Underquoting: What real estate agents should know
Underquoting laws that apply to the sale of NSW residential property came into effect on 1 January 2016. All real estate agents should familiarise themselves with relevant state legislation and review their operational procedures to ensure they meet their legal responsibilities.
What are the Underquoting Laws?
The Property, Stock and Business Agents Act 2002 (the Act) is the primary law regulating the property industry in NSW. From 1 January 2016, under the Act, it is an offence for real estate agents selling residential properties in NSW to underquote the price of a property that is being advertised.
An agent is underquoting the selling price of a property if they make or publish a statement (written or verbal) that lists the price of a property to be less than their reasonable estimate of the property's likely selling price.
If an agent is found by NSW Fair Trading to not comply with the new regulations, they could face fines of up to $22,000 and risk losing their commission and fees earned from the sale of the underquoted property.
The reforms made to the Act provide clarity for buyers, clearer rules for agents and more effective enforcement by governing bodies should an agent be found guilty of an underquoting offence.
What are the Responsibilities under the Act?
Real estate agents must understand both their responsibilities under the Act and the actions that breach them. As a general guide, to comply with the Act, real estate agents must:
- Ensure the estimated selling price is stated in the agency agreement with the seller. An estimate should only be determined once careful consideration of the property's unique features has been made and should only be based on the agent's level of knowledge and experience.
- Provide the seller with evidence of how the estimated selling price was determined, for example comparable sales and market conditions. Agents must also record and keep all relevant information of how they reached this selling price.
- Use the right terminology when stating the estimated selling price of a property. Refrain from using phrases such as 'offers above' and offers over' an amount.
- Ensure the estimated selling price is either a single price or in a price range where the highest price in the range does not exceed the lowest price by more than 10%.
- Regularly revise the estimated selling price. If the estimated selling price changes because of market changes or feedback from potential buyers, agents must notify the seller in writing, amend the existing agency agreement and take reasonable steps to amend or retract any advertising and marketing material which lists the outdated quoted price.
- Keep written records of any statements made to potential buyers about the quoted price of a property.
While it is acceptable for an agent and a seller to choose not to publish or make any statement about the likely selling price of a property, if an agent is asked by a potential buyer about the price of a property, they must ensure that they comply with the legal requirements specified under the Act.
Further Tips for Real Estate Agents
All real estate agents, both in NSW and across other states, should familiarise themselves with their respective state laws and regularly review their operational procedures and conduct to ensure they sufficiently meet their legal requirements. Where necessary, agents may be required to change their business practices to ensure they do not operate in breach of the law.
Agents should also consider:
- Retaining file notes of all discussions with sellers and information to show how they reached the estimated selling price for a property.
- Keeping complete and accurate written records of any statements made to prospective buyers about the likely selling price of a property. Under the Act, records must be kept for a minimum of 3 years. These records could be crucial evidence for an agent who may find themselves having to defend any claim brought against them relating to underquoting.
- Becoming familiar with the legal requirements under the Australian Consumer Law which also prohibits the making of false or misleading pricing statements about a property.
How Quanta can help
Quanta provide innovative insurance solutions and deliver an expansive product offering. For more information on how Quanta can help, or to speak to one of the specialist underwriters in our team, please give us a call on (02) 9225 4111.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Quanta directly.
REFERENCES
Article content originated from an information bulletin that was prepared by Hicksons Lawyers ("Hicksons") for Quanta Insurance Group Pty Ltd ("Quanta")
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