‘Demands a response’: Peak real estate lobby backs underquoting overhaul

Victoria’s peak real estate industry lobby group has thrown its support behind the disclosure of a home’s reserve price ahead of auction, in a significant policy shift that heaps fresh pressure on the state government to overhaul underquoting laws.

Real Estate Institute of Victoria chief executive Jacob Caine confirmed the institute would support the introduction of reserve price disclosure as well the adoption of a new model that would see free building and pest reports provided to prospective home buyers.

The announcement was made in response to the findings of this masthead’s Bidding Blind investigation over the weekend, which analysed tens of thousands of property sales and found Victorians are being frequently misled by unrealistic price guides.

“The Age’s investigative effort into the issue of advertised property prices and underquoting, analysing more than 26,000 sales results, represents one of the most comprehensive datasets examined in this debate and demands a meaningful response from the industry and the government,” Caine wrote, in an opinion piece published on Monday.

The REIV policy change tackles two key frustrations of buyers trying to navigate the state’s auction market; properties failing to sell at auction even though bidding has surpassed the advertised price guide, and the associated money wasted on building and pest inspections.

Both these proposed reforms were set to be examined by a 2022 review commissioned into Victoria’s property market. However, the report, and its promised findings and recommendations, have been kept secret, angering those who responded to the government’s callout for submissions.

On Sunday, the Labor government again refused to explain why it had not released the review, which cost taxpayers more than $400,000 to produce.

When asked if anything more could be done to tackle underquoting, Attorney General and Planning Minister Sonya Kilkenny said her message to dodgy operators was “don’t do it”.

“My message is very clear to these dodgy operators. It is illegal and it must stop,” she said. “There are severe penalties in place for those who break the law, and we will continue to go after these dodgy operators.”

As defined in Victorian law, underquoting occurs when the published price for a property is set lower than it might reasonably be expected to sell, but is notoriously difficult to prove.

There is also no requirement for the advertised price to match the owner’s reserve, unless they disclose this to the agent ahead of time. This is one reason properties are passed in even after bidding passes the top of the advertised sale price range.

The REIV’s change of policy on reserve prices represents a fundamental shift for the group, who in their submission to the 2022 property review said it strongly opposed the mandatory public advertisement of a reserve price, arguing it would “undermine the entire auction process”.

In detailing the REIV’s changed position on reserve price disclosure, Caine said he believed it would be appropriate that the reserve price would be disclosed some time during a property’s auction campaign, rather than at the very beginning.

“In the initial phase, we’re leaning towards later in the campaign… closer to the auction, so the owner and the agents have had the opportunity to receive the feedback from the buyers who will ultimately inform where that price will sit.”

In 2022, the Consumer Policy Research Centre surveyed 500 Victorians who had purchased, or were in the process of purchasing, a home. It found that 17 per cent of those surveyed had paid for seven or more building or pest reports.

“At the time, we calculated that’s costing them $4200 additional to their search process,” said the organisation’s chief executive, Erin Turner.

Turner said she had begun the research unsure that underquoting was a major problem, but was left convinced the illegal practice caused real financial and other harm.

The centre made the same recommendations to the Victorian government that are now being backed by the REIV; that a property’s reserve price is published and that home sellers provide potential buyers with free building and pest reports, a model already in place in the ACT.

“One of our theories here is that first home buyers, or people buying in areas they’re less familiar with, are more likely to be caught paying for multiple building and pest inspections. It’s your less sophisticated buyer that’s more likely to be harmed,” Turner said.

“It’s so important that we put these protections in place generally, but we also suspect that these protections are going to help the people who need it most.”

Victorian opposition consumer affairs spokesman Tim McCurdy has backed a middle-ground solution, where vendors would not have to reveal their exact reserve but make sure it sits somewhere between the advertised guide.

“If their reserve price is not within the band, it is farcical,” he said.

This masthead found examples of homes where the reserve was hundreds of thousands of dollars above the advertised price, while a survey of about 8000 readers overwhelmingly backed the disclosure of reserve prices. Almost 92 per cent supported the policy shift.

Melbourne man Jeremy van Dijk is among them. While searching for a property to buy with his wife in the city’s inner north last year, the pair were the highest and only bidder at an auction for a two-bedroom home in Brunswick East, and made a bid within the advertised range.

However, they were unable to secure the home because they had not yet hit the reserve.

When he questioned the agent about the discrepancy between the price guide and the reserve they replied that it was the owners who determined the reserve price.

“I think it would make the whole system more efficient and stop wasting so many people’s time,” said the economist, in support of the proposed change to disclose reserve prices.

“It was just wasting so much of our time, and when you multiply that across the whole population, it’s just so many hours lost, it’s unbelievable.”

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.