‘Massive reform’: New laws will lock in pre-auction honesty

Real estate agents will have to disclose a home’s reserve price well before buyers attend auctions under Australian-first laws aimed at tackling rampant property underquoting in Victoria.

The fundamental change, to be announced by the Allan government on Thursday, follows this masthead’s Bidding Blind investigation, which uncovered widespread deception facing those trying to navigate the auction market.

Consumer Affairs Minister Nick Staikos said that underquoting – an illegal practice where agents deliberately advertise properties for less than their actual value to build competition – was commonplace.

The new laws, set to be introduced in parliament next year, will require agents to publish the owner’s reserve price at least seven days before auction day or fixed-date sale. If agents fail to publish a reserve price the property will not be legally able to be offered for sale.

“The tragic thing about underquoting is that it is often young, first-home buyers who are the victims of underquoting, who are about to make the biggest financial decision of their lives, and we think this will go a long way to help stamp it out,” Staikos said. “This is a massive reform. It’s nation leading.”

Tens of thousands of properties are bought and sold at auction every year in Victoria worth billions of dollars. The new laws address a chief frustration of buyers who made reports to the state’s underquoting taskforce and also the 9600 who responded to this masthead’s survey about misleading price guides.

Of those who completed the online survey, 92 per cent said that they would support the publication of reserve prices before an auction.

Staikos said too many Victorians were wasting Saturdays at auctions having been misled on the expected price.

Premier Jacinta Allan said she wanted to make housing fairer and “get millennials into homes”.

Newly-minted opposition leader Jess Wilson has indicated she plans to make housing one of her core policy priorities.

The Real Estate Institute of Victoria (REIV) had previously given conditional support to disclosure of reserve prices following the Bidding Blind investigation’s analysis of 26,000 auctions which found more than half sold above the top of the advertised range.

However, the idea is fiercely opposed by some in the industry.

Ahead of Thursday’s announcement, the REIV’s new chief executive Toby Balazs said focusing on a single issue, reserve prices, would not be the right approach and that a full package of reforms needed to be considered.

The REIV is in the final stages of a working group developing its own blueprint for price guides. The government has been involved in these discussions.

“We have been working on suitable solutions to strike that balance between greater price transparency, whilst also protecting a vendor’s right to maximise or achieve the best possible price,” Balazs said.

“This announcement is an overcorrection to something that we’re working through. It needs a more considered approach.”

Balazs said the REIV also had questions about how the proposed new laws would impact private sales without a fixed sale date, and that collaboration with the sector was critical.

A government spokesperson said that it had consulted the REIV during the development of the reforms and would continue to work with industry during the consultation period, which will commence next year.

Buyers frustrated with the current system often acknowledge that there are sometimes “runaway” auctions, where homes sell well above expectations. However, they say that this doesn’t account for cases where properties are not placed on the market during an auction once bidding reached the top end of the advertised range.

Currently, owners are not required to disclose or set a reserve before the day of the auction. Dozens of people told this masthead that they had watched homes pass in at auction, despite the price guide being exceeded, sometimes by hundreds of thousands of dollars.

Prahran woman Clovelle Car, 35, attended an auction of a townhouse listed with a price guide of $1.2 million to $1.32 million earlier this year. It passed in $40,000 above the top end of the guide, at $1.36 million, as bidding stalled and the vendor’s reserve still had not been reached.

It eventually sold for $1,367,500.

Car said underquoting was not just a waste of people’s time and money, but also came at an opportunity cost.

“If people are taking longer to purchase property, there’s a higher risk that they’re going to be locked out of the market,” she said.

Thursday’s announcement is the most substantial of a string of proposed reforms recently announced to address underquoting in Victoria and NSW.

The Allan government earlier this month unveiled stricter guidelines for the selection of comparable properties used to justify agent’s price guides after reports agents have been deliberately picking inferior properties.

Last week the NSW Minns government announced it was considering reforms modelled on Victoria’s existing system, including mandatory price guides and a statement of information offered to buyers backing the estimated sales price claims.

Staikos said requiring vendors to reveal their reserve price at least seven days before an auction or fixed-date sale gave them time to make an informed decision on what they were willing to accept for their property.

He said it also gives prospective buyers a full week to consider whether they want to pursue the property, or to decide whether they can actually afford it.

Real estate agents would need to update all marketing material to reflect the reserve price and stop using any previous advertising that does not contain the reserve price.

Staikos said the state’s underquoting laws introduced in 2017 were the strongest in Australia, and its underquoting taskforce had been a success.

However, he said he was always open to further changes, including after the proposed new laws come into force.

“I believe that everything should always be on the table, because we need to continue to improve… My job as Minister for Consumer Affairs is to achieve fairness and equity for all Victorians, and there’s something inherently unfair about underquoting.”

Other reforms examined as part of the Bidding Blind series have included heftier penalties, stronger enforcement and vendor-funded building inspection reports.

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