By John Keating
John Keating was Chairman of the REIV Ethics Committee from 200-2008 and has 50 year experience as an auctioneer in the Macedon Ranges.
The auction system for selling real estate in Victoria has functioned very well for many years. However, during the past 25 years the insidious and illegal ploys used by some agents to underquote to purchasers have brought the trustworthiness of estate agents and the auction system into disrepute. Twenty-five years ago "underquote" was not even in the lexicon.
Underquoting, also known as "bait advertising", has become a systemic and entrenched auction practice, which Consumer Affairs Victoria and the Real Estate Institute of Victoria have been impotent to control under current laws and professional codes of practice.
The major problem is an auction sale authority can be signed with a reserve price "to be advised" and there is nothing to stop vendors working in cahoots with their agent from increasing their reserve prices at any time.
Auctions have always been a balance between integrity and street theatre. But the balance has been disrupted and infiltrated by deceitful practices, with thousands of prospective home buyers duped at auctions every weekend in Melbourne. Rogue agents use subterfuge and creative vocabulary to smoke-screen the prices they know their vendors really want.
Many agents are spooked by the idea of increased transparency. They think it will destroy auctions. Many of these are the same agents who 20 years ago were resistant to change and were adamant that banning dummy bids would destroy the auction system. It didn't.
If we can make the auction process totally transparent, many more buyers will be encouraged to attend and buy at auctions, which can only be a positive outcome for vendors. The best way to instantly fix quoting problems would be for the government to legislate that vendors and their agents must publish either a reserve price or an estimated selling price range whereby the lower figure must be the reserve.
If reserve prices were required to be published purchasers would not waste their time at inspections or their money on building and pest reports etc, if the reserve was out of their price range.
Vendors' price expectations would be self-regulated because they wouldn't want to waste their money on expensive marketing campaigns if their own reserves were unrealistic. They would also quickly learn that a published realistic reserve auction with the transparency of the price point where the property will be "on the market'' is a buyer-inquiry magnet.
If vendors did not like such an auction model, they would still have the option to sell by private sale and thereby price their property as high as they like.
The role of agents should be to use their skills and reputations in marketing, product knowledge and customer service to attract the maximum number of qualified prospective purchasers to auctions, to compete in a fair and transparent process to achieve the best result for their vendor clients.
The best auction system is one that has maximum public trust and transparency where prices are set by the market -that is, by purchasers, without artificial price manipulation by agents, auctioneers or vendors.
A core marketing principle is to give purchasers what they want, and what they want most of all is accurate pricing and transparency, not rubbery price guides or no advertised information.
Publishing reserve prices is a simple reform that would be widely welcomed by nearly everybody from first home buyers to the Reserve Bank and will enable the marketplace to be more accurately informed on sale prices and the status of real estate markets.
Most agents who oppose publishing reserves have never conducted an auction with a published reserve price. I have conducted about 150 since 2003, and they do work. To succeed in an environment with published reserve prices, many agents will need to develop new skill sets. This includes agents needing to understand the meaning of misleading and deceptive conduct and learning how to speak the truth to prospective purchasers and vendors.
Buying a home is complicated and stressful. It is one of the biggest financial and emotional decisions in most people's lives and purchasers should not also have to deal with trickery. It's time to stop the underquoting ploys.
This article has been republished with permission from the author, John Keating.