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,
  2. visible to customers, for a period of 6 months;
  3. The business had to publish an excerpt in the popular newspaper lift-out "Domain",
  4. outlining their actions and the orders made against them;
  5. The business employees and owners had to undertake a compliance program aimed
  6. at education and compliance with, all its legal obligations;
  7. The business paid $80,000 to $90,000 in legal costs; and
  8. 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 courtconsidered $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/salesagreement 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
  3. the lower price;
  4. Refrain from using phrases such as "offers above" and "offers over" or similar; and
  5. If the estimated price changes and is no longer reasonable, take all steps to ensureall 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, pleasec ontact our Property Law Team for further advice on 9521 6000 or conveyancing@watkinstapsell.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.