Pub­li­ca­tions

New prop­er­ty laws for a New Year! Real estate agents who under­quote are the target

IN BRIEF


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).


The prob­lem

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.


Agency agree­ments

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.


Penal­ties

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 un-favoured prac­tice of under­quot­ing which has devel­oped into a recog­nised issue for prop­er­ty buy­ers in the Syd­ney market.



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