Is there a problem with realistic pricing when advertising property?

Read more in this interview with Luke Harris, and find out why there’s no excuse for not doing your research on pricing before purchasing property.

Ad reveals ‘frustrating’ problem facing Aussie homebuyers

Originally published by news.com.au as 'Ad reveals 'frustrating' problem facing Aussie homebuyers' by Ally Foster, Senior Reporter.

An expert has revealed a sneaky tactic being used by some real estate agents, and its causing a major headache for potential homebuyers.

Homebuyers are being faced with a “frustrating” problem that is making the already difficult task of purchasing a property nearly impossible.

A recent ad for a house for sale in Sydney has highlighted one of the key issues buyers are having to navigate when looking for a new home.

When looking to buy, many people rely on the provided price guide on the listing to determine whether a particular property is within their budget.

Makes sense, right?

Well, unfortunately, it seems these guides aren’t always the price a seller wants.

A home whose listing has brought this issue into focus went to auction last weekend, with buyers given a guide of $1.5m to $1.6m during the campaign.

The property was then passed in, meaning the top bid did not meet the vendor’s expectations.

The listing was then changed to include what was branded a “realistic guide”, which had increased by more than a hundred thousand dollars.

Chief executive of real estate mentoring business The Property Mentors, Luke Harris, told news.com.au a realistic price guide and a regular guide can actually mean the same thing in the real estate world.

“By law, a price guide should be realistic anyway to avoid underquoting. Agents will often use whatever terminology they feel suits the vendors requirements, market conditions and buyer demand,” Mr Harris explained.

“For example, if they know the seller is very keen to sell, the agent may emphasise the ‘realistic’ component to tell buyers that the vendor is serious at that price range, rather than other sellers that might be holding out for a higher price.”

Luke Harris, CEO of The Property Mentors and author of Property Fit

Unfortunately, changing price guides are something that potential buyers are having to continually navigate through.

There could be a number of reasons for price guides to change, but buyer’s agent John Carew of Mayfield Property Buyers told news.com.au the situation is “very frustrating” for buyers.

Mr Carew said a sudden price guide change could indicate a seller changing their mind about the price they want, but there are also agents that have been using lower price guides to their advantage.

“In many cases, agents are still significantly under quoting or under guiding a property in regards to where the vendor wants to be and where likely fair or market value is,” he said.

“This is a constant battle and frustration to many buyers. And it causes many of them to dollar up on building and pest inspections, conveyances other checks for a property that actually is never going to be within their budget.”

The buyer’s agent said using more conservative price guides could be a tactic to bait more potential buyers in order to build competition for a property.

The practice isn’t illegal and Mr Carew said, in some cases, properties are being under guided by up to 20 per cent of their realistic fair value.

Mr Carew said the opposite can also occur.

There have been recent cases where some properties are being over-guided relative to their fair value and, as a result, selling well below the original price guides.

“So it’s quite a maze for buyers or potential buyers to sort of work through,” he said.

So, can price guides ever actually be trusted?

Mr Carew said there was no simple answer to that question, but it was clear buyers shouldn’t solely rely on the guides to determine the true value of a property.

Other than engaging a trusted buyers agent, Mr Carew said buyers need to be doing their own research.

This involves looking at what has sold within the last two months that is in the same suburb and comparable to the home you are interested in.

He said if buyers are unable to find this information for themselves, they can ask the agent but, again, that should be taken with a “grain of salt” because the information provided could be specifically chosen to “put a spin on it”.

“(Buyers should) really try and figure out is this a realistic price guide is it or is it actually substantially under where the fair value of this property should be?” Mr Carew said.

Mr Harris agreed, saying while price guides can be trusted “to an extent”, it is important to for buyers to be doing their own research.

“Why put your trust in an agent to tell me what they think it’s worth, when I can look online and find out what has been sold recently in the suburb or the street.”

Luke Harris, CEO of The Property Mentors and author of Property Fit

“Attending open homes, talking to other buyers, and other agents will also help you to get a good feel for the market.

“Look at the ‘days on market’ to see how quickly properties are selling, and also vendor discounting will come into your decision making process.”

There are laws in place in NSW to prevent agents from deliberately underquoting a property

Under the rules agents must include a reasonable estimate of a property’s likely selling price in the agency agreement and the listed price of the property cannot be less than this number.

Agents can face fines of up to $22,000 for underquoting and may also lose their commission and fees gained from selling an underquoted property.

Earlier this year, former NSW Minister for Fair Trading Eleni Petinos announced that she was taking a long hard look into property price guides and that underquoting was not acceptable.

“Understating the expected price of a property for sale by providing false estimated selling prices of the property completely wastes the time and money of potential homebuyers,” Ms Petinos said.

“Underquoting will simply not be tolerated. We will continue to investigate and penalise where false prices are provided to consumers.”

However, Mr Carew said some agents have come up with sneaky ways to get around these rules.

“What happens, in some instances, they might tell you ‘Look, your property’s worth (a certain amount) but on the paperwork we do let’s sign the agreement of (a lower amount) but we’re still going to be shooting for (our original estimate)”,” he explained.

“So that’s where that legislation doesn’t always fully capture those sorts of behaviours.”

Mr Carew said he sees so many deflated buyers coming to him after months or even years of searching for a home, trying to decipher price guides and then being faced with the task of actually securing the property.

“It’s still a really difficult thing. Despite the market having cooled somewhat, there’s still so few properties available,” he said.

“So it’s still actually quite challenging for a lot of buyers out there.”


INVESTOR SUMMARY FROM THE PROPERTY MENTORS

  • Do your own research, don't just rely on the agent to 'tell' you what the property is worth
  • What did the property last sell for, and when?
  • Find out what has been sold recently in the suburb (or the street or the block of apartments) - drill down as far as you can
  • Look at the ‘days on market’ to see how quickly properties are selling in the area right now
  • Attend open homes
  • Talk to other buyers and other agents to get a good feel for the local market

Alternatively, if you don't have the time to do your own due diligence and research, then seeking out professional advice is money well spent! Good advice can save you not just time but also prevent you from making costly mistakes and paying too much! If you'd like to learn more then book in a free call with one of our dedicated property mentors today.

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