If you're a buyer in the market for property, changes to the law could mean a happier new year ahead in 2016.
In NSW, on 1 January 2016, the provisions of the Property, Stock and Business Agents Amendment (Underquoting Prohibition) Act 2015, No 31 came into effect.
The amendment intends to prevent selling agents from underquoting the estimated selling price of a property during the property marketing campaign.
This is another boost to consumer protection laws, another layer of support for property buyers in NSW (see here).
Underquoting has become an unflavoured practice, presumably adopted to attract interest in the property, which is similar in effect to "bait and switch" advertising.
Buying a home is the biggest financial investment that many people will make in their lifetime. When a property is advertised as being within a particular price range, and that price range falls within the budget of potential buyers, the potential buyers can spend significant amounts of time and money attending property inspections, undertaking pest and building reports and engaging lawyers to review the sale contract – only to find that the property sells for an amount substantially more than that quoted by the selling agent during the marketing campaign.
Complaints relating to underquoting have spiked in recent times, no doubt buoyed by the hot property market in NSW. The Department of Fair Trading has noted the previous arrangements with respect to underquoting by selling agents made it difficult to effectively enforce the laws and penalise agents who engage in underquoting, and that clearer requirements for selling agents would better protect consumers in the NSW property market.
The new amendment introduces tougher requirements relating to:
- price estimates contained in agency agreements between a seller and the selling agent;
- underquoting in advertising (ie, in marketing material);
- underquoting in representations (ie, when communicating with a potential buyer); and
- record keeping requirements of quotes made by a selling agent.
An agency agreement is an agreement between the seller of a property and the selling agent under which the seller engages the agent to market the property in order to find a buyer.
When a seller enters into an agency agreement with a selling agent, the agent must now include in the agreement the estimated selling price of the property, which must, at all times be a reasonable estimate. If the estimate ceases to be reasonable, the agent must vary the estimate by notifying the seller in writing and amending the agency agreement.
The estimate can be a price range however, the higher range cannot exceed the minimum range by more than 10% (for example, if the lower range is $500,000, the higher range cannot exceed $550,000).
The selling agent must, when specifying the original estimate or when revising the estimate, provide the seller with evidence of why that estimate is reasonable.
Underquoting in advertising
A selling agent is prohibited from publishing or causing to be published advertisements for the sale of residential property which indicate or suggest the selling price is less than the estimated selling price noted in the agency agreement (see "Agency agreements" above).
If an agent varies a price estimate, the agent must, as soon as practicable after the variation, take all reasonable steps to amend or retract any advertisements which contain the original estimate.
Further, and perhaps the most significant change in terms of advertising prohibitions, an agent must not use phrases such as "offers above" or "offers over" or words or symbols with similar effect when advertising the reasonable estimated sale price of a property.
Underquoting in representations
The amendment also affects agent/buyer communication.
When acting for a seller under an agency agreement, an agent, or an employee of the agent must not, during the course of marketing the property, make a statement to a buyer (which presumably would be written or verbal) which indicates that a property is likely to be sold for less than the estimated selling price noted in the agency agreement. If the agent breaches this particular prohibition, a court can order the agent to forfeit part or all of the commission earned on the sale of the property concerned.
Record keeping requirements
An agent is now required to make and keep a written record for three years of any statements made to a seller or a buyer that a property is likely to be sold for a specified price or within a specified price range. The written record must contain the address of the property concerned, the price or price range quoted, the date and time of the representation and be kept at the agent's principal place of business. Regulations may, in future, prescribe further particulars which agents will also be required to record.
In addition to the separate penalty noted under "Underquoting in representations", if a selling agent breaches any of the prohibitions contained in the amendment, they can be liable for up to 200 penalty units which, at the date of this article, equates to $22,000.
This amendment intends to introduce not only tougher obligations on selling agents when it comes to underquoting, but also severe penalties for contravention of the prohibitions. Fair Trading NSW notes:
"the reforms require agents to draw on their skills to make a reasonable estimate of the likely selling price and have honest and fair dealings with all buyers and sellers. The role of the seller's appointed agent to achieve the highest possible price on the property owner's behalf does not mean they should manipulate buyer interest with false price information."
Only time will tell whether these amendments have any impact on the unflavoured practice of underquoting which has developed into a recognised issue for property buyers in the Sydney market.
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