Wats happening with… Selling Property and Underquoting in real estate.
Property prices are rising and there are a lot of people looking to buy. In this market
auctions are common and sometimes there may be differing opinions with real estate agents
as to the value of properties. The law has caught up with some real estate agents who
underquote property values to foster interest in properties. To those unfamiliar with the
marketing tactics associated with selling property, underquoting is the term given to the
illegal process of advertising property, or representing property to potential buyers, at a
value that is less than what a vendor is willing to sell their property for, or less than the
reserve price at an auction.
Underquoting has assisted real estate agents in raising interest in properties through using
comparatively low prices, when in reality there is no intention for a property to be sold at that
price. Whilst some real estate agents have been able to get away with these practices in the
past, simply because underquoting has been so difficult to prove, the Federal Court has
recently shown that there will be consequences if agents act deceptively in the sale of
residential property in the case of Director of Consumer Affairs Victoria v Hocking Stuart
(Richmond) Pty Ltd [2016] FCA 1184.
This case has provided a clear example of the penalties that the Courts will impose in
circumstances where it can be shown that underquoting has occurred. The defendant
company was found to have made false and misleading representations in relation to 11
advertised properties. Hocking Stuart admitted to each of the allegations and the following
orders were made against them:
1. The business had to display a notice within their office regarding their recent conduct,
visible to customers, for a period of 6 months;
2. The business had to publish an excerpt in the popular newspaper lift-out “Domain”,
outlining their actions and the orders made against them;
3. The business employees and owners had to undertake a compliance program aimed
at education and compliance with, all its legal obligations;
4. The business paid $80,000 to $90,000 in legal costs; and
5. The business paid a fine of $330,000.
It should be noted that the maximum pecuniary penalty in Victoria for each contravention is $1.1 million; however, the court considered $30,000 to be appropriate in these circumstances.
This case, together with 13 more investigations currently taking place, not only exemplifies the harsh consequences of the practice of underquoting, but should also act as a warning to real estate agents across Australia: consumer legislation will be strictly enforced and there is no place for underquoting in the Australian Real Estate market. In NSW, the Property Stock and Business Agents Act 2002 is the primary piece of legislation relating to underquoting. In a nutshell, sections 72A and 73 of the Act state that (amongst other things) agents must do the following:
1. Provide a reasonable estimate of the property’s selling price in the agency/sales agreement and provide the vendor with evidence of how this estimate was reached;
2. If providing a price range, ensure that the higher price is not more than 10% above
the lower price;
3. Refrain from using phrases such as “offers above” and “offers over” or similar; and
4. If the estimated price changes and is no longer reasonable, take all steps to ensure all parties, including the vendor and those listed in the agency agreement, are aware
of the new price, as well as update any advertising of the property with the new price.
Compliance with these requirements is difficult with rising property prices and also with
unique properties. The Australian Consumer Law also regulates acts of misleading and
deceptive conduct in relation to cases of underquoting.
If you have questions about how to ensure you comply with these laws, or have
questions about underquoting, please contact our Property Law Team for further advice
on 9521 6000 or conveyancing@www.watkinstapsell.com.au
