NSW Fair Trading Minister, Victor Dominello said the guidelines for real estate agents outlines their legal responsibilities under the Property, Stock and Business Agents Act 2002 when selling property.
Underquoting occurs when an agent falsely understates the estimated selling price of a property in the course of marketing that property. It is an offence under the Act to advertise a selling price which is lower than the price specified in agency’s agreement with the seller.
The guidelines, developed in consultation with the Estate Agents Co-operative, Real Estate Institute NSW and other industry stakeholders, are designed to provide agents with clarity over what constitutes underquoting and how it can be avoided.
They contain guidance on specifying price guides in line with vendors’ expectations and ensuring online listings are maintained and kept updated for the benefit of potential buyers.
The Property, Stock and Business Agents Act (the Act) is the primary law regulating the property industry in NSW.
Section 72 of the Act prohibits an agent from making false representations about their true estimate of a property’s selling price to either a seller or prospective seller of residential property.
Section 73 prohibits an agent, by any statement made in the course of marketing a property pursuant to an agency agreement for the sale of a residential property, falsely understating their estimated selling price of the property.
Section 75 of the Act extends the provisions of sections 72 and 73 to ‘estimated price range’ in the same way as it applies to ‘estimated price’.
The maximum penalty for a breach of the provisions of sections 72 and 73 is 200 penalty units ($22,000).
These provisions apply to the marketing for sale of a residential property.
Agents should be aware the provisions of the Act co-exist alongside the obligations of an agent or licensee-in-charge, under the ACL, not to engage in unfair practices or misleading or deceptive conduct.
WHAT IS UNDERQUOTING?
If an agent or their employee makes a statement in the course of advertising a residential property for sale that is less that the agent’s true estimated selling price as recorded on the agency agreement, an offence may have been committed.
What is considered to be the ‘true estimated selling price’?
NSW Fair Trading considers the estimated selling price recorded in the agency agreement is the agent’s true estimated selling price, at least initially. This view is supported by section 73(4) of the Act which states:
A statement in the agency agreement of the agent’s estimate of the selling price of residential property is evidence for the purposes of this section of the agent’s true estimate of that selling price.
If an agent represents an estimated selling price in the agency agreement that is not consistent with their own opinion or estimate of the likely selling price for the property, this may be considered a false or misleading representation which is an offence under sections 51 or 52 of the Act.
Best practice when giving price guides
Careful consideration should be given to the use of price guides when marketing a property. Typical price guides include representations such as:
Representations such as these are taken to be estimated selling prices of the property for the purposes of sections 72 and 73 of the Act.
Where a price range is given, NSW Fair Trading considers the lowest price is the agent’s representation to prospective purchasers of a realistic potential selling price. For example, a range statement of either ‘$500,000+’ or ‘offers above $500,000’ will be taken to be a price estimate of equal to or above $500,000.
Agents are encouraged to be specific when giving price guides. Ranges provide strong signals to the market about the likely price at which a sale could be achieved. Agents must factor in the vendor’s sales price expectations when determining how a property is marketed. It can be extremely frustrating for potential purchasers if they find that a property is not realistically available at a price within the marketed range.
While an agent’s estimated selling price will inform the price guide, the price at which a vendor is reasonably willing to consider offers should also be given due consideration and help set where the price range begins. For example, if a vendor is not willing to consider any offers below $600,000, it would be prudent to start the price range from this amount.
BEST PRACTICE WHEN USING ONLINE ADVERTISEMENTS
Many real estate advertisements are now published online. Unlike traditional hardcopy advertisements, online advertisements are published on an ongoing basis.
Agents should ensure any online price representation remains consistent with their estimate of the selling price throughout the period it is available to the public.
During the course of marketing a property, feedback from potential purchasers and/or the vendor may indicate the price guide should be moved from what was originally advertised.
Best practice would involve revising or taking down online advertisements as soon as practicable when the advertised price no longer reflects the agent’s current true estimated selling price.
If, in the agent’s professional opinion, the advertised price guide no longer reflects the true estimated selling price of the property, it must be amended as soon as possible.