BY MARK ARMSTRONG
25 February, 2018
How to stamp out underquoting … without penalising great agents.
In last Friday's blog, I announced the winner of 2018 Agent of the Year Australia. I also discussed the contradictory situation in which agents are penalised for ‘underquoting’ – in other words, for doing a great job and obtaining the best possible price for their client.
If governments want to stamp out underquoting, there are more effective and less costly ways than prosecuting agents under consumer law.
State and Territory governments (which are responsible for consumer affairs) should mandate disclosure of every auction result within 24 hours of each sale. Auctions are public events, so the results should be public too.
This would give buyers the same level of information as agents currently have when they’re advising vendors about the likely price point.
"Auctions are public events, so the results should be public too."
There would be no need for the vendor’s agent to provide de facto advice to buyers via an expected selling price – and no need for underquoting – because buyers would have a much clearer idea of local market conditions and a stronger basis on which to make decisions.
Mandatory disclosure rules work in the sharemarket to protect consumers by ensuring that everyone has the same information on which to base decisions. There is no reason why this principle should not apply to the residential property market.
The Real Estate Institute of Australia should endorse the need for a central database to receive and hold residential property auction results. If well-planned and operated, a centralised database would give buyers around Australia real-time access to local, intrastate and interstate auction results – levelling the playing field with vendors and eliminating the need for underquoting.
Third, the real estate industry across Australia should emulate the American commission splitting model. In the US, the vendor pays 6 per cent commission. Half goes to the selling agent and half to the buyer’s agent, whether or not they work in the same agency.
As things stand in the majority of agencies throughout Australia a commission is only paid to the buyer’s agent if they work in the same real estate agency as the listing agent. For example, if the sale commission is $10,000, the listing agent might take 40 per cent, the buyer’s agent 20 per cent, and the agency the remainder.
The industry, endorsed by the Real Estate Institute of Australia, should agree to change this arrangement so that a sales commission can be split with a buyer’s agent who works for a different agency.
More flexibility in splitting commissions would enable more buyers to engage a professional who understands the auction system and can represent them through the process – once again, eliminating the need for selling agents to provide de facto advice, and stamping out underquoting.
There would be no need for legislation to achieve this change; merely an industry-wide commitment.
The solution to underquoting does not lie in wielding the long arm of the law and putting selling agents in a conflicted position. It lies in changing industry structures to giving buyers access to the same information and representation as selling agents.
State and Territory governments should stand with the REIA in support of these changes to bring about a better deal for everyone.
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