Underquoting – the auction system’s necessary evil

Posted on October 23, 2013 by | 4 Comments
Underquoting - the auction system’s necessary evil

Underquoting – the auction system’s necessary evil

Ever wondered why agents underquote? The simple answer is because it works. This may not be a popular view of underquoting and as frustrating as it may be, underquoting is a necessary evil in Melbourne’s auction system.

Growth in property prices this year has highlighted the widespread practice of underquoting and the frustration of buyers who miss out when properties sell for much more than the advertised estimate.

Ironically, the practice that frustrates buyers is the same one that enables the auction system to work in the first place.

When a real estate agent auctions a property, the vendor is paying them a fee to achieve the highest possible price in the prevailing market conditions. To achieve this, the agent must do their utmost to maximise the intensity of competition on auction day.

At any given auction the bidders will have a range of spending limits. Some limits may be close to the advertised sale price estimate, whilst others may be much higher. By competing in the auction up to their respective price limits, each underbidder plays a vital role by increasing the intensity of competition.

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4 Comments

  • This article condones and encourages illegal behaviour, but in the state of Victoria where there are no “code of conduct laws”, no mandatory CPD, no laws to prevent corrupt inducements, and so much reporting of agents drafting or inserting special conditions into the contract – what do you expect.

    It’s simple, reveal the reserve price (earlier in the piece) or better still, provide a valuation to avoid misleading or deceptive conduct and from there – let the market decide on the eventual sale price.

  • According to a recent Australian survey of vendors, the reasons given for missing out on a listing are not truthful reasons. The surveyed vendors said that the price guestimate, the method of selling, the appraisal presentation, the reputation of the agency, the agency’s advertising, the commission charged and whether or not the agent discounted, were all completely irrelevant to their final choice of agent.

    While this issue of underquoting may be irritating to agents, and while there may be great differences of opinion about what is the best method of selling a home, and whether or not to discount fees, the vendor is not so troubled by these things, although they may offer these issues as reasons for an agent missing out, in order to spare them the embarrassing truth.

    You can see Tom Panos’ 2-minute video reporting on this survey at http://www.more-listings.com/vendor-lies-and-kindnesses-one-and-the-same.

    So instead of getting all het up about various injustices, a more productive pursuit would be attending to skills which the vendor does actually base their final selection on.

    • Hi Christine, it makes me very uncomfortable when real estate agents have to undertake courses in how to convince vendors to engage them. I would go so far as to say that an estate agent’s salesperson skills are directed to winning the listing from the vendor than the actual selling of real estate. Real estate training websites, businesses and books rarely relate to skills needed to sell real estate, and this is because real estate doesn’t need “selling” – it sells itself. What always needs selling, however, is the supposed need for a real estate agent in the transaction.

      • Peter I almost couldn’t agree more. Certainly there are very many agents who don’t know how to assist an owner to get the best price for their property. From what I’ve seen this is possibly the majority, and I’m frequently surprised by the lack of interest in statistical evidence around selling methodology. This partly explains why over 14,000 WA agents earned $0 in September this year (2,100 residences sold, over 15,000 active agents).

        To have value, an agent needs to be able to present the property at its best given the particular market, and to be able to negotiate strongly with potential buyers in order to extract the best price. If he or she can’t extract a premium over and above the fees charged, then there is no point having an agent.

        Some people will say that the agent makes sure the contractual and statutory issues are dealt with properly, but those things can be done equally well or better by a solicitor and settlement agent, at lower cost.

        However all the skills in the world will be of no use if the agent has no listings. So prospecting and listing skills are the first building block in the sequence, and the most challenging.

        I have seen highly-skilled, ethical and effective agents consistently miss out on listings because they were not able to connect well enough with the potential vendor. It is not enough to have sound ethics and a big heart – one must also have the communication skills to convey that well, otherwise the vendor becomes prey to agents who don’t have their best interests in mind.

        This latter happens so frequently that it churns my stomach. We have excellent agents in the profession, and they deserve every advantage, especially that of being able to win listings over people who don’t have a “vendor first” attitude.

        Lazy agents, and arrogant or “me first” agents, don’t take the trouble to do that kind of training. In an industry that is so vastly over supplied with agents, we need to clear those folk out so the good guys can earn a decent living.

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