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HARRIS PARTNERS

REAL ESTATE REPORT Issue 113

EFFECTIVE OR NOT

Have the new underquoting laws worked? It is just over 12 months since the introduction of underquoting rules to protect homebuyers in NSW. The news laws outlawed the use of strategy and phrases such as ‘offers over’ and ‘$500,000 plus/+’. If you were to survey homebuyers on the effectiveness of the new laws, they maybe inclined to comment that the laws have not worked. Properties are still exceeding price guides by wild amounts. This is a potential misread on the cause though. The temptation is to accuse agents of thumbing their nose at the new laws and persisting with underquoting. Research just released by Core Logic RP Data shows that the Sydney property market rose by a whopping 18.4% in the 12 months to February 2017. Therefore, the first 12 months of the underquoting laws coincided with the market rising at a phenomenal rate. In certain suburbs, price growth was even higher than the city average of 18.4%. Real

Over 400 buyers enquired about 39 Smith Rozelle during the sales campaign.

estate agents are more likely to be accused of underquoting when the market is rising at such a rapid rate. In some instances, the buyer’s grievances maybe justified. The first question buyers need to ask themselves when they are outbid is – did the agent underquote or were we outbid? If you were outbid above a fair market price, you were simply outbid. Consumers Affairs Victoria (CAV) has been aggressive in prosecuting high profile Melbourne firms for underquoting in late 2016 & early 2017. NSW Fair Trading has also been vigilant in spot audits on their new underquoting laws.

The primary purpose of underquoting is to ensure a sufficient number of bidders attend the auction. Conducting an auction with one or even 2 bidders is not easy. In the past, agents created extra bidders by placing ‘dummy bidders’ in the crowd. Since dummy bidding was largely stamped out, underquoting has flourished as a means of fueling the bidding at auctions. Given the market is rising so strongly, the need for agents to underquote is largely unnecessary at present. However, in the past 12 months flaws in the new laws have emerged. These flaws will become more apparent as the market cools down. The reason you will see the loopholes more clearly in a normal market is a gap emerges between what buyers are prepared to pay and what sellers are prepared to accept. Auction day involves a group of bidders looking to buy the home

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IN THIS ISSUE: Effective or not?

Suburb in focus 2037

The most expensive market

(02) 9818 2133 www.harrispartners.com.au

SUBURB IN FOCUS 2037 Glebe/Forest Lodge has been one of

and Jubilee Park are longstanding

the development is not yet complete,

the best performing suburbs during

features of the suburb.

the congestion does not seem to have

the boom. That’s a fair feat given the

eventuated.

strength of the boom in the past 5

In

recent

times,

the

Tramsheds,

years.

the Glebe Foreshore Walk and the beautification of Blackwattle Bay have

A lot of attention is often given to the

enhanced the natural beauty of ‘2037’,

next suburb that will boom from the

A lot of attention is often given to the next suburb that will boom from the ‘ripple effect’.

Aside from owner occupiers eyeing

‘ripple effect’. Given Glebe is located

Glebe has always benefited from close

‘2037’ – property investors have

right on the city fringe with many

proximity to the CBD too. As Sydney’s

been equally enthusiastic. As well

fine attractions and amenities, its

traffic congestion worsens, it makes

as close proximity to employment

performance is not surprising. It also

sense that the property market at

opportunities in the CBD, Glebe and

demonstrates that the best buying

large has responded so favourably to

Forest Lodge are within walking

can sometimes be closer to the city

such a prime location. It is common

distance to the RPA Hospital, the

not necessarily the ‘next suburb out’.

for Glebe residents to walk into the

University of Sydney and Pyrmont.

CBD for work, escaping all of the peak Finding the next ‘sleeping beauty’

hour traffic nightmares.

The

suburb that is ‘set to boom’ has merit.

abundant

amenities

and

employment opportunities available

But it can also cause you to overlook

The Light Rail also offers easy access

without using a car mean it is a very

blue chip real estate that has hovered

into the CBD and runs west all the

strong rental market. This certainty

under the radar for a while. This

way to Dulwich Hill. As the Light Rail

of a solid tenancy market means that

principal often happens on the stock

network is extended, the two light Rail

investors take an interest.

market and it can also occur in the

stations in Glebe will add benefit to

property market.

the community for decades to come.

Postcode 2037 has always been a beauty, sometimes she is awake and

The

2037

postcode

has

many

A few years ago the Harold Park

outstanding attributes. Some of those

redevelopment

caused

such as the Glebe Pt Rd café strip

about local traffic congestion. While

sometimes she is asleep.

concerns

The Tramsheds at Harold Park have been a positive attraction for the community.

The underquoting laws one year on. Continued from page 1 advertised at the super low price. The vendor has been promised an exceptionally high price by the same agent who advertised the property at a bargain price to the buyers. Both the vendor and the buyer have been lied to as a means of getting them to the auction. The agent’s job in this situation is to engineer a sale on the day. Unsurprisingly, complaints soar when sales are conducted on this basis. Flaws in the new laws Reserve price – the agent can still legally promote a property below the owner’s reserve price. To remain compliant, agents only need to tell the buyers the price they put on their agency agreement with the vendor. The agent can tell an owner the expected sale price is $1.2 to $1.3 million. The owner can have a reserve price of $1.35 million, yet the agent is still able to promote the property as ‘Bidders Guide $1.2 million’. Given the reserve is set on auction day, buyers are potentially acting on false information by responding to the agents price guide. The key price point for buyers to focus on in any sale is the owner’s reserve price and the true market price. Essentially, it is best to

totally disregard the agent’s price guide and focus on your own research. Whilst ever agents are able to promote properties below the owner’s reserve price, buyers will get caught by underquoting.

The owner wants it to go to auction – This is a line that is commonly used by agents. Don’t fall for it. Owners want to sell for the best possible price. The reason that agents will deter you from making a pre-auction bid is because they must increase their price guides in line with market feedback. If the price guide is $1.2 million and an offer of $1.31 million is rejected pre-auction, then the agent must increase the price guide to reflect this new information. Understandably, it is illegal to advertise a house for $1.2 million when an offer of $1.31 million has been rejected. But if the agents have to increase the price guide to reflect the true market feedback, it will likely cause other potential buyers to withdraw from the auction. So when you are told ‘the owner wants it to go to auction’, now you what that really means.

Agents fudging paperwork – agents are making owners unknowingly complicit in underquoting. In the

Loopholes still exist in the new underquoting laws.

circumstance of an underquoting complaint, the DFT will investigate the agent’s paperwork, namely their agency agreement and database records. If the owners have agreed to a certain price strategy in writing, the DFT is powerless to push ahead with the underquoting investigation. This has created an incentive for agents to verbally tell owners everything they want to hear and then write low numbers on the paperwork. If the owner signs or agrees to this in writing, the agent is free to ‘legally underquote’ the expected price to buyers, even though the true price expectation is much higher.

No price with low offers & comparable sales – Some agents will deliberately offer absolutely no price guide as to what they believe a property will achieve. However, they will disclose to buyers properties that sold at a low price they deem as a comparative sale. This sales evidence is suggestive of where the vendor and agent expect the price to be, without being conclusive. If the agent receives a low offer, they will freely tell other buyers ‘where the offers are at’. A buyer will never get an underquoting complaint up on suggestive information provided by the agent. But it is crucial that you are aware of this subtle trick before spending thousand of dollars on due diligence. The key with suggestive information such as the agent disclosing a low offer or a low comparative sale is to ignore it. Hopefully by being aware of the loopholes in the underquoting laws you remove the risk of being snagged by bait pricing.

THE MOST EXPENSIVE MARKET The firm was looking for ‘any indication that real estate agents were beginning to resist price increases’ from Domain. While everyone is asking, how high can house prices go others are asking, how high can these advertising rates go? Agents may be showing subtle signs of stress at the price increases. Off Australia is the most expensive market in the world for home sellers to advertise on the internet. A lot is made of how expensive the Sydney property market is on a global scale. There is a second market that Sydney is a world leader in when it comes to expensive – real estate internet advertising. Homeowners pay more to market their homes on the internet in Sydney and Australia, broadly speaking, than just about anywhere else in the world. In the days of newspapers, agents became addicted to a model called VPA. That’s Vendor Paid Advertising. The agent convinced the client to spend excessive amounts of money on advertising their home, using the ‘old chestnut’, more advertising equals a higher price. Homesellers collectively ‘invested millions of dollars’ each year thinking they were selling their home when they were actually buying advertising. The seller inadvertently paid to build the agent’s profile and branding, regardless of the success of the sales campaign.

Then the internet became the dominant marketing tool and essentially wiped out newspaper advertising. Now everything old is new again as VPA has returned with a vengeance and a digital veneer. Agents are now looking to outspend each other on the internet with bigger ads at the owners expense. That would be fine if the homeseller and agent gained a joint benefit from all this advertising. Alas, homebuyers are interested in the property not the size of the advertisement. Real estate advertising expenditure has exploded in the past 20 years from nothing to billon dollar companies. Some individual ads cost as much as $2000. On a global scale, this puts Aussie home sellers at the top of the heap when it comes to outlay for real estate advertising on the internet. One stockbroker made insightful comments prior to the release of the recent Fairfax results.

market transactions are increasing as agents aim to use their database as opposed to chasing excessive VPA. Neither consumers or agents are showing an appetite for annual price increases three times the rate of inflation. Opportunists sense the gap in the market too. This is why your television and radio is awash with discount agents and referral firms promising the ‘same for less’ as full service realtors. The key when assessing the right campaign for your home is the outcome you desire. Once you are clear on that, pick the most economical and efficient path to that outcome. If a total marketing campaign delivers genuine buyers to your doorstep for $2000, why spend $5000 or $10,000? If someone, asks you to spend $5000 ensure they justify the extra expense. If expensive internet advertising is such good value, let the real estate agent pay. They’re the party getting the most benefit from it.