Rise in Complaints Against Real Estate Agents Despite Legal Changes

There has been an increase in complaints against real estate agents in NSW, despite introduction of new laws.

26 real estate agents in NSW have received total fines of $57,200 over the last 12 months, for participating in the practice of underquoting, a banned but difficult to prove practice. The new underquoting laws which have been implemented were brought into effect in January 2016. The laws have been designed to stop agents from deliberately providing understated property prices in order to attract as many bidders as possible. However, since their introduction a year ago, as many as 26 agents have received a $2,200 penalty for participating in the practice. The reason the rules were brought into place was to stop potential buyers wasting time at auctions, as well as losing thousands of dollars on fees for solicitor’s and pest and building reports. An increase in complaints, up 216% from 2014, has been put down to greater consumer awareness, however some feel the sanctions for infringing the laws aren’t tough enough, and are calling for increased punishments for anyone found guilty. There are calls for tougher sanctions on agents, while some argue that with proper training and guidance, that agent ignorance surrounding these laws will be eradicated. While the solution to these problems is still ahead of us, there has been an increase in consumer awareness, and agent accountability, which shows that things are on the right path.

Why is underquoting such a problem?

Underquoting has been described as an ‘endemic’ across Australia, and a recent investigation by the consumer group Choice has discovered that over half of the 52 apartments and houses that it had inspected ended up being sold for above the maximum quoted price given by the agent, with over a quarter of the properties being sold by over 10 percent greater than the maximum quoted price.

The agents in question, 9 from Western Sydney, 3 from the Inner city, and 5 from the Inner west were found guilty of using terms which are now banned in their advertising, such as ‘offers above’, or ‘offers over’. Using these terms in advertising can end up obscuring, or underquoting, the estimated value of a property. The use of these terms then attracts buyers for whom the property is out of budget for, meaning that not only do they waste their time on a property they have no chance of buying, they lose money on getting pest reports, as well as paying solicitor’s fees. Fair Trading Commissioner Rod Stowe defended the severity of their punishments, stating: ‘The reason we opted for penalty infringement notices rather than prosecution was because it was either a first or minor offence.’

Fair Trading received 266 complaints about underquoting in 2016, a huge increase on previous years’ figures, and while greater consumer awareness has produced an increase on the number of complaints, many of them are unable to be substantiated.

There remains a fine line between what is underquoting is and isn’t. ‘If the sale price exceeds the price quoted in a marketing campaign, that’s not underquoting, especially in the particularly heated market’ said Mr. Stowe.

David Morrell, who is a buyer’s advocate, who called underquoting an endemic, has described the laws as ‘pathetic’, and the penalties as ‘a slap over the face with a wet lettuce.’

He added that it was difficult to prove, and that agents are getting around it by obtaining ‘expressions of interest’, meaning that no one puts a price on anything. He went on to add that the only way to stop underquoting was the force agents to publish the reserve price of a property at the beginning of an auction, and that the licenses of anyone caught underquoting should be taken away.

Currently, agents who are found guilty of underquoting can face fines up to $22,000, as well as the risk of losing any commission and fees they’ve earned from selling an underquoted property.

Tom Godfrey, of the consumer group Choice, who conducted an investigation into underquoting in NSW said that ‘Real estate agents should be able to estimate a property’s value to within around 10% of the sales price’. He used the example of a property in Sydney, whose price guide was $1.6 million, however ended up being sold at $2.2 million, an increase of 38%.

Fair Trading Commissioner Mr. Stowe says NSW is watching cases unfolding in Victoria with keen interest, in order to put ‘a few more things in our toolkit’. In November 2016, the Victorian government passed underquoting laws similar to those in NSW, however, Consumer Affairs Victoria has decided to use Australian Consumer Law over state laws to go after real estate agents participating in deceptive and misleading conduct. Officers are able to check sales records among other documents, to decided whether or not an agent is in breach of the law.

The president of the Real Estate Institute of NSW, John Cunningham, has been complimentary the new laws, saying that he thinks the first year of their implementation has been ‘very successful’. He goes on to add that he hopes, with real estate training, as well as licensing reforms, that eventually underquoting can be stamped out. Describing a ‘cocktail of abuse’ he highlights three main issues: ‘Firstly, I think there’s a lack of understanding, secondly there’s an attitude among agents that it’s not important, and thirdly, there’s ignorance’. He also believes that the majority of the 26 agents who have already received a penalty had done so because they were ignorant, and had not intentionally underquoted prices. He said ‘with the new laws and education campaign, ignorance and avoidance can’t be used as an excuse anymore.

With the introduction of proper agent training, we can hope to see the reduction of underquoting, and agents can be held further accountable to their actions.

Contact Szabo & Associates, Solicitors

If you feel like you have been underquoted, and would like to make a complaint, or are looking for more information about any matter relating to property law, call to book a consultation with one of our solicitors in New South Wales on 02 9281 5088.