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New Laws to ban Underquoting
by Real Estate Agents in NSW: How will they work?
On 8 September, 2015, new laws were introduced into NSW
Parliament to change real estate practice. The new laws will
protect home buyers from being misled by real estate agents
underquoting the likely selling price of the property,
particularly for sales by auction.
The Property, Stock and Business Agents Amendment
(Underquoting Prohibition) Bill 2015 was introduced to
replace the existing law which had proved difficult to
enforce.
The new underquoting laws are specifically designed to
protect residential home buyers from price-baiting.
This occurs when buyers are lured to attend an auction by a
low price estimate, only to find the winning bid is much
higher, well above the buyer’s price limit.
As a result, many home buyers are left out of pocket for
the money they outlay for pre-purchase inspection reports
when ‘looking for their dream home’, not to mention the time
and energy they waste in looking to buy a home that is not
affordable because the likely price has been underquoted.
The new laws apply to private treaty sales as well as to
auction sales.
The new laws will change three aspects of real estate
agency practice:
- Listing the property – the estimated selling price
in the Sales Agency Agreement
- Marketing the property – restrictions on price
advertising
- Record to be kept of selling prices quoted
Listing the property – the estimated selling price in the
Sales Agency Agreement
The most important question that an owner will ask the
real estate agent before listing their property for sale is:
How much is my property worth? The first question that a
prospective buyer will ask the real estate agent is: How
much will the property sell for?
The selling price is therefore the key to selling
property in today’s market.
Many estate agents will say that it is the owner’s
prerogative to set the selling price, after a price
discussion. This is true, but the new laws will require the
real estate agent to exercise their professional judgment to
estimate how much they expect to sell the property for and
to back it up with a written report. And most significantly,
once they set the estimated selling price, the real estate
agent cannot advertise the property for sale at less than
that price.
Specifically,
- The Sales Agency Agreement must include the real
estate agent’s estimate of the likely selling price of
the property, like a market appraisal. It can be a
fixed amount or a price range with a ‘spread’ of up to
10%. For example, the price guide could be $880,000 or
in the range $800,000 - $880,000.
- The real estate agent must provide evidence of the
reasonableness of the estimated selling price to the
seller before signing the Sales Agency Agreement. This
evidence will need to contain details, such as the
condition and features of the property, reference to
sales of comparable properties, and be in the form of a
written report. The report will be more appraisal than
formal valuation, in terms of detail.
- If the need arises to update the selling price
because of new comparable sales data or buyer feedback
during the marketing campaign, then the real estate
agent will need to provide an updated report to the
seller, and amend the selling price in the Sales Agency
Agreement.
Marketing the property –
restrictions on price advertising
If the selling price is included in the property sale
advertising, then the following apply:
- The price advertised must not be less than the
estimated selling price, which means that the only way
to reduce the price advertised is to reduce the
estimated selling price first. There is no restriction
on the price advertised being higher than the estimated
selling price
.
- The price cannot be advertised as “offers
above” or “offers over” (or similar symbols or words in
any language) a specified selling price or price range.
So prices will no longer be able to be advertised as
“$500K+” or “offers over $500K”.
And at auctions, the auctioneer cannot say “Can I have a
bid at $X to start?” - $X being an amount less than the
estimated selling price. They must refer to the
specified selling price or a price range quoted. This
does not apply to the reserve price, which is set by the
seller, at their discretion.
- If the estimated selling price is increased or
decreased, then the real estate agent must change or
retract the price on the advertising as soon as
practicable afterwards.
These requirements apply to all forms of advertising –
newspapers and periodicals, internet websites and social
media, print flyers and brochures, shop windows, signboards,
broadcast by radio and TV, emails and SMS texts.
These requirements apply to verbal advice as well as to
written advice about the likely selling price quoted by real
estate agents and their employees.
Record to be kept of selling
prices quoted
Real estate agents need to keep a proper written record
of the statements they make of the likely selling price for
the property. Specifically,
- The record must contain the address of the property
concerned, the price or price range, the date and time
of the representation, and other information to be
specified in the regulations.
- The record must be kept at the real estate agent’s
principal place of business for at least 3 years.
The requirement to keep a record will need to be taken
very seriously because NSW Fair Trading will prosecute for
failing to keep a proper record.
Penalties and transitional
measures
The new laws are offences with strict liability, that is,
there will be no need to prove an intention to underquote:
the offence is committed by the making of the price
statement. Under the old laws, several prosecutions failed
because the regulator failed to prove an intention to
underquote.
The breach of the new laws will attract a maximum penalty
of 200 penalty units, which is currently $22,000 per breach.
In addition, if a real estate agent represents to a buyer
that the property is likely to be sold for less than the
estimated selling price, the court may order that the fees
or commission payable on the sale be paid to the Property
Services Compensation Fund.
The transitional measures will make the new laws apply to
existing sales agency agreements, as from the date that the
new laws come into force early in the new year. This will
mean that real estate agents will need to review the
estimated selling price in all sales agency agreements which
are then current.
Also to come are regulations and an updated Underquoting
Property Prices Guideline, to provide more detail of the
requirements under the new laws.
Comments
In every real estate boom a practice emerges which cries
out for stronger consumer protection. In previous booms,
cooling-off periods were introduced to combat gazumping and
greater disclosure was required in Contracts for Sale.
In the current boom, price underquoting is the most
prominent consumer issue.
In NSW, the new laws will make it easier to prosecute
real estate agents for underquoting the price.
So, will the new laws work? The answer is yes - the new
laws will change the way that real estate
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