The Property, Stock and Business Agents Amendment (Underquoting Prohibition) Bill 2015, to amend and strengthen the provisions prohibiting underquoting contained in the Property Stock and Business Agents Act 2002, will be in force from 1 January 2016.
The aim of the reforms is to prevent the high costs to purchasers of obtaining pre-purchase reports such as pest, building, and strata on multiple properties in the belief that the property is in their price range, and also to assist to provide clarity for real estate agents, vendors and purchasers in the property market place.
The reforms will introduce strict liability on underquoting of property prices by real estate agents – NSW Fair Trading will not have to show that the agent intended to underquote, it will be a matter of comparing the price in the agency agreement to that in any advertisement or that given verbally to prospective clients.
What is underquoting?
Underquoting occurs when a real estate agent provides a price guide to a prospective purchaser that is not the estimated selling price stated in the Sales Agreement between the Agent and the Vendor.
What are the new laws?
As from 1 January 2016 real estate agents will be required to do certain things including:
- State the estimated sale price of a property in the agency agreement. This can be a single price or a price range however if an agent uses a price range the upper end of the range cannot exceed the lower end by more than 10 per cent. For example, $700,000.00 to $770,000.00;
- Record evidence that informed their estimated sale price to show the estimated selling price is based on reasonable grounds and provide that evidence to the vendor in writing (i.e. provide the vendor with addresses and figures of recent sales of comparable properties in the local area);
- Update the estimated sale price during the sales campaign if market circumstances change;
- Record all quotes and price estimates provided to vendors and purchasers, whether made orally or in writing while a property is marketed;
- Notify the vendor if the initial estimated sale price is revised. If it is revised, then the agent must: (i) provide to the vendor in writing, evidence that informed their revised estimated sale price (i.e. evidence of feedback from the market in relation to the sale price); (ii) amend the agency agreement accordingly; and (iii) promptly update the marketing materials for the property;
- When marketing a property, refrain from quoting a price that is less than the estimated selling price provided in the agency agreement. If the estimated sale price is a price range, the advertised price cannot be less than the lower price in the price range. The advertised price can be reduced only by reducing the estimated price first; and
- Ensure that marketing materials for the sale property do not include imprecise or unclear statements (i.e. ‘offers over’ or ‘offers above’ or ‘plus a particular price such as ‘$750,000+’).
As the changes will be applicable to existing agency agreements, real estate agents should review the estimated selling price in all their agency agreements which are current at the date the new laws come into force.
Can a higher price be advertised?
Advertising at a higher price will not be prohibited in the new legislation.
If a vendor wants to pursue a higher price for a property, it can be advertised for a price above the estimate in the agency agreement.
What are the penalties for breach of the new laws?
Breaches of the new underquoting laws may result in a fine of up to $22,000 and/or forfeiture of sales commission and fees.
Will the new laws be effective?
There is some scepticism being expressed in the community as to the effectiveness of the new legislation such as:
- Agents may choose to cease giving out price guides and instead quote recently sold prices of what they believe, in their experience, are comparable sales to the property being sold;
- Even though an agent quotes the estimated price in the agency agreement, a vendor is free to sell at any price they wish; and
- An agent could be selective in the choice of comparable property, that is, an agent may choose to select either marginally superior or inferior properties as evidence of the estimated price.
The real estate industry is an important sector of our community and real estate agents, like other professionals, in the majority, act professionally and honestly in their dealings.
Feel free to contact Baker Love Lawyers on (02) 4944 3322 if you have any questions regarding this new legislation.