The Victorian government is proposing to install new laws requiring anyone who sells a home at auction to disclose their reserve price seven days beforehand.
The move is mooted as a way to help stamp out underquoting.
Not all industry groups are convinced the planned legislative change from Consumer Affairs minister Nick Staikos will work, but many have voiced support for it as a step in the right direction.
What is underquoting?
For most Victorians, underquoting is when a house is advertised for sale at a particular price and sells significantly above this.
Legally, it’s a bit more complicated.
Consumer Affairs Victoria defines underquoting as the advertising of a home for a price that is less than the seller’s auction reserve or asking price, where a written offer at a higher level has been rejected as too low or that is below the agent’s current estimated sale price.
Just because a home sells above its reserve, does not mean it has been underquoted.
It does not require a vendor to disclose a reserve, at present, and often this is set on the day of the auction, and sometimes during the auction.
This can lead to a home being quoted lawfully at one price, despite the vendor having a higher figure in mind – but not having disclosed it to their agent.
Consumer Affairs Victoria specifically acknowledges homes sold above their asking price are not always a case of underquoting.
What has just been announced?
Next year, the Victorian government will present new legislation to the parliament seeking to require vendors to list their home’s reserve price seven days ahead of their planned auction date.
The proposal will likely be amended between now and then, with consultation expected to continue for several months.
Agents who fail to disclose the reserve will not be allowed to proceed to auction or sale.
Mr Staikos said they would be able to confirm timelines for the legislation to become active, and more minute details, in the new year.
“There will be ongoing consultation with stakeholders … between now and when the bill is introduced,” he said.
Victorian Consumer Affairs minister Nick Staikos is expecting to provide more detail on reserve price laws in the new year. Picture: NewsWire/Diego Fedele.
The minister also confirmed the legislation would apply to both auctions and home sales with a set date.
While the announcements have raised the ire of some in the real estate world and he acknowledges a system that everyone is happy with is unrealistic, Mr Staikos said if further action was needed to address underquoting, it would be taken.
“My job is to look for loopholes and to close loopholes. I can’t rule out any further changes, but today is a very significant step and it’s an Australian first.”
What does it mean for you?
Underquoting misleads prospective homebuyers into considering properties they cannot afford, in many instances leading to them paying for building and pest inspections unnecessarily.
These typically cost hundreds of dollars each, and can build up when a buyer misses out on multiple properties.
Underquoting also wastes homebuyers’ time.
Many buyers also voice frustration over having given over contact information and other personal details to real estate agents who were not representing a home within their budget.
The changes announced today will lead to less wasted time and money, and faster purchases for homebuyers — which can also save them from losing money if they are buying in a rising market, as is the case today.
Auctions will have new rules that affect both homebuyers and home sellers. Picture: Tony Gough.
For homesellers, underquoted homes in an area can erode the desire to sell your home ethically with your preferred price advertised.
But once the changes come through, you will be required to set and display your reserve price seven days before any auction. This will change from today, where many vendors set their reserve on or even during the auction.
Surprisingly, one of the main groups that hates underquoting are real estate agents — with more than 30 per cent of complaints about the behaviour to Consumer Affairs coming from the industry itself.
When widespread, underquoting can prevent more ethical agents from being able to advertise a property successfully as they appear to be asking too much for a home compared to rivals.
Mr Staikos said the changes today were aimed at weeding out the bad agents and giving more space for those prepared to act ethically and in the interests of all.
What are some of the big questions not yet answered?
Can sellers still withdraw homes from sale during an auction if they change their mind about a reserve?
If a home is passed in at auction, can the reserve price be changed after the auction when the home goes up for private sale?
What happens when multiple vendors are unable to agree to a reserve, such as during a messy divorce?
How will the changes be enforced?
How will the legislation affect short-notice auctions, such as board room auctions, conducted when a number of buyers show interest in a home listed for sale via private treaty?
How the changes will impact less common auction types, such as board room sales events, is less clear.
Are there risks to stamp duty revenues if the changes impact the housing market, either through lowered sale prices — or due to home sellers choosing to delay a sale?
Are there further plans to address underquoting in private sales?
Mr Staikos added that while stakeholders would discuss many of these matters with the government between now and the bill being introduced to parliament, there would be ongoing efforts to stamp out underquoting and that “the work for Consumer Affairs does not stop”.
“I’m happy to have Consumer Affairs Victoria consider these concerns in the future, as well as for any further reform considerations,” he said.
How else is underquoting being addressed?
In 2017 Consumer Affairs Victoria introduced changes to residential real estate pricing legislation, which included the requirement for all residential sales to provide a statement of information.
This includes a price estimate for the home based on recent, comparable sales. Typically at least three are required, but a lower number or none are permitted where agents reasonably believe there are insufficient comparable home sales to reflect on.
In 2022 the state implemented an underquoting task force as part of Consumer Affairs Victoria. It was initially a trial focused on responding to community concerns about underquoting.
In the trial period it received more than 2800 reports from the public, monitored 1900 sales and went to more than 180 auctions.
A range of government programs have been installed to tackle underquoting.
This resulted in 320 warnings and more than $1.6m in fines.
In 2024 the Taskforce was made a permanent fixture. It has now issued more than 200 infringements worth a combined $2.3m in fines.
“It’s now been copied by NSW,” Mr Staikos added.
In November this year Consumer Affairs changed comparable sales’ regulations and gave agents a more comprehensive checklist to follow when selecting homes that are comparable.
Mr Staikos said living near the McKinnon College school zone, he was aware of how much of a difference being inside a sought after zone could make on a homes value — and it had been important the comparable sales requirements addressed this.
“That was some common sense clarification,” he said.
And from next week, real estate agents caught underquoting will face even higher penalties.
“That was part of a bill that went through parliament earlier in the year, and the next step came through today,” Mr Staikos said.
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MORE: 2017: How Victoria’s new underquoting laws affect you
Real estate underquoting: Fines spike amid crackdown on dodgy Victorian agents
Consumer Affairs Victoria cracks down on dodgy comparable sales
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