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Auction pricing system a challenge for emotional potential buyers

THE Melbourne property market can be a truly heartless place.

Anyone who has ever fallen in love with a property, mentally moved the furniture in and watched, crestfallen, as the price soared above the quote range at auction, knows what I am talking about.

In some cases, nothing sinister is going on. The market is strong, and certain kinds of properties in blue-chip or gentrifying suburbs are exceeding many people’s expectations — agents and vendors included.

But in other cases, buyers have a genuine right to feel aggrieved. They have been baited by agents, who underquote the property to swell the ranks of attendees at open for inspections, before watching their dream die at the showy pageantry that constitutes a Melbourne auction.

Until recently, the practice of underquoting has been largely the subject of anecdotal complaint — more barbecue horror story than taskforce material — but some legal muscle is finally being flexed.

New laws introduced into state parliament in November, and due to come into effect in coming months, 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 and the median price for the suburb.

The new laws will also ban advertising price ranges of more than 10 per cent, as well advertising such as “offers above”, “from” or the “+” symbol, and require advertising to be “promptly updated” if the seller rejects a higher written offer, or the agent’s price estimate changes.

Estate agents caught engaging in underquoting will face penalties of more than $31,000 and risk losing their sales commissions.

The new laws are a result of a Consumer Affairs Victoria crackdown on underquoting, which has already led to agencies being punished. Hocking Stuart Yarraville and O’Brien Real Estate Croydon have admitted to the practice, while Hocking Stuart Richmond has been prosecuted for underquoting on 11 properties.

Hocking Stuart Doncaster and Fletcher & Parker Balwyn are set to face court next month, and eight more agencies remain under investigation.

While these enforcements are laudable, the new laws will do nothing to weed out the deeply rooted and systemic failings of the auction pricing system for buyers, especially first-timers.

The first problem is the vagueness of the laws. Agents can provide comparable sales as far back as six months ago and, as Melbourne buyers agent Miriam Sandkuhler points out, this is a long time in the world of Melbourne property prices.

“Prices can move quite quickly and this requirement is open to manipulation,” she says. “Ideally, you would want comparables to be three months old or less, but even then, who is to say what a comparable property is?”

Further, the requirement that agents “promptly update” their price guide if the seller rejects a higher written offer, or the agent’s price estimate changes, is a weak one. A handful of unscrupulous agents use this kind of step pricing as bait: list the property low and then raise the quote owing to “unexpected” interest midway through the campaign.

The second major flaw is the paucity of black-and-white, clear-as-crystal regulation.

Many commentators have been calling for vendors to publish their reserve before auction day and this requirement would have bolstered the new laws considerably.

“If buyers knew from the start of the sales campaign what the vendor reserve was, this would level the playing field, and any price above that would be down to market forces,” Ms Sandkuhler says.

Many pundits predicted the Melbourne market would cool in 2016, but CoreLogic’s Home Value Index showed that dwelling values were up 13.7 per cent in Melbourne between December 2015 and December 2016.

This year is likely to be another tough one for first homebuyers. The essential supply and demand dynamic that drives the property market has not radically shifted, and there will be more people competing for fewer decent properties, which translates into more hearts crushed and more hopes dashed.

Unhelpfully, the Consumer Affairs Victoria website includes the following tip on its website for homebuyers: “Do not allow emotion to cloud your judgment and be realistic about the likely selling price.”

This sounds like a well-meaning pep talk from a friend rather than serious legislative heft. Of course our judgment is clouded by emotion when buying a house.

And one can only be realistic if you are given adequate and accurate information upon which to frame your expectations.

That’s why the new laws need to be strong enough to counter the manipulation of buyers’ emotions that some — not all, but some — agents are engaging in.

 

This article was originally published by Johanna Leggatt via Herald Sun on January 14, 2017

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