Every three or four weeks, the neighbours say, the scene is the same. It is a cold Saturday morning in Dulwich Hill in Sydney’s inner west, and dozens of hopeful buyers have turned out for an auction. It’s a two-bedroom house on a nice street, near the park. The price guide is $1.25m. The street is full, and every one is wary.
Michael and Tom, a young couple, are there – along with Michael’s family for support. They say that house hunting is “hell”.
“You could write 20 pages on the young people [who can’t get into the market],” Michael’s mum tells Guardian Australia.
“One auction last weekend went for about $400,000 above [the price guide],” Michael says. “So, it’s been hell. Pre-approval takes forever now. And it’s just, well, the guides are ridiculously low. For every property. Every property.”
As Sydney’s property prices skyrocket, rising a record 8.5% in only the past three months, prospective buyers increasingly complain that price guide underquoting is rife in the industry.
A Guardian Australia analysis of recent property sales found that 29 out of 30 Sydney properties that sold for a publicly disclosed price between 8 May and 22 May sold for more than their price guide – including two that sold for $600,000 above.
Underquoting is a breach of the Property Stock and Business Agents Act, but is notoriously difficult to prove, especially in a surging market. Underquoting occurs when agent knowingly provides a price guide that is lower than their estimated selling price, fails to amend an estimated selling price after recent offers or recent comparable sales, or does not provide a “reasonable” guide based on the market.
According to New South Wales Fair Trading, there have been 146 complaints of underquoting since the start of 2021, and only 27 real estate agents have been fined or otherwise disciplined for underquoting.
Over three weeks, Guardian Australia obtained price guides for 43 properties in Sydney set for auction this month – spread across the city’s east, inner west, west and north.
Thirty properties were sold for a disclosed price, and all of them except one sold for over the price guide.
One house in Sydney’s inner west sold for $625,000 over the price guide, and another sold for $600,000 above. Other houses sold for $420,000, $360,000, $330,000 and $291,000 above the guides.
The smallest gap between the guide and result was $25,000, for a three-bedroom penthouse in Parramatta.
‘We’re shut out of the market’
At the auction in Dulwich Hill on Saturday, multiple bidders tell Guardian Australia that underquoting was routine in the market.
Michael and Tom say frequent underquoting costs them money, as they spend on condition reports and legal work in preparation for an auction, only for the first bid to break the price guide.
“For this place, just the building report was $150,” Michael says.
“We’ve gone to a bunch of places where it is $400 for a building report,” Tom adds.
“You could easily spend $1,000 a weekend just looking at building reports of places you look at,” Michael says. “It is just almost impossible. And now also my Hecs debt now counts as a debt. Which it didn’t before pre-Covid.
“Young people – and we’re not particularly young – we’re shut out of the market,” he says. “I am turning 32.”
“We’ve been saving for a very long time,” Tom says. “I started probably seven or eight years ago,” Michael says. “And it’s not even enough if mum and dad weren’t helping.”
Another pair, Andrew and his partner, are also there. They’re bidders, but they’re hanging on the sidelines. They are buying for a second house as an investment property. They too, are furious at agents for underquoting.
“Nah, it’s never been hitting the price guide ever,” Andrew says. “It is always over the price guide.
“Whatever we get, we always put $300,000 on top of it. We went to one the other day that went up over $450,000 over the price guide”. That one, he says, was a house listed at $800,000.
His partner jumps in. “We made complaints about that,” she says.
Then the auction starts. Outside the front of the house – which shares a common wall with two others – the bidders fan out across the road. Neighbours come out into their yards, and dogwalkers pause to watch the action.
The auctioneer suggests the first bid should be $1.25m – the exact price guide.
“It is a terrific home and it’s in a fantastic location, and it’s here to be sold,” he yells into the morning. “I hand it over to you…for a fair and reasonable start here this morning. Call out a number, suggest a figure”. There is a tense silence.
“I would have thought something around the $1.25m to kick us off here today,” he says. “[The agent] has kept you well informed throughout the course of the campaign.”
Andrew, leaning up against his car, starts the bidding below that. At $1.2m.
The auctioneer casts around the crowd. “Buyers, let’s move forward,” he says. “Naturally with the 50 [to $1.25m] or take me straight to $1.3m, for a play for the keys”.
A young woman in a striped jumper, Alex, bids in at $1.220m. A few minutes later, the third bid comes, and it is from Michael and Tom. They are in at $1.25m.
$1.26m comes from Alex, and $1.27m comes in from Andrew. All three trade bids, moving up small increments. The auctioneer is calling for them to go higher. “It’s only a number,” he says at $1.3m. “Let’s surpass it”.
It now a war between Michael and Tom, and the woman in the jumper, Alex. Michael and Tom bid at $1.351m. The auctioneer tells them off. “Don’t get caught into the lower denominations, sir, it will just cost you more in the long run….60 or 70, do the knockout punch.”
But the young couple nearly have it. It gets to two calls, and a long pause. Then Alex is back, at nearly the last moment, at $1.36m.
The agent turns to Tom and Michael, who are shaking their heads. “Are you absolutely sure?” he says. “Are you sure?” He offers them the most alluring thing he can. “No more real estate shopping,” he says. “You get your weekends back.”
They look torn. But they don’t bid. The property goes to Alex.
“I’m happy,” she tells Guardian Australia. Then she amends that. “I’m relieved.”
“I’ve been looking, I don’t even want to tell you how long. It’s embarrassing.”
Asked whether she is pleased with the result – only $110,000 above the price guide – she says yes.
“I have seen places sell for $500,000 above the guide. And it’s ridiculous, because you pay your solicitor, your pest report. You invest your time. But you were never in the running.”
Her mother also jumps in. “It’s not accurate. Not normally. Today was the exception to the rule.”
“That’s the first time,” Alex says.
As the dust settles, a neighbour has wandered out to her front lawn to observe the festivities. She tells Guardian Australia three houses on this street have all recently sold “for quite a high price”.
“I’m happy for our neighbours,” she says. She drops her voice to a whisper: “It’s a lot of money, but it’s what people are willing to pay”.
Michael meanwhile, is sanguine about losing.
He says the house needed about $200,000 of extra work, meaning the real cost is more like $1.55m.
“Look to be honest, it’s not freestanding,” he says. “There’s a lot that needs to be done. The floors are sinking. It was going to be a money pit. And from what I have seen, you only really go higher than one and a half [million] if it’s a freestanding house.”
He sighs. “I’m disappointed because we want to get into the market. And Dulwich Hill would be great, and that was probably one of the only opportunities. But it would probably cost $200,000 just to renovate, to make it actually liveable. I don’t think it was worth that”.
He then holds up his phone. The calendar is a wall of appointments for more house inspections. “That’s our schedule”. His partner Tom is already in the car, engine running, the door is open.
“Our day is pretty booked up, to be honest,” says Tom from the car.
“90% of them we won’t get anyway,” says Michael.
Underquoting allegations skyrocket
Out of all 43 properties analysed by Guardian Australia, 29 sold for above the price guide, one sold for below the guide, four sold for an undisclosed price, and nine were either withdrawn, rescheduled or otherwise not disclosed.
Of the 30 properties that sold for a disclosed price, all of them except one sold for over the price guide.
The one that sold for below the guide was only $15,000 short. The two-bedroom apartment in Sydney’s east sold for $1.085m and had a price guide of $1.1m.
In total, 12 houses sold for $250,000 or more above the quote – all, except two, in the inner west.
One three-bedroom house in Tempe sold for $600,000 above, and two properties in Dulwich Hill sold for $360,000 and $291,000 above the guide. One two-bedroom house in Leichhardt sold for $330,000 above.
In Sydney’s north and west, fewer houses were sold, and they sold much closer to the price guide. Multiple houses passed in or were withdrawn.
Tim McKibbin, the chief executive officer of the Real Estate Institute of NSW, said underquoting was unacceptable, but that providing accurate guides was difficult when the market surges sharply.
“There are people in every trade or calling or profession that do the wrong thing and bring their profession into disrepute,” he said. “And every organisation that has them certainly wishes they didn’t. But they do. And we have ours.”
McKibbin said that agents had a duty to revise their price guides based on offers from buyers, and from recent sales in the market.
Underquoting occurs when an agent fails to provide or revise a reasonable estimated selling price, based on offers or market sales of similar properties. It does not legally occur when a house sells over the price guide.
McKibbin said the frenzy of the market had a role.
“The data shows that in hot markets, the allegations of underquoting skyrocket,” he said. “Yet when Fair Trading investigates them, the vast majority are not underquoting at all.”
“I think the market right now is cooling…I suspect allegations of underquoting will drop.”
McKibbin said the sharp price rises were due to returning Australians and low interest rates.
“We have lost immigration of about 150,000 people, however we have got 500,000 people who have come back from overseas, and they are still coming. Those people are coming back looking for a house.
“I have a lot of sympathy for people. Because I have been there myself. You spend your Saturdays, and it’s the same old thing, week in week out … You go and do your due diligence, and then you go to the auction and the price goes somewhere that nobody thought it was going to go. That is very upsetting.”