Agent underquoting will not always help sellers get the price they want

This weekend past, Property Observer attended an auction in an inner-city Sydney suburb with Just Think Real Estate’s Edwin Almeida where there was a potential case of underquoting. However, the auction prompted more questions than it answered.

The facts

The vendor had received an offer of $1.46 million in a previous campaign. The vendor refused this offer and went to auction through another agency. The price guide provided by the agent was $1.2 million. At auction on Saturday, the home sold for $1.415 million, with a reserve close to $1.4 million. A neighbour at the auction confirmed to Property Observer that it had been bought by a next door neighbour.

This prompted a number of questions on the day – is auction really the best selling method in Sydney’s current market? Was this a case of underquoting, and if so – why did it fail?

Firstly, we note that some prospective buyers and bystanders were disgruntled at the auction – one suggesting that the four-bedroom property had actually been mistakenly advertised as a two-bedroom in the local paper. This has, as of yet, remained unconfirmed and it is hard to gauge whether this would have had a material effect on the outcome of the auction.

It is also notable that many of the attendees of this auction were extremely savvy – debating the finer points of the property’s value and the market’s dynamics. In fact, there were multiple investors in attendance – one of whom had four properties in the area to his name. Buyers, it seems, had largely ignored the price guide provided and were thoroughly prepared for the property to sell around $1.4 million, if not more. This is not always the case and there has been many an auction, usually in lower priced areas with more first timers, where home buyers head in excited and come away unhappy at watching the price soar over what is acceptable.

Edwin Almeida shares his thoughts on what this auction means for property investors, and for the industry:

Bad auctioning habits and the law

Bad habits are hard to break. When it comes to underquoting in an industry that for over a year has been living of the emotions of buyers, it may be a little harder to break this habit. Unfortunately for the vendors, agents that persist on adopting this method of marketing may soon find themselves in the court rooms of justice, but for now, they are just simply losing credibility and money, both as agents and vendors.

The price guide presented to the general public throughout the campaign was $1,200,000 and the property sold for $1,415,000. A big difference.

Surprisingly, the purchaser was a neighbour. A local had previously offered $1,400,000,part of a long-term plan to obtain rear access to another property.

However, regardless of the outcome, there is much wrong with underquoting; how many buyers engaged lawyers and pest and building inspectors on the premise of the quoted price guide? When you think of one individual, it would only add to a couple thousand dollars. But when you talk about five or 10 groups doing the same, the numbers add up. There needs to be a conscientious decision made by the real estate industry collectively. We need to disengage from the practice of underquoting as the financial burden is in the area of hundreds of thousands of dollars each weekend, across the community.  

Signs of the times

In a personal discussion with Tom Panos and following his tweets, Tom is also suggesting that the “hot, hot, hot property” days are over in most areas of Sydney and vendors expectations are set too high. 

The “hot, hot, hot property” days are over in most areas of Sydney and vendors expectations are set too high.

Again, bad habits die hard. Time will level this out, but it will take some time. More and more buyers on the other hand are engaging “property advocates” to attend auctions. The free internet tools available and readily accessible means buyers are more savvy and we may have reached that tipping point. Less emotion needs to be involved at higher price ranges, as more risk is taken. An interesting dynamic to witness, as properties are more and more distant from the owner occupier’s grasp.

Private treaty v auction campaigns

Then there is the emergence or maybe the resurrection of “sale by private treaty”. As more buyers become savvy, the talents and value for money vendors want from agents is truly admired on this level. Besides, “anyone can sell in a hot market, all you need to do is place a sign with a number outside your home and some internet advertising and the home will sell,” John McGrath stated on 2UE recently. 

You don’t need an agent to give your home away or sell in a hot market, you need the agent to prepare the property, market the property and achieve that extra 10 to 15% more than what most agents tend to obtain.

The art of selling real estate is truly witnessed when at private treaty the agents achieve more than at auction and even when the auction campaigns are witnessed, not in a hot market place but in a stable market and on a property market downturn. For the property in question, a written offer was knocked back under private treaty for $1,460,000 and five weeks later sold at auction for $1,415,000. In Greystanes, a suburb in Sydney’s west, a property was sold late last year for $765,000 under private treaty after the previous agent, only four weeks prior, passed the property in at $710,000.

I have since spoken to the buyer of the home and when asked how he felt about the auction, he replied with words to the effect: “There was no real science in the approach I took. I own the home next door and a few others properties in the area. I knew the property would never sell for the guide given by the agent. My valuations came in between $1,300,000 and $1,500,000 when I was applying for pre-approval. So I set my figure based on this and not what the agent was spruiking. I was prepared to pay $1,400,000. Lucky me, as I knew an offer of $1,460,000 had been made previously, and was rejected.”

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