Where have all the price quotes gone?


3/03/2013

When did agent price quotes become a state secret?

By Catherine Cashmore

 

 

I must have missed when price quotes became a state secret because – barring a few exceptions – they used to be listed on just about every property advertisement for sale.

Anyone in Victoria who has searched though one of the online real estate websites recently will understand what I’m talking about –and judging from Australia’s real estate obsession with property and wealth building it would no doubt be a fair few million.

Putting a price on a real estate, particularly with homes offered as private treaty, is not difficult.

Ideally, an assessment of the property is undertaken by the sales agent – one familiar with market sales in the immediate locality – and in conjunction with the vendor, a price is set that produces a happy balance between both vendor expectation and local comparable sales.

If interest is lagging in the two weeks following, the agent can negotiate with the vendor to reduce the range.

If sales enquiry is healthy – or an offer in excess of the range is achieved and subsequently rejected – the agent has the ability and ethical responsibility (in conjunction with their vendor) to change the quoted range to reflect the heightened level of interest.

For a proportion of agents acting within their “reasonable” duty of service, this still is the norm.

However, now it seems – in Melbourne at least – every second advertisement you click upon, whether auction or private treaty, has “contact agent” in bold letters underneath the subheading “price”.

An enquiry then produces a roundabout of guessing games with somewhat wishy-washy lines totted out, such as “it’s too early to tell”.

In other words, the agent is indicating he has no idea where to place his price quote, because Joe Blogs hasn’t yet walked through and in some occurrence of pure fiction (which I have yet to see with my own eyes) stopped to tell the agent exactly what he’s prepared to offer.

While we all agree in part that a market can only be valued on what a buyer is prepared to pay, this is precisely why sales agents appraise property against recent comparable market sales in the first place.

When combined with good local knowledge, a market appraisal will give the agent a very good indication of buyer demand – at least to the degree of being able to publish a negotiable price range that falls in line with vendor expectation at the outset.

I should pre-empt before going further that a proportion of agents I speak to will give me a realistic idea of vendor expectation upon enquiry – however, after years of complaints within the industry regarding those who still choose to lowball their price ranges or quote using a ‘+’ price that can mean anything from 5-30% – it seems the practice has now moved into the verbal domain, allowing a number of agencies to continue their lines of deceit with no fear of reprimand.

It’s time we valued the ethical side of our sales industry with a little more seriousness than pricing an auction on e-bay. The continual problem with different methods of quoting – or lack thereof – runs to the very base of mistrust most buyers have against the real estate industry as a whole - and it’s a brush that tars us all.

Furthermore, considering the current atmosphere, in which Victoria has been through roughly two years of minimal movement in actual house prices with the market barely shifting week to week (that is, unless you’re following the “daily house price index”, which seems to bump along, offering its own short-term interpretation of price growth). No agent can use the excuse that he’s been caught out by any dramatic shift in market movements or buyer sentiment. Most homes are selling at their comparable appraised value, and they have been doing so for an extended period of time.

It seems silly to point out the obvious, but no buyer likes to play guessing games when it comes to putting a price on an advertised listing – and neither should they have to. Everyone understands real estate is a negotiated asset, however, the verbal game playing that now surrounds the sales industry in Victoria is often laughable – ranging from “we don’t know yet” to “properties in the area are selling in the $400,000 and $500,000 range” – an insulting response at best.

If we were operating in an ideal world, buyers would ignore price quotes altogether and do their own research to establish market value prior to spending hundreds on a pest and building inspections or solicitor fees chasing an unobtainable dream. However, closely comparable sales data is not readily available for buyers.

Computer-generated “estimates”, as Patrick Bright pointed out last week – are, more often than not, hopelessly inaccurate.

Suburb reports are equally unhelpful, and while median data will give an indication of the dollars the majority market is spending, it’s no help when evaluating individual property prices.

In Victoria auctions often result in “undeclared” results, and private sales are just that – private. The street name will be listed, but the other relevant and essential data is missing.

Using a buyer advocate who has access to such information combined with the market knowledge to offer an educated opinion is one option – however, unless we’re going to place a rule of law that every single buyer should pay a few thousand for such a service, it’s reasonable to suggest buyers deserve a “hint” of vendor expectation by way of an accurate price quote before wasting time and money chasing a dream.

A handful of agencies dealing with the more volatile luxury end of the market, in which interest is discretionary, understandably choose to sell via expressions of interest. However, the decision to drop the quoted range all together from a large percentage of real estate advertisements seems, in a good number of cases, to have been employed as “self-protection” from accusations of “underquoting” – a feature of which results in the price published bearing no relation whatsoever to the vendor’s reserve.

Vendor expectation can often be inflated.  It’s made worst by the commission based competition that rages between real estate agents and their respective agencies – it unfortunately promotes the need to buy a listing or risk missing out to a competitor who promises more. There then follows a process called vendor education – where high expectations are hopefully modified.

In Victoria, if the vendor does not disclose the reserve on the documentation, quoting below the written estimate of market value on the authority is officially “underquoting”. With no reserve written, the written estimate does not necessarily need to reflect vendor expectation.

It may not be admitted as such, but when agents list a property it is common practice to encourage the vendor to withhold their reserve price. This enables a conservative estimate of value – as either a verbal or published quote range – to glean as much buyer enquiry as possible.

The idea is sold to the vendor via explanation of the “buyer pyramid” – it works a little like step quoting – get the lower priced bidders to build momentum during the auction to fuel those bidding with healthier bank accounts to step in at the end.

Without the lower budget bidders, auctions can pull up short without the usual frenzy that has in our boom eras of growth significantly contributed in pushing prices to unsustainable levels.

Needless to say, by the time the auction occurs any gaping hole between the quote and reserve can be waved off with the excuse that the vendor changed his mind – or ‘upped’ expectation.  Hence why it is so easy to get away with purposefully placing the price range below the level at which you know the vendor will sell – when the price range is verbal, it’s even easier to manipulate the figures.

To suggest that a vendor’s expectations fluctuate to such an extent as to not be represented in the price quote is highly questionable. Having worked as a sales agent in previous years, I can categorically say there was never a time where I didn’t know my vendor’s approximate reserve well enough in advance of the auction to place a reasonable quoted range on a listing from day one.

Furthermore, vendors are not without blame. Assuming the price quote is a estimate based on “recent comparable sales” and the vendor isn’t in the dark when it comes to the price quoted on his or her vendor-paid advertising campaign, why would he or she agree to list the property and quote at a level he or she would not be willing to sell in the first place?

In such instances, I would suggest this is a pretty good example of a lowball quoting – conservative at best, deceitful at worst.

This weekend I’ll be bidding on a property quoted at $430,000-$470,000. I already know from my own research of comparable data it will sell closer to $550,000 – I also know from my conversations with the agent, that over 160 groups have inspected the home and he now has “the low $500,000s covered”. The price quote has not changed throughout the campaign.

It’s time vendors took responsibility for their own paid advertising campaigns and ensured their reserves – or ranges in which they’re prepared to negotiate – are published at the outset. If minds are changed, quotes should be changed, but leaving such a large question mark for buyers who are increasingly growing frustrated at having their time, money, and energy wasted is damaging for all concerned.

 

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Catherine Cashmore

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Catherine Cashmore has been working in the Australian real estate market for over 14 years.

She has assisted hundreds of home buyers and investors to secure real estate in the best possible location, for the best possible price.

A regular and highly respected commentator across local and international media, Catherine speaks about all aspects of real estate and the economy.

A sought after public speaker and President of Australia's oldest economics organisation, Prosper Australia, Catherine is called upon regularity to interact with policy makers and housing organisations to discuss real estate policy reform. As such she has an in depth knowledge about the Australian real estate market, few can rival.

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