The real estate agent tricks used to duck price rules

It’s an open secret in Australia’s property market. Now, a real estate agent has been caught explaining one way they get away with underquoting.

“We never put an appraisal price in,” says the auctioneer from one of Melbourne’s prestige real estate agencies, Marshall White, referring to paperwork detailing their pitch to sell a Brighton home.

That’s because, he says, if they have “something in writing” valuing the home at $2.2 million, and a month later the advertised auction guide says $1.8 million to $1.9 million, there could be trouble.

Or, as he puts it, the consumer watchdog will ask: “Oh well, what’s going on?”

The candid admission, repeated twice in a recording obtained by this masthead, exposes one of the tricks agents use to cover their tracks. And it’s far from the only one.

Property insiders and whistleblowing agents say underquoting – an illegal practice where agents deliberately list properties for lower than they’re worth to attract more potential buyers – remains systemic, and with it, the tricks agents use to avoid getting caught.

Refusing to accept offers (a key trigger in the law), signing contracts that permit marketing a home below a price acceptable to vendors, and bogus “comparable sales” used to justify lowball guides are some of the common tactics used, according to real estate experts and internal documents.

“You look at the list [of comparable properties], and it’s just so out of touch with what is actually for sale,” says Sydney buyer’s agent Michelle May. “It’s really deceptive behaviour.”

Despite government rhetoric of crackdowns, the latest instalment in this masthead’s Bidding Blind investigation indicates some agents may just be making more effort to avoid a paper trail.

Underquoting laws differ in NSW and Victoria, but are similar enough that agents on both sides of the border use similar techniques to skirt or break the rules. The NSW government also this week proposed reforms that would bring the state much closer to the Victorian model.

In a phone call last month, a Melbourne Marshall White agent said his team didn’t provide a price in their appraisal any more because, a month later, they’ll be publishing a different, lower price online.

The agent, Tas Bartels, was pitching to manage the sale of a three-bedroom unit in the bayside Melbourne suburb of Brighton. He said he believed the market value of the property was “probably something with a two in front of it”, likely $2 million to $2.2 million.

However, in a tender document provided for the property, Bartels and another Marshall White agent proposed listing the unit with a price guide hundreds of thousands of dollars lower, at $1,800,000 to $1,950,000.

Why the discrepancy?

“The simplest way to explain it is,” Bartels said, “if we have something in writing a month earlier than going online, which is a different price than what we reflect [in the tender document], there has to be a justification as to why there’s a price alignment.

He gives the example of a property appraised at $2.2 million that is later put online at $1.8 to $1.9 million: “Consumer Affairs are going [to ask], ‘Well, how come the property dropped $400,000 since you’ve gone online?’”

Marshall White stood Bartels down late this week after this masthead contacted them about the recording.

A Marshall White spokesman said it had launched an internal investigation “reviewing all aspects of this matter” and self-reported to Consumer Affairs Victoria.

However, they insisted the agency did not train staff to avoid documenting appraisal prices or encourage “the use of documents in a way that is inconsistent with regulatory expectations”.

“Marshall White places strong emphasis on compliance with all legislative and regulatory obligations, including those relating to price representation,” said John Bongiorno, Marshall White Group’s sales director.

“We have comprehensive training, policies, and oversight processes in place to ensure that Statement of Information (SOI) documents and price guides meet [legal] requirements.”

Bartels didn’t respond to requests for comment.

In both NSW and Victoria, agents who reject a genuine written offer on a property must then increase the advertised price guide if it’s lower than the rejected offer.

Consider a scenario where an offer of $2.5 million is received for a home advertised at $2.3 million to $2.4 million. Under the law, the guide would have to be adjusted above the offer price.

Agents, however, often skirt around this rule. A key tactic is to refuse to accept offers before an auction takes place, property experts and whistleblowing agents said.

“If you stop it at the gates and you say, ‘We are accepting no offers, and we are under instructions not to accept any offers’, then they’ll just keep merrily underquoting,” said Henny Rahardja, the principal buyer’s agent at OH Property Group, who represents Sydney buyers in their negotiations with agents.

This strategy is sometimes formalised between the agents and home owners in written agreements that stipulate the vendor does not want to receive any offers, or certain types of offers, before the auction.

A recent exclusive auction authority from Melbourne agency Nelson Alexander warns the home owner that Australian Consumer Law requires them to change the advertised price in light of any rejected offers. It then gives options on dealing with offers, including not receiving any before auction, or only offers above a certain amount.

This masthead has confirmed that at least one other major agency has used a similar form in recent years.

“The way they get around it is they say, ‘Well, our vendor has told us they’re not taking any offers,’” said one partner of a different high-profile real estate agency in Melbourne, speaking anonymously to detail the practice they and others said was “standard” across the industry.

While Nelson Alexander’s sales director Nick West confirmed the option not to accept any offers before an auction was available in the agency’s contract, he had never used it, nor was its use encouraged by the business, which was committed to compliance.

“I wish [the option] it wasn’t there, because, realistically, every owner wants to know if there’s an offer,” he said. “Do we get it right all the time? No, we don’t. Do we deliberately underquote? We do not. And if we see anyone’s found doing it, they don’t work for our company any more.”

Bongiorno, from Marshall White, agreed that exclusive authority agreements commonly canvass the management of pre-auction offers. He said their purpose was to ensure clarity between the owner and the agent about the agreed campaign strategy, not to prevent price adjustments.

Property insiders also say that agents use other techniques to avoid having to knock back offers. They’ll delay handing over the contract of sale, so the buyer is unable to submit a formal offer, or deliberately let offers lapse.

“So I might put a deadline of five o’clock today, and they’ll come back at six o’clock and say, ‘Listen, your offers expired, we haven’t had the chance to speak to the vendor’,” said My Advocate’s Stephen Brooks, a Melbourne buyer’s advocate. “It’s just part of the smokescreen of underquoting.”

This masthead surveyed more than 9400 Australians about their experience with misleading price guides. The respondents reported widespread and blatant underquoting, with 6617 people reporting they had wasted time and money investigating properties they were unable to afford.

Forty-two buyers in NSW and Victoria provided written accounts of being told by agents that they were not accepting offers for properties, or that they had made an offer above the price guide, which had been rejected, but the price guide had remained unchanged.

“I think the community is sick of it,” said Gerry Brown, a Sydney university teacher, who recently missed out on a one-bedroom unit in Paddington that had been listed with a price guide of $700,000.

The agent had refused to take offers before the auction and the property sold for $1.026 million, 47 per cent above the price guide.

“What was the point of coming to this auction?” thought Brown as he filed out of the tiny apartment with dozens of others. “The auction only needed two to three people, not 30, to create an ‘atmosphere’ for the sale.”

Brown isn’t alone in his frustrations. Many buyers are outraged by the underquoting baked into the market, said May, director of Michelle May Buyers Agents.

Unfortunately, she says, once these people become home owners, and then go to sell their own property, they pick those very same underquoting agents.

This was the experience of Kate, a Sydney teacher, when she recently sold her Balmain townhouse. Kate said she wasn’t surprised by the underquoting, having experienced it herself years earlier as a buyer. But she was shocked by how freely the agent admitted to the illegal strategy.

The townhouse had been valued by several agents in excess of $2.1 million, and Kate wasn’t willing to sell it for less. Her agent listed it with an auction guide of $1.8 million.

“Won’t the house just be full of a lot of people that can’t afford it?” Kate had asked him.

“Yes,” she says the agent replied. “But you need all those people because they create the pressure, which pushes the people who can afford it to [bid more] and builds the competition.”

The home sold for $2.17 million, more than 20 per cent over the auction guide.

“You feel like an utter shit for playing the game, but everyone else is,” Kate said.

“Realistically, no agent in Balmain and no person who was a savvy buyer in Balmain would have thought our property was only going to be worth $1.8 [million] … so I suppose, you wonder, how is it that regulation is so easy to circumvent?”

Kate was one of 59 people who told this masthead real estate agents had advised them to list their property below the figure they would accept for their home.

Rahardja, who also represents Sydney home owners in their negotiations with agents, said agents would encourage vendors to sign a contract with an incorrect estimated sales price. The agents would explain that they wanted to advertise a low price, but couldn’t legally do so unless the agency agreement matched that lower price.

They say “we don’t expect it to sell at that level, this is just to get the buyers through the door”, she said.

Sometimes this conversation happens with vendors during what’s called a “set-to-sell”, shortly before a property goes to the market.

To get clients on board with the underquoting strategy, agents are trained on what lines to feed owners, said one Melbourne agency director, speaking anonymously to detail unethical or illegal behaviour in the industry.

He said the pitch to vendors could include providing case studies “where we previously lied and deceived”, such as the house round the corner that was listed for $2.2 million but sold for $3.3 million.

Reserve prices are another common area for complaint, often when bidding at an auction passes the top of an advertised range and the property is not yet declared “on the market”.

There is debate about how often agents are truly blindsided by these reserve prices that are well above the advertised guide. Some in the industry argue that given most agents will begin their discussions with new clients by providing an appraisal price, it’s disingenuous to claim they have no insight into the reserve.

Because it’s illegal for agents to list a property below a home’s reserve, if they are aware of it, others will explicitly tell their clients “don’t want to hear it”.

As part of his buyer’s advocate business, Stephen Brooks has kept a database of 4500 properties, comparing the agent quote prices and final sales prices, in the Port Phillip and Bayside council areas of Melbourne. The region hosts suburbs such as Albert Park, where you can find the city’s most expensive land.

Week after week, he watches properties pass in after bidding has surpassed the advertised guide by hundreds of thousands of dollars. Brooks estimates 80 per cent of the properties he tracks sell above the top of the guide.

This masthead has viewed a signed contract between a vendor and a Marshall White agent from 2022 in which the home owner was asked to confirm that, since appointing their agent, they hadn’t told them how much they would be willing to sell their property for.

Asked about the purpose of such agreements, Marshall White’s Bongiorno said that “clauses noting that a vendor has not yet set a ‘reserve’ confirm that no fixed selling price has been agreed at the commencement of a campaign”.

They said agents would still provide market feedback and discuss vendor expectations throughout the campaign.

In Sydney, independent buyer’s agent Michelle May said some agents refuse to provide a guide price, as unlike in Victoria, it isn’t legally required. Instead, they point those attending open inspections to a hodgepodge list of “comparable properties” laid out on the dining room table.

“Quite often, the only thing [the listed properties] have in common is that they are in the same suburb,” May said.

Some of this could be addressed in the reforms the NSW government this week announced it was considering to tackle underquoting, including substantial fines and mandatory price guides as well as statement of information documents to support their price estimates.

Victorian agents should in most cases provide three comparable properties to support their indicative selling price for the property. But agents previously told this investigation that they would deliberately choose inferior properties to the one for sale, to get away with low-balled price guides.

The Victorian government has acknowledged the problem and last week tightened up the guidelines requiring agents not to overlook substantially similar properties, after complaints some were deliberately excluding similar properties in the same street, apartment building or even duplex.

Brooks said he had seen brazenly underquoted properties omitting clearly comparable sales or, in an increasingly common trend, agents leaving the section blank, claiming there are no comparable properties.

Brooks said in inner-city suburbs there should only be rare occasions where there were truly no recent comparable sales.

“They’re either being lazy or their price range is inaccurate,” he said.

Brooks also pointed to many examples where agents were changing their comparable sales as their sales campaign progressed. He said the practice was further evidence agents were “cherry-picking” so-called similar properties to suit the price guide they wanted to give, rather than choosing the most genuine comparables.

The Bidding Blind investigation found that just over half the 25,000 Melbourne properties analysed sold above the top of their advertised guide.

An analysis of 288 Marshall White sales found more than 72 per cent of properties it auctioned sold above the top end of the final price guide provided to buyers.

Asked if Marshall White would take any action to attempt to improve the accuracy of its price guides provided to prospective buyers, Bongiorno noted the data did “not in itself indicate underquoting”.

“In a competitive auction environment, it is not unusual for strong buyer demand to result in final sale prices above the quoted range,” he said.

“In fact, if we analyse clearance rates more closely, it is apparent that there are as many properties overquoted as underquoted. This reflects the imperfect nature of price forecasting.”

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Muddying the waters for buyers trying to navigate these imperfect price guides, it’s not always possible for them to do their own research. Many agents do not publicly disclose property sale prices, and the previous guide prices are also wiped from online research sites.

One former agent at a national estate franchise, who did not want to be named, said the first thing they did after going back to the office on Saturday following a successful auction was to delete the statement of information, with its original price estimate, from the online listing.

If they left it up, and the public could easily see the discrepancy with the sales price, it would lead to more Consumer Affairs reports, he explained

“I mean everyone does that … It’s not illegal or anything, it’s just trying to avoid scrutiny.”

With Nigel Gladstone

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