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Understanding Under-Quoting

Reading Time:

15 minutes

Published:

02 February 2016

Understanding Under-quoting

Why agents do it. How to protect yourself.

By Neil Jenman

The NSW government has released a statement saying they “want to send a clear message that underquoting won’t be tolerated.” Well, considering that they have not prosecuted an agent for 11 years and considering that thousands of agents have, collectively, used ‘false quotes’ on millions of occasions over the last 11 years, one fact is crystal clear – underquoting is being tolerated. And completely ignored.

As for Victoria, their state government is blowing similar wind; but, given that their current Premier, Daniel Andrews, was once the Consumer Affairs minister and did nothing of any significance to help property consumers, don’t expect him or his team to do much now.

No, sorry, everyone, false quoting is here to stay.

So, given that we’re not going to get rid of false quoting, you’d better learn how to fight it if you’re going to get through the property selling and buying process relatively unscathed.

The first false quote in real estate occurs when agents are being interviewed by sellers who are selecting a selling agent. Of course, every agent wants to be “the chosen agent”. In real estate circles, the prize for coming second is zero commission.

To be fair to the poor agents (who often receive $20,000 commission per house), the sellers do ask agents a tough question prior to selecting an agent. That question is: “What’s my house worth?

Now, all agents with an IQ level above their body temperature know the answer to the ‘how-much-is-it-worth?’ question. Forget lines such as, “We’ll have to wait and see what the market says,” they’re just avoiding the truth. The problem for the agents is this: If they tell sellers the truth, they won’t get chosen as the agent because the sellers will select another agent, the agent who tells them a lie, the agent who gives the sellers a false high quote.

For example, let’s say that the true value of a home is around $800,000. First of all, just as we all think we’ve got the best looking children, most of us also think our homes are the best and, consequently, worth much more than other homes.

So, a home that’s worth around $800,000 is likely to have owners who think it’s worth at least $850,000 but who want to “start off at $950,000”.  Throw into the mix half a dozen agents, all salivating over the $20,000 commission, and all being asked the same ‘how-much-is-it-worth’ question and one thing is certain: This home is going to come on to the market with an owner wanting (and expecting!) far more than it’s worth.

The agent who becomes “the chosen one” is usually the agent who is prepared to tell the owners the biggest lie or, at the very least, insinuate that the owners will get the biggest price. “Hey, if you put it to auction,” says Larry-the-Liar from Grabit & Run Realty, “you never know, you might get a million.” If the owners still hesitate, Larry will quickly toss in another two words to convince them to sign-up as his agent – “Maybe more!

So, you see what has happened here? The honest agent, the one who said, “Mr and Mrs Owner, I think your home is worth around $800,000,” has been rejected in favour of the lying cheating false-quoting scoundrel who said, “Mr and Mrs Owner, put it to auction, you might get a million – maybe more.

By the way, in case you’re wondering how honest agents can survive in this sort of atmosphere, here’s the answer. They don’t. They either quit the industry in disgust or they join the majority of agents and ‘turn rogue’. [A rare few hold out and try their best to do the best. It’s tough.].

Now, please understand something: The scenario described above is not rare. It’s almost exactly what happens with the majority of homes that come on the market for sale.

So, now, Larry the Liar has got a challenge ahead of him. He’s listed a home for sale that he knows, deep down in his rotten soul, is worth about $800,000 but his owners are expecting around a million dollars for it; well, at least $900,000.

What’s Larry going to do now?

Well, just as a false quote lie won him the right to be the selling agent, he’ll use a similar technique to get the home sold. But this time, instead of a false high quote, he’s trying to attract buyers and he knows that the best way to attract buyers is a false LOW quote. That’s right; he’ll advertise the home as “Priced above $700,000.” In his warped view of honesty and ethics, Larry will argue till he’s blue in the face that he’s “not lying”. It’s true, the owners do want “above$700,000″. It would also be true to say that the owners want “above $200,000.” But Larry will abuse anyone who suggested something so ridiculous.

Now, many times, the sellers (who, as we know, are expecting a million dollars) will get seriously alarmed when they see their ‘million dollar home’ being advertised at “$700,000” – regardless of whether it’s preceded by the words “offers above” or whether there is a ‘plus sign’ (+) following the amount of $700,000.

To calm them down, the lying agent will say to the sellers: “Don’t worry about seeing the price advertised at $700,000, this is a technique we use to attract more buyers. Trust us, we know what we’re doing. We do this (lying and cheating) all the time.” It doesn’t seem to occur to sellers that if an agent will lie for them that the agent might also lie to them.

But the agent is right. Advertising an $800,000 home (where the owner wants at least $900,000) at a price of $700,000 will attract more buyers. But guess what these buyers are expecting to pay? That’s right, $700,000. Oh sure, these days, buyers are somewhat immune to ‘price quotes’. They expect agents to lie and so, when they see a home advertised for “above $700,000”, they know the owners will probably want a lot more. Probably. Maybe. But, still, what happens if it really does sell for close to $700,000? Wouldn’t that be wonderful?

And so, several buyers get their hopes up about the home. They fork out a few hundred dollars for a building inspection and a pest report. They run up legal costs with their lawyers and they eagerly await the big day – auction day.

Now, at this point, the cruelty, the injustice and the monumental unfairness of the typical Australian real estate system is clear. Several buyers have outlaid, between them, thousands of dollars in the hope that they can buy this home that’s been falsely quoted at “$700,000”. No matter what, most of those buyers are going to lose all their money plus get their hearts broken. Why, you may ask, has such a wicked and unfair system been allowed to flourish? Well, in short, the media relies on advertising money (another rip-off issue) that agents collect from homesellers and few newspapers are going to write stories that are against the interests of their largest group of advertisers. And, believe it, without the ‘real estate spend’ most newspapers would collapse. Their survival depends on them keeping real estate crooks happy.

On the day of the auction, there may be (if the agent is lucky), around half a dozen “serious buyers”, all hoping (fingers crossed!) that they may get the home for somewhere close to $700,000. Maybe, they naively think, they may have stumbled across Australia’s only honest agent.

But no, as soon as the auction starts, they all realise they have been duped. Someone makes an opening bid of $750,000. Soon the property is at $800,000 and climbing. The bidding might stall at, say, $820,000. The auctioneer will call a halt “while we get instructions from our owners, ladies and gentlemen”. This is when the agent moves in for the “kill” with the sellers, telling them “This is what the market is saying. Take this offer, take it now, hurry up.” Pressure, pressure, pressure.

Meanwhile, all the buyers, all the neighbours, all the sticky-beaks, the media and everyone, knows darned well what has happened. The scam is wide open: The agent has promoted a home with false low quotes and has misled buyers into believing they may be able to buy it for close to $700,000. And yet the bidding has now reached $820,000 and the owner has not accepted it. Can there be any more clear and blatant evidence of the fraud that has been perpetrated on all the buyers? This is the sort of fraud that happens hundreds of times every week all over Australia – and, other than some quiet grumbling and some private tears by hundreds of cheated buyers – no one says or does anything about it. This is the real estate industry in Australia today. It’s an absolute disgrace.

It’s a disgrace to the industry chiefs who not only know what happens, they encourage it. And don’t deny it. I have watched your deceit get ever-worse for more than 40 years. It is a disgrace to the media who, through terror at offending agents, remain mute and, finally, it’s a disgrace to our political representatives most of whom do absolutely nothing about the widespread fraud in real estate. Tolerate it? Of course they tolerate it.

So, what can you do to best protect yourself? Well, first, if you are a seller, before you ask agents to give you an estimate of the value of your home, I strongly suggest you invest a few hundred dollars and hire a professional valuer. Unlike an agent, a valuer has no vested interest. Valuers don’t care who you choose to sell your home or howyou sell it. All they care about it is that you are paying them in return for them studying all the local values and telling you what they, honestly, believe your home is worth. Sure, I know, some agents will argue that some valuers are inaccurate but there is one thing you can be sure of – unlike agents, the price given to you by a valuer will be a price that the valuer truly believes to be the right price. Armed with that knowledge, you’ll then be able to spot the agents who are lying to you about the likely selling price of your home. You’ll be more prepared.

Also, if you think an agent may be giving you a false high quote, then say to the agent: “If you can’t sell my home for the price you tell me that you can sell my home, will you please agree to lower or eliminate your commission?” If the agent says no, ask why not? The answer is obvious. Honest agents will guarantee, within reason, the promises they make to sellers. If you don’t believe it, then just call 1800 1800 18 and we’ll help you find such an agent.

Now, if you’re buying a home, well, unfortunately, you’re facing a mountain of lies and deceit, all designed to ‘hook’ you in. So, how do you best protect yourself?

Well, the first thing you need to establish is this: Is the price that the agent is quoting – either in an advertisement or in a personal, wink-wink, nudge-nudge whisper, likely to be the truth?

As hard as this may be for you to believe – especially, if you live in a world where most people tell each other the truth – you have to accept that, in real estate, lies are more common than truths. As you have just seen, the common real estate industry is built on a system of lies and deceits which begins when an agent first signs-up a home-seller. The lies then continue through the entire process – from point of sign-up to sell by sellers to the point of sign-up to buy by buyers. As a buyer, therefore, you have to assume that the price you are being quoted is a lie.

But, here’s what you should do to best protect yourself. As hard as it may be, try to ignore or disregard what the agents are telling you. Instead, do your own research.

It doesn’t take you long – once you start looking for a home – to figure out how much each property is really worth. Or, better still, figure out how much you are prepared to pay for it.
Now, if you love a home and it’s got all the features you need and is in the location you want and you intend to live in it for many years, what you should do is calculate the most that you can afford to pay.

So, let’s say that an agent is advertising a home for “around $700,000” – take no notice of the price and answer the question:“How much are we willing to pay for it – without killing ourselves financially?” Now, let’s say that you can afford to pay $850,000 – which is $150,000 more than the ‘quoted price’ – then this means that you probably have a good chance of being able to buy the home. If, however, you can only afford, say $750,000, what do you do? Do you risk wasting a few hundred dollars on inspection reports only to face the almost certain reality that you may never have been able to buy the home at that price? You can say to the agent: “Look, we are about to spend more than $500 on inspection fees but the most we can ever pay for this home is $750,000, please tell us what you think we should do – do we spend the $500?” Now, incredibly, many agents – even though they know full-well that you have no chance of being able to buy the home for $750,000 will still say something such as: “Well, no one knows what might happen at the auction. You could have a chance.” Why, you may ask, would agents be so deliberately callous and cruel to cause you to lose several hundred dollars, not to mention getting your heart set – and then broken – on a home that they know you had no chance of buying?

Well, it’s quite simple: agents need a crowd at an auction. The more people who come along, the easier it is for them to sell the home because, no matter what the price, they can say to the sellers: “Look at all the people here. This is what the market is saying.” Quite simply, the agents will always put the interests of the agents well ahead of your interests, whether you are selling or buying.

So, remember, you must do the same. You must place your interests first.

One tactic that many buyers use with great success is this: They directly approach the owners of the home they are interested in buying.

Sure, agents hate it when buyers go direct to the owners. But when you know that agents are lying to you or, as often happens, when you can’t get the agent to return you calls or your emails, your only sensible option is to contact the owners. And, no, you do not intend to ‘cut out’ the agent, but what you do intend to do is ‘cut in’ yourself. You want some straight answers. You want the truth. And you are far more likely to get a straight answer from the owners than you’ll ever get from their agents.

And, don’t be frightened, it’s not illegal to contact the owners of a home you’re interested in buying. It’s common sense. Sure, the agent might get upset, but how upset do so many agents make buyers when the agents tell lies to buyers, when the agents don’t return phone calls, when the agents ignore emails and when the agents care nothing about the emotional feelings of the buyers?

Tell me, what other industry in the world would treat people who have, say, a million dollars to spend, with such disdain and contempt? The service given in the real estate industry, especially to buyers, is generally appalling. And, sure, some agents will justify their treatment of buyers by saying, “We’re acting in the interest of the sellers.”

But that’s rubbish and we all know it now – for sure. The real estate world is a nasty dog-eat-dog world. It’s a free-for-all fight with every person looking out for themselves and no one caring about anyone else.

If you want the best deal for yourself, toughen up, don’t expect care and consideration – and, if you should be lucky enough to get it, then it’ll be a nice surprise.

Do your own research. Set your price limits. If you’re buying, set the maximum you’re prepared to pay and don’t pay a cent more. If you’re selling, set the minimum you’re prepared to accept and don’t sell for a cent less.

And then, if you’re lucky, you might get through a bit less damaged than most people who have to deal with most of Australia’s real estate agents.

And, if you need some genuine, independent and unbiased help, you’re welcome to call our team at The Jenman Group on 1800 1800 18. They do a lot of work for a lot of buyers and sellers at no charge. I am proud of how much they care. All the best to you, Neil Jenman.

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