New Underquoting Laws for NSW Real Estate Agents

February 8th, 2016

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New underquoting laws were passed in NSW on January 1, 2016 relating to the sale of residential property. The purpose is to stop real estate agents from understating property prices and misleading homebuyers. The changes were made to the Property Stock and Business Agents Act 2002, which provide clarity for buyers and sellers, ensuring that they aren’t kept in the dark and that real estate agents are held accountable for transparency.

What is underquoting?

NSW Fair Trading defines underquoting as making “a statement in the course of advertising a residential property for sale that is less than the agent’s true estimated selling price as recorded on the agency agreement” given to the seller.

“Underquoting is illegal and misleads potential buyers looking for their dream home,” said the NSW Minister for Innovation and Better Regulation Victor Dominello. When agents underquote, interested buyers can end up wasting their time and money inspecting properties, getting reports and attending auctions for properties they can’t actually afford.

What are the new underquoting laws?

The new underquoting laws provide clearer rules for real estate agents and more effective enforcement.

Here are the key changes:

  • Agents should make a reasonable and up-to-date estimate of a property’s likely selling price.
  • Agents must provide written evidence of their estimated selling price to the seller, and the estimate should be stated in the agency agreement.
  • The estimated price should be backed up with research-based evidence, e.g. comparable local sales, location, market demand and economic conditions.
  • When marketing a property, agents mustn’t quote a figure below their estimated selling price contained in the agency agreement.
  • Agents also shouldn’t give a vague property price, e.g. using terms like ‘offers above’, ‘offers over’, ‘bidding from’ and ‘mid $2 millions’, and symbols like ‘+’ after dollar figures or when quoting a price range.
  • The estimated sale price can be a single figure or a price range. Agents should quote price ranges within 10% of the lowest figure, e.g. $1 million to $1.1 million.
  • Agents must keep a written record of every price statement they make to buyers and sellers, as well as to potential buyers and sellers.
  • Agents can change an estimated selling price based on feedback or changes to economic conditions after providing written evidence to the seller.
  • When a Fair Trading officer conducts an inspection, agents should be able to provide the proper documentation showing their compliance with the new laws.
  • Agents who commit an underquoting offence could receive a fine of up to $22,000, as well as lose their commission and fees earned from the sale of the property they underquoted.

Real estate agencies must refer to the new Underquoting guidelines for residential property so that their agents comply with the laws.

Why did the laws change?

A review of the old underquoting laws found that clearer requirements for real estate agents who sell property would better protect buyers and sellers in the NSW property market. The previous arrangements also made it hard for the laws to be effectively enforced and to penalise agents who underquote.

REA Group’s Executive General Manager of Residential Andrew Rechtman said that “owning a property is one of the most important financial decisions most people will make so it’s important that buyers and sellers receive sale price estimates that are as realistic and accurate as possible.”

Also, according to NSW Fair Trading, the number of monthly complaints against real estate agents for underquoting on NSW properties has significantly increased in 2015, prompting the underquoting reforms.

How were the new laws developed?

When developing the new laws, NSW Fair Trading looked at how underquoting laws operated in the other states. The changes were also made in consultation with stakeholders from the real estate and property industry. Representatives from real estate industry associations, such as the Real Estate Institute of NSW, contributed to the reform proposals and also offered feedback as the laws were being developed.

How will the new laws affect the industry?

The REINSW Immediate Past President Malcolm Gunning said that “the reforms bring clarity and surety to the real estate industry. We support this legislation that will require agents to be much more accountable in the determination of current market value and provides transparency to those seeking to make a purchase. These reforms are a step forward for the real estate industry and are in line with our goal of stamping out poor agency practice.”

Dominello said the new underquoting laws will strengthen consumer protection by helping NSW Fair Trading “identify and catch the rats in the ranks.”

The new legislation will also increase certainty around price expectations, which is great news for buyers looking at properties online. On realestate.com.au, 26% of buyers search by price range and 93% ignore listings without a price.

However, while these new laws are a step in the right direction, whether property buyers will really benefit from these changes without more being done remains to be seen. We at Curtis Associates doubt it, and look to see what further changes are on the horizon.