South Australia’s new laws on residential auctions, which will reveal reserve prices to bidders, are meant to eradicate the practice of underquoting in the industry, according to Greg Troughton, CEO of the Real Estate Institute of South Australia (REISA).
Mr Troughton told Real Estate Business that while there was a “perceived hysteria” relating to the new laws, REISA members had not raised much concern over the legislation.
“[Agents] have nothing to worry about if they do not engage in the insidious practice of underquoting,” he said. “In short, it is business as usual for [agents] and [agents] should continue doing what they have been doing.”
Controversial requirements of the new legislation, which were introduced in May, are that reserve prices must be revealed to bidders and prices in a sales agency agreement must be single figure rather than a range.
Mr Troughton said, under the new law, one of the first things a vendor and agent had to decide on was whether a price representation would be made at all during the campaign.
“If you choose not to, there is really no issue. This, of course, is the purest form of auction," he said.
“If, however, you decide to make price representations at any time during the auction campaign, you need to be aware that generally speaking, the baseline price representation cannot under any circumstances go below the price sought by the vendor.”
Any price representations could be made above the baseline price amount, albeit subject to some limitations.
In addition, the reserve price set by the vendor could never be more than 10 per cent above the price they seek.
“If your vendor chooses to go without any price representation ... then the vendor should be advised to include in the sales agency agreement a sought-after price by the vendor that will give the vendor maximum flexibility to reduce the reserve price on the day," Mr Troughton advised.
“If your vendor chooses to go with a price representation or guide, the baseline provisions apply and the vendor will be limited to increasing their reserve by no more than 10 per cent on the day of auction from that price sought at the beginning.
“Given all of that, it becomes even more important for the vendor, upon guidance and expertise on the part of the agent, to determine what is the best approach for the property at hand.”
He said, while REISA had expressed some concern about the legislation in the early days, the institute now believed they had an optimum outcome.
“Will it hurt auction? I do not believe so, as it remains ever more the most transparent way of selling property," he said.
“I anticipate that given the increased transparency and the marketplace doing what it always has done - determine what the market is prepared to pay for a property - then this method of selling at auction will likely increase from its current level (of around eight per cent) in South Australia. Do you have to reveal your reserve price? Of course not.”
While revealing reserve price may not be popular with many agents, one Victorian agent recently told Real Estate Business that he had yielded positive results from doing so.
John Keating, managing director at Keatings Real Estate in Woodend, Victoria, openly advertises a property’s reserve price prior to auction day.
According to Mr Keating, transparency was applauded by vendors and an increasing number of agents who appreciated his upfront approach when it came to setting a realistic price.