When it comes to watercooler (and social media) talk about real estate in Victoria, there are three words we hear constantly: those are underquoting, avocados and affordability. Today, Hatch Finance focus on the matter of underquoting – and how the changes Consumer Affairs Victoria (CAV) have introduced will shake things up for home buyers and vendors alike. Avocado and affordability talk will just have to wait for another day.
Is this the end of underquoting? As you may be aware, on May 1 CAV introduced a variety of changes to residential real estate pricing legislation. These changes come in response to years of complaints from the public and concern from the government surrounding the practice of underquoting at auction. Underquoting is best understood by would-be purchasers as a property being advertised to the market at a price range significantly under the property’s likely market value. The factors that come into play around underquoting are substantially more complex than my brief explanation, but for the purposes of today’s blog, it will suffice. Underquoting is usually identified by buyers in markets where competition for property is strong, where demand exceeds supply and where housing prices are rising at a rate many find terrifying. Little wonder, then, that Melbourne’s blue-chip suburbs have been awash with cries of underquoting for many years now.
Whether real estate agents or market forces are at the heart of escalating property prices in Melbourne and Sydney, underquoting as a pricing strategy is of no help to anyone, despite the industry’s adage of ‘price it low and watch it go’. If you are a buyer who has experienced the heartbreak of underquoting, you’ll know what I mean. You go through so many stages of anticipation and expense in both time and resources when readying yourself to buy a property. You go to the effort of preparing your finance for a property you believe is well within your budget, poring over floorplans and anticipating where you’ll put the couch and the baby. However, your best laid plans are cast asunder when the first bid on auction day blows your budget out of the water – eventually selling for 20, 30 or 40 percent above the advertised quote range. You’ve wasted time and money (particularly if you’ve had a building inspection completed), and you feel jibbed. Why would the agent waste your time if they knew you’d never be able to purchase the property?
Thankfully, buyers’ days of underquoting heartbreak are now at an end, as CAV’s new real estate pricing legislation for residential property require all homes listed for sale to have an estimated price (no more ‘offers above’ or confusing language), in addition to a statement of information featuring three recent comparable sales and the suburb’s median house price. New legislation also bans the use of quoted price ranges with more than a 10% margin between the two figures presented – and those with no upper limit. This legislation presents buyers with a more substantial connection between the advertised quoted price, and the likely sales price – hopefully putting accusations of underquoting to bed permanently in Victoria.
Disappointment vs. Underquoting
CAV’s new real estate pricing legislation can’t rule out buyer disappointment at auction completely, however. Clearance rates in Melbourne remain at all-time highs, the national cash rate is at an all-time low and available property supply in premium suburbs close to amenities and public transport is low. This means – new quoting or not – that auction results for outstanding or rare properties are still likely to go above quoted price ranges. Whilst these results might disappoint invested buyers bested at the gavel, outlying results are not always the outcome of underquoting. They’re a response to market forces and an individual’s desire to acquire a property at above market expectations.
What to Look Out For
When next attending an open for inspection, look carefully at the provided statement of information. Are the three properties presented truly comparable to the property you’re considering? Are the sales results recent, or outdated? Prices move quickly in the current real estate market, so results from even six months ago can be inaccurate today. Are the sizes of the properties in the statement similar to the one you’re viewing – or are they substantially smaller or bigger? Word to the wise: use the provided statements of information as a guide to price, and then do your own market research.
Get the Finance, Beat the Market
Whatever market you’re buying in, having the funds approved to purchase your property is the key to success. If you’ve no finance, you’ll have no contract of sale signed on auction day – whatever the quote might have been! Giving you a distinct competitive advantage, readying your finance early with Hatch Financial Services allows you to negotiate robustly and purchase properties prior to auction (something we’re seeing more of at the moment), and to bid with confidence at auction.
Contact Hatch Financial Services today to talk quoting, underquoting, preparing your finance for a successful auction bid … or avocados.