Bringing down the hammer on dodgy auction price guides

I enjoy auctions, I always have and I have represented, guided and bid for hundreds of clients.  The process has its pros and cons but there’s a big cloud over low price guides, which is the soft term for underquoting, which must be addressed.

Despite being a breach of the Act, underquoting is rife. Price guides are often significantly below the price a selling agent knows a property is likely to be sold at and well below the vendor’s real expectations and efforts to crack down on this practice have essentially failed.

Every Saturday morning prospective buyers across Australia get excited by the prospect that they may soon be the owner of a new property.  Every Saturday evening, thousands are disappointed that they missed out, many angry that they were led to believe that the property they liked was within their budget. Here, it’s not about missing out but rather about not even being in the running.

A price guide should be just that – it should be a guide to help buyers determine whether or not a property is within their means.  It should save them from wasting hundreds if not thousands of dollars, time and energy on a property that they can’t afford or where they can’t see value at the price the vendor wants.  However in reality because price guides are regularly set significantly below the vendor's real expectations, it actually achieves the opposite by enticing prospective buyers to an auction to bid on a property that they actually can’t afford.

While I advocate that buyers must do their research in order to be able to determine fair market value before purchasing any property to avoid over paying, the price guide and subsequent reserve are often vastly apart when in fact they should be one in the same. If the property has a price guide that attracts and is around the prospective buyer’s budget but happens to be well below the vendor’s bottom line then how is that fair to the buyer who pays out on legal and inspection costs in the lead up to auction day?

It is unjust to lay the blame solely at the feet of selling agents. Sure some agents underquote the price guide to draw a bigger crowd on auction day and to demonstrate to the vendor that they’ve done their job. But vendors often create this unnecessary drama by firstly allowing the underquoting to go on and secondly by failing to listen to buyer feedback leading up to the big day and then setting an unrealistic reserve.  It’s this divide between the price-guide and vendor’s real expectations that must be fixed.

At the moment the Queensland Government is looking to remove price guides altogether for properties up for auction. While this has some merit I don’t think it addresses the real issue.  At the very least it will remove misleading bait advertising and force buyers who are interested in a property to actually do research on value rather than relying on price guides that rarely resemble what the vendor will really sell at.  But it doesn’t get away from buyers spending time and money on a property where the vendor’s expectations are above where interested buyers see value.

Instead I advocate for a more transparent process whereby there is a requirement to publicly advertise the reserve price seven days prior to auction day.  This gives prospective buyers the time to conduct the necessary inspections and have their solicitor review the contract of sale.  It would significantly increase transparency of the auction process and give more integrity to the real estate industry overall.

Under this scenario, agents and vendors would still have the opportunity to advertise price guides and gather buyer feedback in the weeks leading up to an auction.  Vendors then have a choice to continue with the auction and advertise the reserve price or they can withdraw the property from auction, advertise the property with an asking price or advertise it with an “offers over will be considered” strategy. 

What’s the downside to this?  Selling Agents and vendors may think that less people will attend auctions making them seem less successful.  But what does it say about our industry if vendors and selling agents need to trick people in order to boost up the numbers at an auction event?