How Can Buyers Better Tackle -Underquoting'?
Underquoting is a term that capital city buyers often understand, but not all cities and regions suffer this injustice. Property price quotes don’t always correlate with asking prices, and this challenge usually strikes in cities where auctions are standard practice, or “best and highest” competitive negotiation conduct reigns.
Underquoting refers to a practice where a selling agent markets a property with a price tag that entices buyers to pursue a property based on a perceived bargain opportunity. The ‘underquote’ is an advertised price range (or price tag in some cities) that sits under the market value of the property, and sometimes it also sits under the acceptable or desired price that the vendor has set. In the latter cases, this is not a range or a price that is representative of the vendor’s willingness to part with the property at that point in time.
A good marketing ploy? Unfortunately, it sometimes is, but it can also backfire too.
Regulators don’t like it and consumers hate it. Our capital cities, and in particular Sydney, Melbourne and Brisbane have had Regulator spotlights cast on the behaviour and changes to legislation in terms of auction quoting regimes have been enforced, along with fines for misconduct.
So why do agents do it? In fairness to agents, not all underquoted campaigns are deliberate attempts to mislead or ‘bait’ the buyer. Sometimes the agents genuinely get their pricing wrong, and there are certain markets that can exacerbate this problem.
A rapidly rising market (akin to the recovering markets that Sydney and Melbourne are currently experiencing) can give rise to prices exceeding agent’s quoted ranges, and often through no fault of their own.
In Victoria, agents are bound to list three sales results that they’d deem comparable properties to the sale property. The sales need to be recent and the dwelling needs to have commonality, ie. Land size, number of bedrooms, quality/condition, etc. Some agents make an artform out of selecting cheaper, non-comparable bargain properties in an effort to maintain the pantomime, but sometimes other agents genuinely select comparable properties in markets that have undergone extreme price growth since the semi-recent sale.
A suitable example of such a discrepancy is sales pre- and post-election. Our major eastern seaboard capitals exhibited an almost overnight shift when sentiment changed following our Federal election.
Rather than crying into their weeties about a wasted opportunity or an auction loss, what can buyers do to combat this issue?
Buyers can evaluate their own comparable properties. They may not realise this, but if they have been actively looking in their own market for a particular dwelling type, they will most likely have an accurate idea of their own micro-segment of the market in as much detail as a local listing agent, if not more so. Buyers sometimes neglect to recognise just how much local property knowledge they can accumulate throughout a dedicated property search. Unlike agents who generally don’t sway too far from their own company listings, an active buyer will benefit from a broader cross-section of properties in a given area than the average local agent. They will also get an opportunity to see a greater number of auctions, opposition buyers and auctioneer tactics.
They can become masters in their own area for a particular targeted dwelling type.
Their quest should begin with observation and research. Once buyers are familiar with a suburb and the various pockets on offer, they can start to build a repository of a few ‘comparable’ sales. That is; properties they feel are comparable that have sold in the last few months. If they can rank these in price order, and reconcile where they feel the sale property sits in price order, they are likely to be conducting a more sound analysis of the target property than the vast majority of buyers.
This methodology is known as Comparable Sales Analysis. Valuers, Selling Agents and Buyers Agents utilise this, and in tandem with a legal review and rigorous pre-approval preparation, buyers can set themselves apart from the crowd and avoid wasting emotional energy and money on properties that were always outside of their price range, to begin with.