Underquoting or industry ignorance? Edwin Almeida

What if the property sold at the reserve? How much could this have cost the vendor? Applying the what if? test.

If I was to say I was taken-back by the response provided by the auctioneer to a tweet I commented on it would be an understatement. Allow me to share with you the event; so quickly pour yourself a coffee and read on. 

Reports were floating, or should I say flying, around on social media over the weekend about the great achievements and results of an onsite auction in Granville. In the main, it was all to do with praise of the selling agent and the creative selling techniques I refer to as “sleight of hand illusion” to sell property, to be candid.

The fundamental questions asked by me on twitter, of the auctioneers tweeting, were simple and basic. Was it a case of “underquoting” or was it “ignorance” by the agency to not know the true value of the land? 

I didn’t believe the questions noted above, were out of line. Particularly when I looked at the facts of the auction campaign and paralleled these with results achieved. 

One thing is for sure: we can rule out “market forces” for the out of line result, as the tolerance on such a notion would be as I have previously mentioned in other articles, a mere 11% variable from the “price-guide”. A tolerance that is within the prescribed tolerance guides set in the State Agents Act VIC and FT NSW. 

The facts:

• The property is advertised as having a lot of development potential 
• Agent seemingly appears to be targeting developers and the neighboring club
• Property called on the market at $1,250,000 and sold for $2,781,000 
• The achieved sale percentage above reserve is equal to 123% approximately

Now, somebody, I believe got it totally wrong. On face value it appeared like a classic case of “underquoting” but unless the documents signed by the vendor with the agent, which determines the price-guide are made public, we may never know. 

However, in this case I am leaning more to the belief that some agents simply don’t know the value of land. The value of the land with development potential in the current market, is what I am referring to. In the alternative, value of property that is not common to the local agent, such as the initial Millers Point auction fiasco.  Where the property owned by the State Government was gifted away. 

Reports of auction results

As we read through the different stories being published about the sale, there are conflicting accounts and statements that make one wonder if the correct price-guide and reserve was set. You may form your own opinion as you read on.

Working on land-banking and any other form of land acquisition by developers, to determine values may be as simple as: understanding “gross realization” of the project to be built on the land being acquired, determining “construction costs” and with all this, taking into account possible lot yields due to “State Planning” and “Council Planning” changes to zoning. 

In basic terms; what will be the “Return On Investment”. No developer likes to work on anything less than to double their money on what the land cost them. 

In essence, I am leaning to the belief that the property was misrepresented to be worth anything less than $2.5 million, particularly when we apply the Regulation’s tolerance factors on the face value of the end result. 

The question remains, what did the developers attending the auction know that the agent didn’t know, to turn up in droves? Now this is why a professional is used, to know and be in control and not allow the sale to be reliant on, a whim and a prayer or hope of a sunny day. 

My first question

But the question will remain however; was the agent aware and well versed in what was going on, as I received the tweet reply from the auctioneer? See below. 

My second question

The second question is: why was this tweet deleted from the auctioneer’s twitter-handle soon after it was sent to me as a response? Don’t you just love conspiracy theories? 

The What-If Test

However, the seriousness of the present situation stands. A problem that is amplified at the auction under scrutiny, highlighted by the results achieved. 

Agreeable, and although the results are beneficial to the vendor, this is a problem in the Real Estate Industry and one that demands closer attention. 

The concern once again is best explained and highlighted when we apply the What-If Test. 

• What-If, the property was sold for $1,250,000 because it was presented with such a low price-guide in the first place, and
• What-If, as the auctioneer replied: the agent got it right. As I understand, in pricing it low to attract the interest it got? 

Now, What-If you are reliant on an agent or agency that is not aware of: council changes, market forces and true land values? What-If, the result is no more than the price the agent advised you, when they presented you with a market appraisal and set the price guide? 

In this instance, we may never know if it was a case of under-quoting or sheer ignorance, unless FT NSW investigates the reasons behind the 123% discrepancy in price-guide to end-sale. Like me, I’m sure you too are left with the thought: under-quoting or the agent got it wrong? 

EDWIN ALMEIDA is licensee in charge of Just Think Real Estate.

He is also the creator of Oz Real Estate.TV and a presenter for propertyinvestingvault.com.