
However, with experience and market knowledge a Buyer’s Agent can make a good estimate of the value of the property regardless of where the Sales Agent quotes the property at. This mean that a good Buyer’s Agent will be able to identify if a property is likely to sell within the available budget of their buyer, and therefore not waste time and effort on a property that is expected to sell outside the budget.
But what about the First Home Buyer or Mum & Dad purchaser that hasn’t engaged the services of an experienced Buyers Advocate. They see a property that has been quoted within their budget and not knowing any better focus their energy and hopes into a property that is only going to exceed their budget when it sells at auction.
According to Consumer Affairs Victoria, an Estate Agent marketing a property for sale must:
• Provide a Statement of Information related to the property being sold.
The Statement of Information must include:
• details of the 3 most comparable properties, including the address, date of sale, and sale price.
A comparable property is:
• of a similar standard or condition to the property for sale.
In researching property options for my client, I came across a property advertised in the northern suburb of Pascoe Vale. A lovely, original 1940s single level weatherboard, in original condition, on 636sqm of land. Perfect fit for my clients. The Agent’s quoted range, $780,000 - $850,000. Well within my client’s budget.
My first process is to undertake an independent analysis of value. In doing so, I located 3 similar, recently sold properties, within close proximity to the target property.
Based upon the above information, I have assessed the value of the target property to be $1,000,000 - $1,100,000.
However, the selling agent has assessed the value of the target property to be
$780,000 - $850,000, based on the following, so called Comparable sales:
So the sales agent has used sales data from a property that was sold over 5 months earlier, and from a property with a land size considerably smaller than the target property.
The result is that the sales agent has “Under Quoted” the property.
WHY? Because it generates more interest in the property. This means more bidders hoping to secure the property, in a hot market, within their price range. Which will result in the lower bidders pushing up the higher capacity bidders.
The practice of Under Quoting is illegal!
There is no reason for a sales agent to under price a property.
• It is misleading
• Buyers waste time and money focusing on under quoted properties
• It confuses the buying process
In 2017 the Victorian Government introduced laws to prevent Under Quoting of residential properties by sales agents.
However, as the above example shows, the practice is still Alive & Well.
Author ; Michael Kimbel
Property Prosperity
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