In brief - New laws to give real estate agents strong disincentive to underquote
Real estate agents will be subject to greater penalties, including forfeiture of commission and any fees from a particular sale if they are found guilty of underquoting property prices. The Bill received assent on 23 October 2015.
Hopeful property buyers incur expenses needlessly when real estate agents underquote
The Minister for Innovation and Better Regulation Victor Dominello has recently introduced new laws to provide greater protection to buyers who are purchasing property. The NSW government had committed to overhauling the current laws to crack down on an alleged practice of some real estate agents who have sometimes underquoted to get buyers interested in purchasing properties.
The hopeful buyers would then spend a fortune on building reports, pest reports, strata inspection reports, finance applications and legal advice on the draft contract, only to discover after the actual sale that they were never in the race to obtain the property.
When the statement "never in the race to obtain the property" is used, it probably means that the vendor had been informed (possibly by the same agents) of a far greater estimated selling price and the eventual reserve sent to the auction greatly exceeded the underestimated selling price given to the hopeful buyers.
New rules to govern how real estate agents estimate and communicate selling prices
The new amendments to the Property Stock and Business Agents Act 2002 will include the following:
- Real estate agents will be required to provide some form of evidence to corroborate or confirm their estimated selling prices to the vendor and this estimate will be stated in their agency agreement to sell the property.
- When marketing a property the real estate agent must only use the estimated selling price provided in the agency agreement with the vendor.
- The estimated selling price can be a single figure or it can be a price range. When a price range is used, the highest price must not be more than 10% greater than the lower price, i.e. a price range could be $1,000,000 to $1,100,000.
- The advertisements and representations that say "inviting offers over" or "inviting offers above" or similar statements are prohibited from now on.
- Real estate agents will be required to keep a register of the prices that they quote on a property, whether these are provided to the vendors or to prospective buyers.
Greater penalties for agents found guilty of underquoting
In addition to the existing penalty already in place of $22,000, real estate agents found guilty of underquoting will now be liable to forfeiture of the real estate agent's commission and any fees from the particular sale.
Mr Dominello has said: "There have been no successful prosecutions relating to underquoting made under the Property Stock and Business Agents Act in 13 years, so this new reform is well and truly long overdue."
Agents to be educated about new laws before they take effect
It is understood that the NSW Fair Trading Department and the Real Estate Institute of NSW will work together in partnership to prepare real estate agents for these new laws by holding various information sessions. The new laws are expected to take effect on 1 January 2016.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.