How to protect yourself against underquoting

In a booming property market, homes are selling at auction for sums that can make the agent's price guide look like a pipedream. It can leave buyers out of sorts and out of pocket.

Despite bait advertising and underquoting being outlawed years ago, a recent exposé by The Sydney Morning Herald and The Age found that underquoting properties listed for sale at auction remains common in Sydney and Melbourne.

It's less of a problem in other cities where few homes may be sold under the hammer.

State laws differ too. In Queensland, it's illegal for agents to provide any price guide at all for homes selling at auction.

The thing is, the issue of underquoting is nothing new.

Years ago, my partner and I set our hearts on a rundown house slated for auction in Sydney's inner west. The agent quoted an upper price estimate, which was within our budget though at the top end.

Hopes came crashing down when the auctioneer opened bidding at the top price we'd been quoted. After exchanging "What the...?" looks, we slunk out of the auction room leaving buyers with deeper pockets to fight it out.

So, why is this still happening in 2025?

We're in a seller's market

The state of the property market as we head into spring, suggests more buyers could be left shell-shocked at the prices some homes will sell for.

According to listing site Domain, an auction clearance rate of 60% points to a balanced market. A clearance rate of 70% raises the possibility of rapid price increases, and indicates a "sellers' market".

Today's clearance rates are far higher.

Cotality says clearance rates hit a 12-month high of 75% nationally in late July though by early August this had cooled to 72%.

Ironically, the August rate cut could worsen the situation as increased borrowing power faces off against a market where property listings are 20% below the 5-year average.

Competition is intense

Stewart Bunn, communications and corporate affairs manager at First National Real Estate, says, "The higher the price range, the greater the chance a property will sell for far more than expected."

He explains that in the prestige market there may genuinely be no truly comparable properties, and (uber rich) buyers are less influenced by interest rates or economic news.

We saw this firsthand with the August sale of a Bellevue Hill (eastern Sydney) home that sold under the hammer for more than $21 million - $6 million above the most recent price guide.

At the entry level end of the market, agents may have more comparable sales to guide estimates. But competition is intense, and Bunn says unexpected factors can skew results.

"How can an agent know, for example, that one buyer may be leveraging the Bank of Mum and Dad, who are growing tired of Saturday inspections and dashed hopes, and are determined that today is the day they are buying come hell or high water?," asks Bunn.

He adds, "The bottom line is that the factors influencing the price of real estate do not change. But no scientific calculation has yet been found that can accurately weigh recent sales, market volumes, confidence, job security, FOMO, or the sheer determination of a buyer to not be pounding the pavement, starting the process of finding a new home again next Saturday."

Agents can face penalties

Just because a property sells for more than expected doesn't mean the agent has deliberately underquoted. That said, some agents can have a track record of dodgy price estimates.

Josh Tesolin, former principal of Ray White Quakers Hill (in western Sydney), recently had his real estate licence suspended following NSW Fair Trading allegations of underquoting over 100 homes. He has also been accused of dummy bidding at auctions, producing false documents, and using high-pressure sales tactics.

NSW Fair Trading Commissioner Natasha Mann says Tesolin's suspension "reflects the seriousness of the contraventions we believe have been committed and the importance of maintaining public confidence in the property sector".

How can buyers protect themselves?

Mann adds that NSW Fair Trading has increased its scrutiny of real estate agents. In the meantime, there are steps buyers can take to protect themselves.

The golden rule is always to conduct your own research - and plenty of it. It's not just about checking out what homes are selling for. Attend auctions to get a feel for the mood among buyers, their enthusiasm to bid - and whether prices are outpacing expectations, and by how much.

Bunn suggests additional steps. "You can talk to other local real estate agents and ask them for their views. You can door-knock the neighbours and ask what they think of the neighbourhood and the likely price. They'll always talk it up, but you'll often find out what the vendor has been saying they want (as a price) as well."

Connect with a broker or lender

Before you even begin home hunting, reach out to a mortgage broker or lender. This will clarify your borrowing power, which is likely to have increased following the August rate cut.

Craig Betalli, senior broker with Our Broker Finance, points to the value of staying in touch with your broker throughout the home hunting process.  He explains, "It's important to discuss your target property with your broker as they may be able to provide market insights.

"If the property you like has a price guide of $1.2 million, recent sales may indicate you should prepare your loan pre-approval to pay $1.3 million. Being better prepared may save time, cost and disappointment."

According to Betalli, having your home loan pre-approved is a near-essential step in today's fast-moving market.

"People often feel that a pre-approval will have a negative impact on their credit record," says Betalli. "So they hold back from pre-approval. But then, when they find their ideal property, they're not in a position to buy it."

He notes that while a home loan pre-approval will likely appear on your credit file, "it's about being as prepared as possible to buy the right property when it comes along."

Loan pre-approval should cost nothing. "Some brokers may charge a commitment fee, but loan fees don't kick in until your mortgage settles," Betalli adds.

Should you pay for pre-purchase inspections?

Pre-purchase building and pest reports can identify problem properties, but they come at a cost, often starting at several hundred dollars. Buyers may question whether it is worth wearing the expense if a home is likely to sell beyond their budget.

According to Betalli, skipping a pre-purchase inspection may not impact a banks' decision to approve your home. However, there can be a catch.

"If the lender's valuer visits the property and sees obvious damage, they may make a note that repairs are required plus estimate the cost of repairs," says Betalli. "If the buyer doesn't have the cash to carry out the repairs, the bank may say the property isn't suitable security, and this will absolutely impact loan approval."

The bottom line is that buyers skip pre-purchase inspections at their own peril.

Is it worth making an offer pre-auction?

If you're a serious buyer it may be worth making an offer before auction day.

Bunn advises, "First confirm the vendor will consider a pre-auction offer. Then make it strong enough to spark their own FOMO. Low-balling wastes everyone's time.

"Put your offer in writing on the contract of sale, waive the cooling-off period, and meet the agent in person that day to hand them the offer," says Bunn. "Give a clear, short deadline - 24 hours is reasonable - but expect the agent to alert other buyers. Your advantage is that your offer is real and ready to exchange, unlike verbal interest."

Done right, Bunn says a pre-auction offer can see you secure the property immediately or move on without weeks of uncertainty.

Not everyone is complaining

There's no doubt that seeing a home sell at auction for more than you expect can be gut-wrenching - not to mention a waste of time and money.

But sellers aren't complaining. Chances are, neither are successful buyers.

"Homes often sell for more than many people think they are worth today," says Bunn. "You might be right when you say that your competitor paid too much, but they now own the home and it will be worth more than they paid in the future - you're still hunting."

And in a market where agents are paid by sellers to get the best price possible, today's buyers will expect no less when they choose to sell at some point in the future.

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