Is underquoting still a thing?

To answer the headline question – yes, agents are definitely still underquoting property prices across the market right now, but we’re also seeing a new approach emerging.

Many suburbs are changing rapidly, and with the lowered number of properties available for purchase we’re starting to see owners hiking up their guide prices in the hope they can trip up some weary and keen buyers.

Across the board though, we’re still seeing properties underquoted around 85 percent of the time.  So why do agents continue to do it, how can you determine whether your target property is underquoted and how do you shield yourself from this agent tactic?

Despite what most buyers think, there’s actually many reasons agents underquote.  Check out the list below for a few of the main drivers.

Start low, scale-up – What agents are required to do is set a price range that has to be outlined on an agency agreement. The price can have a 10 per cent level of variation.

Typically, agents will make that 10 per cent price range as low as they can possibly get away with, and they say to the vendor, ‘We will make that as low as possible — to attract lots of buyers – and then we’ll try to pull them up in price’.

This strategy is why vendors find themselves going along with the agents’ advice. They are comforted in knowing the price escalates. Buyers should be wary about getting too excited at some agent’s initial price guide.

Bragging rights – Underquoting misleads some buyers into thinking they may have a realistic chance of securing a property – and into wasting money on pest and building inspections – but the outcome also gives agents bragging rights and publicity about apparent over-performance while also replenishing their lists of sales leads.

Every week the media is full of agent glorification. ‘We sold it this much over…’ In reality, the reason the price went up so much is the agent started so low.

Attract the best buyers – make the competition look overpriced. Before the Government’s consumer protection departments sanitized the tactic by naming it ‘Underquoting’ most referred to it as ‘Bait Pricing’.

Bait pricing is a far better description of the sales process because it describes the tactic and its purpose in two words. Owners think the agents advertising campaign is attracting the hordes of buyers when in reality it’s the low price on the advertisement.

They made me do it – a buyer recently walked into a home in Mossman and said to the agent, ‘you’re kidding quoting $3.4 million for this property, we both know this is $4 million plus’. The selling agent replied along the lines, ‘but if I quote high $3 million, buyers will think it’s going to sell for over $4.5 million and not engage’.

Agents have conditioned buyers to expect the final selling price to be 10% to 20% above the agent’s artificially low price guide. According to the selling agents though, it’s the buyers who made the agents underquote.

Misread the market – agents can make honest mistakes when pricing properties or the market can rise sharply in a short time frame.

In some cases, whilst the agent is technically underquoting the true market value, it is unintentional. In these circumstances, it’s entirely understandable the agent can and does increase the price guide to reflect the market feedback.

This scenario happens most often in rising markets. Conversely, you’re more likely to see agents scaling the price down in falling markets.

How to shield yourself

Check the evidence – ask the agent to provide the comparable sales they used to determine the price of the property they’re selling.  This should either re-enforce their price or reveal the real situation.

Do your own sense check – using the same characteristics as the property you’re buying – eg – number of bedrooms + bathrooms + car spaces, block size, build quality – then review the last three months of sales.  Also review the guide price for similar properties available for sale in the area.

Negotiate – the best way to check the price is to make an offer.  If you have completed your research and believe the property is guided too low, just make an offer at the actual asking price and see what the agent does : – ).  From there, you just need to read the agent’s signs and fend off their price increase tactics.   

The reality

The reality is that across Australia the property market is moving up and down depending on the location. The market is always changing. To ensure you’re not paying too much you really need to be on top of your research and have your negotiation skills honed to perfection.

If you’re great with finding the property you want, but you would like help with the tricky parts of the purchase process such as assessing and negotiating the price, remember you can use our Negotiation Navigator  service where we can step in for you.