Brian Cannan: Today I'm here with Greg Jemmeson from Jemmeson Fisher Solicitors and Accountants. Good morning Greg.
Greg Jemmeson: Morning Brian.
Brian: Our subject today is underquoting it's on every agents lips, Fair Trading is out fining at the moment, what is underquoting?
Greg: Ok Brian one of the things I find about underquoting is that the agents are overthinking it over complicating it and reading too much into it, a quite simple thing is that the federal court had a case looking at the Australian Consumer Law and there's three points we need to get through agents heads about underquoting. Firstly, when the agent substantiates their selling price and puts their opinion on the agency agreement, they're not to quote anything below that estimate that's just not negotiable. Secondly, if a genuine offer with a contract is received and it is above the agent's opinion then the agent can no longer quote anything below that price which has been rejected by the vendor. Further if the owner is adamant they won't sell for a price which is higher than the agent's estimate opinion then the agent cannot quote anything below that price and so there are three things that agents need to keep in their mind.
Brian: So let's ask some questions around that but I get asked a lot. The first one, if I had offers lower than my estimate. Let's say my estimate's a million dollars and all my offers are at $950,000, am I allowed to inform the buyers that my estimate is a million dollars but all interest is around the $950,000?
Greg: No, it's quite simple is that at the end of the day the agent still cannot quote anything below their estimate. Nothing below. They can't turn around and say the market is telling us $950,000. They still cannot quote below that one million dollar mark if that's their true estimate.
Brian: So what you're really saying is is that if the market is saying $950,000 the agent sees that it's $950,000 they need to change their estimate to $950,000.
Greg: So the reason is now that what the agent has to do is write to their vendor and say due to these market conditions now that could be a pest and building report has been done on the property and found that there's some quality issues there may be some termites and as a result the price is no longer a million dollars so the agent now writes to the vendor and says based on these circumstances I'm revising my agent's opinion of estimate of price to $990,000 now they can now re quote within that range.
Brian: And the estimate can only be ten percent from the lowest figure to the highest figure.
Greg: That's right, so $1 million to $1.1million, recently I saw an agent who had an inspection from fair trading and they had on their agency agreement $1million to $1.25million and they received an $1,100 on the spot fine, very simple ten percent no more.
Brian: We had one last week where they put $950,000 to $1,050,000 and it was $5,000 over should be $950,000 to $1,045,000 and Fair Trading said that's over. It's that black and white.
Greg: Very simple.
Brian: And your second point Greg about buyers and offers and what you can quote after you receive an offer.
Greg: Okay so in a situation where we've got the agent's opinion is $1million to $1.1million a prospective purchaser puts it in writing and says I make an offer of $1.2 million or they turn up with a contract signed with a cheque for $120,000 and the vendor says no, I think I'll go to go to auction. I'm rejecting that offer. Unfortunately for the agent that has now moved the bar and he can't quote anything below the $1.2 million notwithstanding that you may well as an agent say to the prospective purchaser your offers not rejected it's quite acceptable but the vendor still wants to go to auction.
Brian: They would still have to move they're quoting.
Greg: Yes. Even though it's not rejected, because you have to look at what the federal court said in their decision and the federal court basically said if an offer is rejected even though it's might be acceptable if the offer is in writing and it is higher and it is not accepted on the same terms and conditions of the contract then the agent has to move what they're saying to people.
Brian: Now I'm an agent so I heard one thing there, same terms and conditions. So if it wasn't on the same terms and conditions you rejected on the terms and conditions and isn't timing part of the terms and conditions?
Greg: Very much so, so we might have a prospective purchaser walks in and it's going to auction and says look I'll pay $1.2 million for this property that you got on between $1million to $1.1million but I want a six-month delayed settlement or I want to reduce the deposit to 1 percent they're not on the same terms and conditions as the property is currently being marketed for so that if that offer is rejected that doesn't move the price.
Brian: What happens if the owner says look I'm happy with that price but I just wanted to go to auction, the market's hot I want to see what the market's gonna pay on what competition.
Greg: That's a fair that's a fair point but again we can't get around what the court has made in their decisions and so because the court has placed that it's not arbitrary for me to say it's not arbitrary for Fair Trading to say these are precedents that have been set in Australia and we're stuck with them.
Brian: Well I think the big question here is we're all the time a verbal offer you you've mentioned contract you've mentioned in writing, a verbal offer is that an offer that I have to consider?
Greg: At law a verbal offer is an offer it's whether it's accepted or not now we know that under the property stock and business agents act that if a prospective purchaser makes an offer the agent has to pass it on in writing now that offer doesn't have to be in writing or on the contract however Fair Trading have then gone one step further and a lot of their guidelines thou an offer is verbal for them to change pricing then they require that to be also associated with having received a contract and that's that seems to be the triggering point for Fair Trading as to what's really a valid offer is the receiving of a contract not whether they actually fill out the contract and sign it but actually having requested a contract.
Brian: So an offer is an offer but fair trade looking at it as when they request a contract is when you have to take it more seriously but the agent can qualify the offer?
Greg: Of course
Brian: And if they qualify the offer and they haven't seen the contract they they haven't done their pests and building they've done their searches, their solicitor hasn't seen the contract at all I mean you take that to a vendor and the vendor says well I don't consider that to be a real offer to me.
Greg: That's a very valid point Brian, and part of an agent's duty and what a lot of people forget is an agent is to find a buyer who is ready willing and able and if somebody walks in says I'll pay $1.2million are they ready willing and able? Once again they have a qualified do they have finance, have they seen the contract, do they have a solicitor? Have they sold their own property those are the sorts of things that a good quality agent will do to verify whether that offer is a genuine offer.
Brian: The back end pricing you have on your website what can you do there?
Greg: Ok so we know there are a number of ranges at the back ends but what happens is the agent can only put it within that range that is their true estimate so if their true estimate is $850,000 to $930,000 and if that goes over a number of ranges as long as those ranges fall within that $850,000 to $930,000 but something agents need to be clearly aware of is fair trading are awake to the back end systems and can go to the providers and get this information where it's tracking all of the changes and what the agent has actually put it on for so if you now have your $850,000 to $930,000 range and that's your estimate on your agency agreement but you put it on a back end range starting at $750,000 they've got you on toast.
Brian: So if I'm an agent I'm thinking of the owner $900,000 to $990,000 I probably better to be putting it at $890,000 to $899,000 to put it at 10% higher.
Greg: As long as you can substantiate that pricing range?
Brian: Of course, I can substantiate a thousand-dollar change yeah okay that's fine so I think that's great for the agents to understand and the next point is one that we talk about a lot when we do CPD but a lot of agents are finding it very very difficult and that is the written record open for inspections fine yeah callbacks are fine they put it all down there but it's that wonderful mobile phone driving in the car and they say how can I write down all the information I'm supposed to?
Greg: I know this something we've discussed with you before Brian and I think the best solution is what we talked about is that when you're taking that call on the mobile to say that we're happy to give out a price on this property however our office policy is that we must receive it by email here's my email address then the enquiry comes in you've got a written record it also gives you the ability to update your data, it also then flushes out any of the tire kickers and your competitors, that's probably the easiest way to do it because you have to have record of the price that you gave out, the property and the time that the price was given now by doing that by email, that's all they're held easily in the records for the agent.
Brian: I'm going to have to take the agent's point of view here you know I'm gonna lose prospective vendors, they ring and want to know these sort of things I'm sure I want the name and number but it's something that I know some agents are doing it and a finding it very difficult, people are getting very upset with them and because other agents are giving them a figure not asking for any of that.
Greg: Look there's no right or wrong answer but the requirement is if I take a call on my mobile I then have to immediately record who I spoke to the time the date and the property and you can't do that if you're in the car so these are sort of things that then leaves the agent exposed to potential complaints later on down the track, he told me that the price, you know bidding had started $800,000 on this million dollar property however if it is in an email you then have a written record you also then have a situation if you think that's your office policy that all pricing is only given in writing by email from your office then it shuts down any potential complaints to say the agent verbally told me.
Brian: I'm hearing in the back of my head all these agents watching us right now and saying this is just not practical.
Greg: One of the problems the industry has is that the property stock and Business Agents Act is not necessarily a commercial piece of legislation and there are a lot of hindrances and red tape placed on business practices that agents have to comply with and unfortunately all we can do is provide potential solutions if the agent chooses not to do it or go down that path and that's a matter for them but we can only give you know some suggestions.
Brian: Risk and reward what we're talking about you want to take the risk and you may get a reward or you may not get a reward if fair trading come in.
Greg: The agent walks in and fair trading walks into the agents often says there's no record and we've had a number of complaints about your office we're going to prosecute you now that's a matter for the agent and particularly for the licensee in charge as to what supervision they've put in place to ensure these procedures are in place to record these types of details.
Brian: So if that happens first phone call should be to you?
Greg: Of course
Brian: Great Greg, thank you very much today that was very informative and I'm sure all our people all our agents are certainly going to enjoy watching this.
Greg: Thanks Brain.