Stories include price baiting, leveraging "emotional drivers", underestimating the strength of demand for a particular property and quoting a price too low because they did not foresee such hot demand.
Rich Harvey from propertybuyer.com.au said while there are regulations to prevent widespread underquoting, it is a problematic issue in a hot market such as now, and buyers and vendors would be well served to understand an agent’s particular motivation.
“Each sales agent has a different modus operandi – some are very transparent while others are a closed book, and some agents list prices close to final sales prices while others underquote consistently… know thy agent,” Mr Harvey said.
“Bait pricing brings in more enquiries and inspections and gets more shoe leather through the door. Homebuyers have a strong emotional pull to buy a property… whatever the motivation , homebuyers have the ability to pay more for a home than the investor.
“Agents like to capitalise on this emotional driver and will use all the right lines, like ‘I’m sure you will be happy here for a long time; what’s another $50,000 spread over 10 years'.”
Elder’s property consultant John Lennard said selling by private treaty is a helpful method to skirt any threats of underquoting but said should a vendor request a place be sold at auction, then he will do his best to keep price out of the equation, which he admits is not always possible.
He said if a good price was set for the property, and even if it doesn’t work out on the day, it may help the vendor come to terms with reality.
“We still do more sales by private treaty but if the competition is ready on the day we can still offer great value all around,” Mr Lennard said.
“First home buyers, for instance, may not even bid at an auction and the sale gets passed in at a vendor bid, which is where most of the interest is at the moment. We don’t auction every property, but most of ours we have auctioned would generally be middle-class second home buyers and the occasional investor.
“Occasionally auctions will achieve above the reserve, sometimes $50,000 or 60,000 over, but in our market probably only a 10 per cent increase on a property value.”
Lee Riddell from M Residential said buyers often get much better value out of a private treaty than auction but not because of the issue of underbidding. Mr Riddell said Western Australia, by and large, has not seen auctions take off and he is more inclined to offer a firm sale date or expression if interest.
“Last week I saw five auctions passed in, which I put down to our market, which is heavily declining – more than the data would suggest,” Mr Riddell said.
“I think auctions are just an east coast thing and I feel that it doesn’t work in the best interests for the vendor. Perth recently had one private treaty sell for $15 milllion – one of the most expensive apartment sales in Perth.”