Property prices for popular postcodes in Melbourne and Sydney are routinely underquoted by more than 40 per cent of the final auction price, with quotes in some hot-spot neighbourhoods topping 70 per cent, according to analysis of recent auction results.
Real estate agents blame soaring demand and rapidly escalating prices during sales campaigns for the wide gap between advertised prices and the amounts paid by buyers.
But some market experts blame a culture of baiting buyers with low prices and exploiting lax regulations to attract visitors to open days, build buyer interest and push up prices.
“The underquoting is too widespread and by too much to be isolated incidents,” says Josh Rowe, chief executive of realAs.com, a website that predicts home prices to within 5 per cent on average.
Some agents claim they routinely adjust prices during a campaign to reflect strong demand and rising prices, and that the onus is on the buyer to check amended listings.
Underquoting by more than 20 per cent of the final sale prices happens twice as often in Melbourne as in Sydney, where the infringement and policing laws are tougher, according to the research. There is no law requiring the estimated selling price and reserve to be the same.
RealAs.com was asked to compare sales prices achieved at weekend auctions over the past month in Melbourne and Sydney, with the estimates provided by real estate agents when the properties went on offer.
Most states and territories require real estate agents to give vendors an estimated selling price and to justify its accuracy.
This can be a tough call in a rapidly rising market, with weekend clearance rates regularly topping 80 per cent.
SALE PRICES ROUTINELY BEAT ESTIMATES
But analysis reveals sale prices routinely beat estimates by massive amounts in popular postcodes in Melbourne and Sydney. Bentleigh and Bentleigh East, about 30kilometres south-east of Melbourne’s central business district, achieved prices that were more than 20 per cent higher than the original quotes, 50 per cent and 71 per cent of the time respectively.
In Doncaster, about 18 kilometres east of the CBD, the number of times the sale price exceeded estimates by more than 20 per cent was even higher, at 74 per cent.
Achieved prices were at least 20 per cent higher than the original quotes just under half the time in the inner-city hot spots of Richmond, about 4 kilometres east of the CBD, and 36 per cent of the time in the up-and-coming yuppie haven of Yarraville, in the city’s inner west.
Collusive bidding is more likely to happen in Victoria, as bidders there are not required to register before auction, meaning anyone can raise their hand.
In Sydney, only registered bidders can bid for a property. But realAs.com found a similar pattern of underquoting. More than 40 per cent of sales prices topped the original quote by 20 per cent in Epping, about 22 kilometres from the CBD, and Eastwood, about 17 kilometres east. Cases were also in the double digits in North Ryde, Ryde and Castle Hill.
An agent for Belle Property – which recently sold two properties in Castle Hill for 20 per cent and 26 per cent more than the original quotes – refused to comment other than to say there were “more buyers than houses for sale”.
The agent refused to be named.
Andrew McCann, a managing director for Jellis Craig Bennison Mackinnon, recently sold a Richmond property for 33 per cent more than the original quoted price. “Sometimes we don’t know the strength of demand when we open for inspection, McCann says.
“We were upgrading the price in the lead-up to the auction.”
Agents claim that in boom conditions it is not unusual for properties to sell for more than 30 per cent above the initial price.
Hot properties in even hotter postcodes are a potent combination in super-charged spring markets.
Andrew McCann, a managing director for Jellis Craig Bennison Mackinnon, recommends potential bidders monitor price movements during the sales campaign.
“Often we do not know what the price is going to be when we first open for inspection,” he says.
A telltale sign that the agent’s price might need to be revisited is how many people attend the open house.
“We always try and advise people what the price might be, but some agents will gild the lily,” McCann says.
“That means buyers need to find out what houses have been selling for at recent auctions.”
Other agents claim the final selling price is often driven up by property developers intending to replace a house with units.
WBP Property Group chief executive and valuer Greville Pabst counsels buyers to remember agents are representing the seller, and regularly receiving commissions based on the final sale price.
Many buyers are using specialist agents to review the market and attend auctions on their behalf.
But experts warn buyers using this strategy to make sure they are hiring qualified buyers’ agents and not real estate agents accepting a fee from the buyer and commission from the seller.
Buyers’ agents should be asked how much they expect to earn from the sale and from whom.
Buyers investing in a property for a self-managed super fund must make sure it meets the strict guidelines. For example, an apartment offered with a car park on a separate legal title might not be suitable.