A Melbourne university auction and reserve price expert fears proposed laws to fix underquoting by requiring reserve price disclosure could hurt buyers and sellers.
The Victorian government’s plan to ban the sale of homes at auction unless their owners disclose a reserve price has been branded a path to legalised underquoting.
A Melbourne academic with 15 years under his belt as an auction theorist and who did his thesis on reserve prices has warned last week’s announcement will wind up costing home sellers money and do nothing to address underquoting.
On Thursday last week Consumer Affairs minister Nick Staikos announced plans for legislation to be implemented next year to ban home sellers from auctioning homes or selling via a set date, unless they publish a reserve price seven days before hand.
RELATED: First disclosed reserve auction has shock end
Victorian government’s radical new plan to stamp out underquoting explained
Budget warning in Vic plan to disclose reserve auction price
But RMIT’s Dr Peyman Khezr said it wouldn’t stop homes selling for more than the reserve.
“Buyers may still feel ‘underquoted’, only now it will be a legal form of underquoting created by the new rules,” Dr Peyman Khezr said.
Noting that last week’s announcement was very vague, the senior RMIT lecturer in economics, finance and marketing said there was a risk some sellers would simply set a reserve at a deliberately low price and use a vendor bid to gazump that figure — effectively sidelining the new legislation.
Those who do try to play within the spirit of the new rules risked setting their reserve too high, only to watch their auction pass in and winding up selling for less than they might have got.
Others who set it too low in good faith, could wind up being forced to sell for less than they might have got in a private treaty environment.
Dr Peyman Khezr RMIT University senior lecturer in economics, finance and marketing fears changes to Victoria’s auction rules could have unintended consequences.
“And then the only public or transparent way left of selling will finish,” Dr Khezr said.
“This is a clear market disruption, and there’s a reason no market in the world is doing it.
“I’m presently not aware of anyone saying in any scientific study, reserve prices being disclosed reduces underquoting.
“They are providing a solution for a problem that is not related.”
After four-years researching reserve prices for his thesis, the academic said they were just about setting a floor to a sale — and they should be exceeded, meaning buyers expecting a home to sell at that reserve would still feel like they had been “underquoted”.
“But the seller must of the discretion to say no, because of the volatility of the housing market,” Dr Khezr said.
RMIT’s Dr Peyman Khezr believes the state’s new plan to tackle underquoting could have the reverse effect, or risk damaging the auction sales method.
With the Reserve Bank meeting eight times a year to determining interest rates, which can have a significant impact on property market confidence and prices, the researcher warned there were many things that could change the trajectory of a home sale and the reserve in the final week of an auction campaign.
He warned that with such disruption the result could be turning investors towards other states.
Noting that the public likely saw it as a positive step, he warned the greater focus should be on Victoria’s currently nation-leading price guide laws and tightening them up to make it harder for dodgy agents to mislead buyers.
Earlier in November, Consumer Affairs altered the checklist for comparable sales and now requires homes match criteria including a home’s age, architectural style, renovation status, floor size and land size, special features including pools and tennis courts, zoning, school zones and distance to key neighbourhood features.
A Victorian government spokesperson yesterday said they made “no apologies for our nation-leading laws”, which are just some of the changes they are making to tackle underquoting.
Consumer Affairs minister Nick Staikos announced the planned new law last week. Picture: NewsWire / Diego Fedele.
“We know that many real estate agents are doing the right thing and they also want to see underquoting stopped,” they said.
“More than one third of complaints to the underquoting task force are submitted by other real estate agents.”
The reserve price disclosure is intended to built on changes to the comparable property guidelines, as well as the efforts of the state’s underquoting task force.
The task force has issued more than 200 infringements worth a combined total beyond $2.3 million in fines, as well as 292 official warnings to estate agencies caught breaching the law.
It is also running several court proceedings and investigations for the most serious offences.
Today, the maximum penalty for underquoting rises to $48,800. There is also potential for underquoting to trigger penalties under the Australian Consumer Law which can slug individual bad actors with fines up to $2.5m, and corporations up to $50m.
Underquoting is the top issue reported to Consumer Affairs Victoria, with more than 5000 claims raised since a dedicated web form was launched.
30 Morris Rd, Woodend, sold more than $100,000 above its reserve at the weekend — it had the reserve disclosed weeks ahead of going under the hammer.
Over the weekend, Victoria’s first disclosed reserve following the announcement ended with the Woodend property sold for almost $110,000 above expectations.
The 30 Morris Rd property auctioned by Keating Real Estates’ John Keating had a $675,000 reserve disclosed at the start of the campaign and sold for $783,000.
Underbidders at the auction said knowing that the home would have sold to them within their budget if they had been the top bidders had helped make it feel like a more comfortable experience than if they had not known.
Sign up to the Herald Sun Weekly Real Estate Update. Click here to get the latest Victorian property market news delivered direct to your inbox.
MORE: Mortgage refinancing frenzy hits as banks slash variable and fixed home loan rates
Inside sale of The Family cult’s former Victorian sites
First-home buyers warned of Albo risk as Victoria leads nation’s mortgage arrears
English (US) · 